2025 (1) TMI 1262 - AT - Service Tax

Levy of service tax - Business Support Service - cost sharing among the group Companies - Demand of service tax on the differential value of Profit Loss Account and ST-3 returns - Recovery of ineligible CENVAT Credit - Extended period of limitation. Levy of service tax - Business Support Service - cost sharing among the group Companies - HELD THAT - The appellant incurred expenditure on behalf of the group companies and such expenditure has been shared among the group Companies at the ratio agreed in the agreement dated 01-04-2008. It is observed that there is no service element involved in this case. Thus we find that in these circumstances the demand of service tax under the category of Business Support Service is not sustainable. We find that the issue is no more res integra as the demand of Service Tax on cost sharing is settled by the decision of the Hon ble Supreme Court in M/S GUJARAT STATE FERTILIZERS CHEMICALS LTD. ANOTHER VERSUS COMMISSIONER OF CENTRAL EXCISE 2016 (12) TMI 103 - SUPREME COURT wherein it has been held that demand of Service Tax on cost sharing is not sustainable - the demand confirmed in the impugned order under the category of Business Support Service is not sustainable. Demand of service tax on the differential value of Profit Loss Account and ST-3 returns - HELD THAT - The ld. adjudicating authority has not given any finding regarding the liability of service tax on the differential value. It is the settled position of law that demand of Service Tax cannot be confirmed merely on the ground that there is a difference in the value of Profit Loss Account and ST-3 returns. This issue is covered by the decision of Tribunal Kolkata in the case of M/S BALAJEE MACHINERY VERSUS COMMISSIONER OF CGST EXCISE PATNA II 2022 (8) TMI 704 - CESTAT KOLKATA where it was held that Since the records have been duly audited the demand cannot be raised for the same period on account of change in the opinion. Further we find that the Appellant had duly submitted the VAT Returns which have been recorded by the Ld. Commissioner in the impugned order. - the demand of service tax of Rs.88, 051/- confirmed merely on the basis of the differential value between the Profit Loss Account and ST-3 returns is not sustainable. Recovery of ineligible CENVAT Credit - Extended period of limitation - HELD THAT - There is no allegation of suppression wilful misstatement or fraud in the impugned notice. In the impugned order also the ld. adjudicating authority has not given any finding regarding suppression of facts or wilful misstatement for invocation of the larger period of limitation. Thus the demand confirmed by invoking the extended period of limitation is not sustainable - the demand of irregular credit confirmed in the impugned order is not sustainable. Conclusion - i) Service Tax cannot be levied on cost-sharing arrangements lacking a service element. ii) Demand confirmed merely on the basis of the differential value between the Profit Loss Account and ST-3 returns is not sustainable. iii) As entire demand is time barred the demand of irregular credit confirmed in the impugned order is not sustainable. The impugned order set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the demand of Service Tax amounting to Rs.62,20,170/- on cost sharing among group companies under the category of 'Business Support Service' is sustainable.
• Whether the demand of Service Tax of Rs.88,051/- based on the differential value between the Profit & Loss Account and ST-3 returns is justified.
• Whether the demand of Rs.3,69,162/- for ineligible CENVAT Credit, invoked under the larger period of limitation, is valid.

ISSUE-WISE DETAILED ANALYSIS

1. Demand of Service Tax on Cost Sharing under 'Business Support Service'

• Relevant legal framework and precedents: The appellant relied on the Supreme Court decision in Gujarat State Fertilizers & Chemicals Ltd. v. Commissioner of C. Ex., which held that Service Tax on cost sharing is not sustainable. Additionally, a similar issue was addressed by the Tribunal in Hazira Lng Pvt. Ltd. v. Commissioner of Service Tax, Ahmedabad.
• Court's interpretation and reasoning: The Tribunal observed that the appellant incurred expenses on behalf of the group companies, shared at an agreed ratio, with no service element involved. The Tribunal found the demand unsustainable, as the issue was settled by the Supreme Court's decision.
• Key evidence and findings: The Tribunal noted the agreement dated 01-04-2008 and the lack of service provision in the cost-sharing arrangement.
• Application of law to facts: The Tribunal applied the Supreme Court's ruling, concluding that the arrangement did not constitute a service provision.
• Treatment of competing arguments: The Tribunal dismissed the Revenue's arguments, reiterating the settled position of law.
• Conclusions: The demand under 'Business Support Service' was set aside.

2. Demand of Service Tax on Differential Value between Profit & Loss Account and ST-3 Returns

• Relevant legal framework and precedents: The appellant cited the Tribunal's decision in Balajee Machinery v. Commissioner of C.G.S.T. & Excise, Patna-II, which held that Service Tax demand based on differential values is not sustainable.
• Court's interpretation and reasoning: The Tribunal observed that the Profit & Loss Account is prepared on an accrual basis, whereas Service Tax is payable on a receipt basis. It found no basis for confirming the demand solely on differential values.
• Key evidence and findings: The Tribunal noted the absence of findings by the adjudicating authority regarding the liability for the differential value.
• Application of law to facts: The Tribunal applied the precedent, concluding that the demand was unsustainable.
• Treatment of competing arguments: The Tribunal rejected the Revenue's position, emphasizing the settled legal position.
• Conclusions: The demand based on differential values was set aside.

3. Demand of Ineligible CENVAT Credit

• Relevant legal framework and precedents: The appellant argued against the invocation of the larger period of limitation, citing the absence of suppression, willful misstatement, or fraud.
• Court's interpretation and reasoning: The Tribunal found no allegations of suppression or misstatement in the Show Cause Notice or the order, rendering the invocation of the extended period of limitation unjustified.
• Key evidence and findings: The Tribunal noted the lack of findings regarding suppression or misstatement in the impugned order.
• Application of law to facts: The Tribunal applied the legal standard for invoking the extended period, finding the demand barred by limitation.
• Treatment of competing arguments: The Tribunal dismissed the Revenue's arguments, focusing on the lack of necessary allegations for the extended period.
• Conclusions: The demand for ineligible CENVAT Credit was set aside.

SIGNIFICANT HOLDINGS

• Core principles established: The judgment reaffirmed that Service Tax cannot be levied on cost-sharing arrangements lacking a service element and that demands based on differential accounting methods or without sufficient grounds for extended limitation are unsustainable.
• Final determinations on each issue: All demands confirmed in the impugned order were set aside, and the appeal was allowed with consequential relief.

The Tribunal's decision emphasized the importance of adhering to established legal principles and precedents, ensuring that tax demands are substantiated by clear service provisions and proper legal grounds.