TMI Blog2023 (7) TMI 482X X X X Extracts X X X X X X X X Extracts X X X X ..... e intent to broaden the scope of the definition and to bring in an inclusive definition which is very broad from that of a narrower and more specific one. After these changes in the section, there can be no further ambiguity that the respondent action in deploying staff to its group companies was covered by it. It is hence concluded that the respondent sharing services of their corporate staff with the Sanmar group of companies is covered by the definition of manpower recruitment or supply agency as defined in Section 65(105)(k) of FA, 1994 read with section 65(68) ibid. Whether the payment of proportional cost of salaries of the staff borne by the respective companies to the respondent can be stated to be a consideration ? - HELD THAT:- A plain reading of Section 67 indicates that service tax is leviable only on the amount received as a consideration for the services provided or to be provided which would form part of taxable value for the purpose of service tax during the relevant time - The term consideration as defined in the section includes any amount that is payable for the taxable services provided or to be provided which is broad enough to include payments la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded period in terms of proviso to Section 73 (1) can be invoked only when there is fraud, collusion, wilful misstatement, suppression of facts, contravention of any of the provisions of this Chapter or of the Rules made there under with intent to evade payment of service tax. The Show Cause Notice is time barred, as none of the ingredients that are required for invoking the extended period of 5 years are present. It has been held by courts that appellate bodies should be mindful of the first-hand knowledge of the original authority and the position that he holds to assess the facts and the credibility of circumstances from his own observations. Even if a superior appellate body feels that another view is possible, that is no ground for substitution of the original authorities view with one s own by exercising its appellate jurisdiction. The exception would be if the impugned order is demonstrably found as not being rational or reasonable or is suffering from procedural impropriety which is not the case here - the SCN has been issued correctly under the extended period of time. Ahe appeal succeeds both on merits and on the show cause notice not being hit by the limitation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e where the respondents have admitted that they have shared the cost of services of their top-level corporate staff with their group companies who are legal entities having separate PAN for income tax purpose. Hence it is not a case of self-service and would tantamount to a person rendering service to another and will be liable for Service Tax as determined by the nature of transaction. She further stated that what is received by Chemplast from their group companies cannot be held as reimbursement but it was a consideration for the service rendered. She referred to the decision of the Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders Vs. CCE, Cochin 2011 (24) STR 290 (Tri. LB). She also added that since the respondent had suppressed this activity from the department; not filed ST-3 returns clearly showing this activity nor have paid duty or sought a clarification after amendment to the statute, which was clear and did not have any ambiguity, they had suppressed the matter and were liable to pay Service Tax on a demand under the extended period. She has further referred to Board Circular No. 148/17/2011-ST dated 13.12.2011, Boards Circular in F. No. 137/35/2011-ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 65(68) ibid. ii) whether the payment of proportional cost of salaries of these staff borne by the respective companies to the respondent can be stated to be a consideration as per Explanation (a) to Section 67 of the FA 1994 or has to be treated as reimbursement and found not taxable in the light of the Hon ble High Court of Delhi s judgment in the case of Intercontinental Consultant (supra). iii) whether the show cause notice is hit by the limitation of time. 6. We find that the first challenge made by the respondent is to the exigiblity of the activity of sharing services of their corporate staff with group companies under the definition of manpower recruitment or supply agent . Since classification and valuation are two different matters, the nature of the service is not to be confused with the measure by which the consideration is paid, it would hence be useful to examine the definition of the service independently. Relevant portions of section s 65(105)(k) and section 65(68) of FA, 1994 and extracted below for a better understanding of the issue; Section 65(68) Manpower recruitment or supply agency means any person engaged in providing any service, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply of manpower, temporarily or otherwise, to a client to any other person (2); (1) Substituted (w.e.f. 01.05.2006) by s. 68 of the Finance Act , 2006 (21 of 2006). (2) Substituted (w.e.f. 16.05.2008) by s. 90 of the Finance Act , 2008 (18 of 2008) It is seen from the statute as it stood during the major part of the impugned period, which was from, April 2008 to January 2011, that there were two important changes made to the definition of Manpower recruitment or supply agency , altering its earlier scope. These changes signify the legislative intent to broaden the scope of the definition and to bring in an inclusive definition which is very broad from that of a narrower and more specific one. After these changes in the section, there can be no further ambiguity that the respondent action in deploying staff to its group companies was covered by it. It is hence concluded that the respondent sharing services of their corporate staff with the Sanmar group of companies is covered by the definition of manpower recruitment or supply agency as defined in Section 65(105)(k) of FA, 1994 read with section 65(68) ibid. 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement come under the definition of consideration . The respondent does not deny this nexus but states that they have produced a Chartered Accountant s certificate before the adjudicating authority wherein it has been certified that what is received from the group company during the relevant period is only towards the reimbursement of actual expenses and there was no mark-up. Hence there is no consideration received so as to attract service tax. 7.2 They have drawn attention to the Hon ble High Court of Delhi s judgment in the case of Intercontinental Consultant and Technocrats Pt Ltd (supra) which struck down Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 that attempted to tax reimbursement, on the ground that it is in conflict with Section 67 provides for inclusion of expenses reimbursed. Revenues appeal was dismissed by the Hon ble Supreme Court in Union of India vs Intercontinental Consultant and Technocrats Pt Ltd (supra). Section 67 of FA 1994 which came into effect from 01.05.2006 is as follows: - 67. Valuation of taxable services for charging service tax (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered by the petitioner to NHAI, of a consulting engineer, that can be brought to charge and nothing more. The Hon'ble Court held that the quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him. That is not the situation here, the real nature of the payment made by the group companies to the respondent are towards the use of their staff. The value sought to be taxed does not exceed the gross amount paid by the group companies. Hence what is sought to be taxed under Service Tax law, is the amount which is attributable to the taxable service alone. The fact that this payment is worked out or calculated in a particular manner for the convenience of the parties involved or that the final payment by all Group Companies is equal to the wages paid and there is no mark up or that the payment is labelled as a reimbursement etc does not change its essential character as being a consideration for service rendered by the respondents staff. The method of collection of consideration does not affect the essence of the service so long as a service is actually rendered. So also, the converse, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng evoked by courts to cull out the intendment of the legislature by removing ambiguity in its understanding of the statute by the executive. It means to read the statute by reference to the exposition it has received from the authority who created the statute, where the language given by the authority is plain and unambiguous. In Desh Bandhu Gupta and Ors v. Delhi Stock Exchange [1979] 3 SCR 373 the Apex Court held that this principle can be invoked, though the same will not always be decisive on the question of construction. But the contemporaneous construction placed by administrative or executive officers charged with executing the statute, although not controlling, is nevertheless entitled to considerable weight as highly persuasive. To this effect the circular makes it clear that the motive for providing such manpower is of no consequence. The requirement for taxability is that the person should be engaged in an activity that is covered under Section 65(105)(k) ibid. The volume of activity undertaken or the presence or absence of the profit motive is irrelevant. Though we do not take the circular as binding we find that it is line with the views expressed by us. 7.4 A poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) We hence do not find merits in treating consideration as a reimbursement which is not exigible to tax as stated in the impugned order. 8. After examining the relevant sections covering classification and valuation of services, we find that the impugned order has erred in its conclusion and the respondent does not have a case on merits. 9. We now examine the third question of whether the show cause notice is hit by the limitation of time. The stand taken by Revenue is that the respondent has not disclosed the activities of sharing of staff with the department in any manner, including in statutory document like ST3 returns nor have they sought any clarification from the department if there was any aspect of confusion in their mind. This goes to show the deliberate suppression on their part which permits the issue of Show Cause Notice during the extended period and also warrants imposition of penalty. Had the audit of the unit not been done the evasion would not have come to light and is a clear case of suppression of facts. The respondent on the other hand is of the view that in terms of Section 73(1) of the Finance Act, 1994 as amended the period within which a Show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Hence the present case cannot be said to involve an interpretation of statutory provisions especially for a company, as they have specialised staff to look after legal and tax matters. In fact, top level management officials dealing with legal matters and taxations among other areas of specific rates were those whose expertise was shared with the group companies. The Service Tax (Determination of Value) Rules, 2006, was brought into effect from 01.06.2007. Rule 5 provided for inclusion in or exclusion from value of certain expenditure or costs , whereas the demand is only for the period from April 2008 to January 2011. Rule 5(1) stated as under; Rule 5 - Inclusion in or exclusion from value of certain expenditure or costs (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Hence the Rule had clearly required that if any expenditure or costs was incurred by the service provider in the course of prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It has been held by courts that appellate bodies should be mindful of the first-hand knowledge of the original authority and the position that he holds to assess the facts and the credibility of circumstances from his own observations. Even if a superior appellate body feels that another view is possible, that is no ground for substitution of the original authorities view with one s own by exercising its appellate jurisdiction. The exception would be if the impugned order is demonstrably found as not being rational or reasonable or is suffering from procedural impropriety which is not the case here. The two judgments cited by the respondent hence do not come to their rescue. Hence we find that the SCN has been issued correctly under the extended period of time. 10. Having regard to the discussions above the appeal succeeds both on merits and on the show cause notice not being hit by the limitation of time. We find that a small amount of the demand pertains to the period prior to a change in the definition of manpower supply service took place on 16.5.2008 and will not be liable to tax. We hence set aside the impugned order and remand the matter to the lower authority for iss ..... 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