The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that engineering consultancy supplied to a recipient in Japan was not liable to service tax in the case before it, although the services concerned a construction project in India.

Resolving an overlap between consulting engineer services and real estate agent services, the bench of Ashok Jindal (Judicial Member) and P.V. Subba Rao (Technical Member) applied the statutory rule favouring the category appearing first among equally applicable taxable service classifications.

Buy Now: Indirect Tax Judgments E-Compilation – October 2026

The company provided cost management, project management and construction consultancy services. Following an audit covering financial years 2005–06 to 2009–10, the department issued a show cause notice dated October 12, 2011.

The principal dispute concerned services supplied to assessee for a factory project at Neemrana, Rajasthan. Other allegations involved expense reimbursements and differences arising from reconciliation of debtors.

In its summary of the adjudication order, the Tribunal recorded confirmed service tax demands of ₹34,07,377 on the overseas-recipient services, ₹30,03,092 on debtors reconciliation and ₹1,72,323 on reimbursements. The Commissioner also demanded interest and imposed a penalty of ₹65,83,792 under Section 78 of the Finance Act, 1994.

The services supplied for the Neemrana project included preparation of bills of quantities, quantity take-off sheets, detailed steel rebar quantities, verification of specifications and rate analysis.

The company maintained that these activities constituted consulting engineer services. Since the recipient was situated in Japan, it argued that the services qualified for export treatment under the provisions applicable to the disputed period.

The department classified them as real estate agent services, which included services supplied by a real estate consultant. It argued that the activities related to immovable property situated in India and therefore attracted Indian service tax.

The Tribunal recorded that the tax consequence depended on which classification applied.

The Tribunal did not accept the company’s argument that the absence of any involvement in buying, selling, leasing or renting property necessarily excluded the real estate agent category.

It explained that the statutory definition included real estate consultants providing advice, consultancy or technical assistance concerning matters such as design, development, construction, supervision and management of real estate.

The services could therefore fall within that category. However, because they also involved consultancy or technical assistance in a discipline of engineering, they could simultaneously qualify as consulting engineer services.

The Tribunal applied the successive classification rules under Section 65A(2) of the Finance Act, 1994.

The first rule, preferring a specific description over a general description, did not resolve the dispute. From an engineering perspective, the services concerned civil engineering; from a property perspective, they concerned identified real estate.

The second rule, concerning the essential character of composite services, was also inapplicable because the case did not involve a composite service.

The Tribunal therefore applied Section 65A(2)(c). This provision favoured the sub-clause occurring first among those equally meriting consideration when the preceding rules could not resolve classification.

Consulting engineer services appeared under Section 65(105)(g), before real estate agent services under Section 65(105)(v). The Tribunal accordingly adopted the consulting engineer classification.

With the recipient situated in Japan, it held that the place of provision was Japan and no service tax was payable on these services.

The Tribunal also rejected the demand relating to reimbursable expenses, relying on the decisions in Intercontinental Consultants and Technocrats.

It explained that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which sought to include reimbursable expenditure in the taxable value, had been held ultra vires Section 67. The Supreme Court upheld the Delhi High Court’s decision on this issue.

Section 67 was subsequently amended with effect from May 14, 2015, to provide for inclusion of reimbursable expenses.

Since the entire disputed period preceded that amendment, the Tribunal held that the reimbursement demand could not survive.

The department’s reconciliation exercise proceeded on the basis that opening debtors plus billings, less receipts, should equal closing debtors. It treated the resulting difference as evidence of short payment.

The company disputed the calculations, pointing to inconsistent treatment of service tax components and the omission of accounting adjustments.

The Tribunal agreed that accounting figures should reconcile but emphasised that the figures used must be correct.

An illustration discussed in the order showed that omitting service tax receipts of ₹15,000 while retaining tax-inclusive billing created an apparent difference of the same amount.

The Tribunal held that the department bore the burden of establishing that the company had received greater consideration than it declared. It could not ignore relevant figures while reconciling the accounts or insist on a particular manner of maintaining accounts beyond the statutory requirements.

The demand on this ground was consequently set aside.

The Tribunal separately examined limitation despite having decided the substantive issues in the company’s favour.

It noted that the normal limitation period applicable to the dispute was one year. Invocation of the extended five-year period required establishment of the statutory grounds involving fraud, collusion, wilful misstatement, suppression or contravention with intent to evade tax.

An allegation of incorrect self-assessment could not, by itself, satisfy those requirements.

The company had filed ST-3 returns, and the information underlying the notice was available in its records. The Tribunal observed that the Range officer could have scrutinised the returns and called for the necessary accounts and documents within time.

It placed responsibility for the time bar on the failure to scrutinise the returns promptly. Even a demand otherwise sustainable on merits could not survive an out-of-time notice without evidence establishing the conditions for extended limitation.

The Tribunal accordingly allowed the appeal on both merits and limitation, setting aside the Commissioner’s order with consequential relief.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Common GST SCN Not Defective Merely Because It Covers Multiple Noticees: Delhi High Court