No Service Tax Payable on Grants from Govt Received by IIT: CESTAT [Read Order]

The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on Grants from the government received by the Indian Institute of Technology (IIT ).

Indian Institute of Technology, the appellant engaged in rendering Scientific and Technical Consultancy Services are registered with the Service Tax department. The officers of Internal Audit Section, Service Tax Commissionerate visited the premises of the Appellant during May and June 2008 and during verification certain irregularities such as non-payment of service tax on the services rendered and wrong availment of CENVAT credit were noticed. 

Investigation revealed that the Appellant was liable to pay Service Tax on the amounts received from Private Companies / Private Sponsors, towards the Sponsored research provided by the Appellant.  In respect of researches sponsored by private parties, in as much as the report on the research was provided for further use by the Sponsors in their manufacturing activities, it appeared that there was a service provider- service recipient relationship established between the Appellant and the respective sponsor and therefore it appeared that the appellant was liable to pay service tax on such sponsored researches. 

The total taxable value of services provided in respect of “Scientific and Technical Consultancy service” was Rs.10,91,89,322/- for the period from October 2005 to September 2010  on which the Service Tax liability worked out to Rs.1,29,89,850/-.  As per the ST-3 returns periodically filed by the Appellant in respect of Scientific and Technical Consultancy Service, during the period from October 2005 to September 2010, the Appellant had totally paid Service Tax amount of Rs.8,86,67,229/- out of which Rs.8,82,82,139/- was paid in PLA and balance Rs.3,85,090/- was paid by utilization of CENVAT credit availed by them.

It was viewed that CBEC Circular B/11/1/2001–TRU dated 09.07.2001, relevant extracts of which have been reproduced below, clarified that Service Tax was liable to be paid when any scientific or technical consultancy service is rendered whether by Public Funded institutions or by private agencies.

 Further, it was clarified that Service Tax is not payable when Public funded research institutions receive grants in aid from the Government for conducting research/ project work and service tax is payable only if service is rendered on a payment basis:

 The Appellant has received consideration in the form of grants for research activities from JK Tyres, Cadbury India Ltd., Tata Steel, etc. during the aforesaid period.  Further, we find that the Appellant has received consideration in the form of Grants towards the conduct of workshops from various clients for different reasons.

The CESTAT observed that in respect of sponsored research, there is no provision of service.  The services provided are like furtherance of education and promotion of sharing of knowledge.  Many times, the projects include organising workshops, international conferences and conducting seminars.  As such, the impugned Order-in-Original No. 11/2013 (RST) dated 31.05.2013 demanding Service Tax in respect of sponsored research projects cannot be sustained. 

The two-member bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) held that the demand raised in respect of Scientific and Consultancy Services is set aside as being not sustainable.  The demand in respect of convention service is upheld for the normal period. 

To Read the full text of the Order CLICK HERE

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