Expert Advice in R&D Projects Attracts Service Tax: CESTAT Classifies NGRI’s Deliverables as Scientific or Technical Consultancy [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Hyderabad, has ruled that certain research and survey activities undertaken by the National Geophysical Research Institute (NGRI) qualify as “Scientific or Technical Consultancy” (STC) services and are liable to service tax.

The issue was about a ₹1.22 crore demand raised by the Department for the period between October 2001 and March 2005, alleging that NGRI failed to discharge service tax on 11 externally funded projects.

NGRI, a constituent of the Council of Scientific and Industrial Research (CSIR) under the Ministry of Science and Technology, had argued that its activities were limited to geological and geophysical surveys, falling under the category of “Survey and Map Making” (SMM) services, which are not taxable unless they involve mineral exploration.

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The institute contended that its deliverables were factual reports and maps, devoid of expert advice or consultancy, and therefore outside the scope of STC.

The Tribunal, however, disagreed with this blanket classification. Referring to the Ministry’s clarification, the Tribunal emphasised that STC services encompass expert opinion, technical advice, and feasibility assessments rendered by scientific institutions.

The two-member Bench comprising AK Jyotishi (Technical Member) and Angad Prasad (Judicial Member) held that while survey and mapping may form the basis of a project, the inclusion of interpretative insights, recommendations, or actionable advice elevates the service into the taxable STC domain.

To arrive at its conclusion, the Tribunal conducted a project-wise analysis of NGRI’s deliverables. It found that in several cases, including assignments for the Nuclear Power Corporation of India, Gas Transportation Infrastructure Ltd., and the Government of Andhra Pradesh, NGRI had gone beyond data collection and provided expert recommendations, risk assessments, and technical suggestions.

These were deemed to be consultancy services rendered by scientists and technocrats, squarely falling under the STC definition under Section 65(92) of the Finance Act, 1994.

Conversely, in projects such as the marine geophysical survey for the National Centre for Antarctic and Ocean Research (NCAOR) and the mapping assignment for Metmin Finance and Holdings, the Tribunal found no evidence of interpretative advice.

These were classified as non-taxable SMM services, as they involved only data acquisition and map preparation without any embedded consultancy.

The Tribunal also addressed the issue of limitation under Section 73 of the Finance Act. NGRI had argued that the demand was time-barred, as the show cause notice was issued in November 2006 for services rendered up to March 2005.

While the Tribunal acknowledged the institute’s status as a government entity, it clarified that such status does not automatically exempt it from scrutiny under the extended limitation clause, especially if suppression of facts is evident.

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