TMI Blog2016 (3) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... he Participating Group Companies, the demand of Service tax do not sustain as Service tax is a levy on rendition of taxable service. Demand of Service tax vis-a-vis Pure Agent - Rule 5(2) of Service Tax Valuation Rules - Held that:- the goods or services procured by the appellant for the use of Participating Group Companies are not availed by the Appellant for its own use or consumption, and he has no function or existence other than as Trustee / Manager (agent) of the Participating Group Companies cost sharing arrangement. - Therefore, the amount so recovered by the appellant is in the capacity of a Pure Agent and thus the same cannot be subjected to the Service tax followed by Pharmalinks Agency (I) Pvt. Ltd. Vs CCE [2014 (10) TMI 284 - CESTAT MUMBAI]. Availment of CENVAT Credit - CA certificate submitted providing details of the CENVAT Credit available during the period in question but was not noticed by the Adjudicating Authority - Held that:- even if the activities carried out by the appellant are subjected to Service tax, the Participating Group Companies who were duly registered with the Service tax authorities during the relevant period and were discharging Service ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipating Group Companies. 3.1 An EA 2000 Service tax audit was conducted by the Department on the books of accounts of the Appellant for the period from 2006-07 to 2009-10. During the course of audit, it was observed that the Appellant has provided certain Business Support Services to its various Participating Group companies by way of accounting and processing of certain transaction and certain operational assistance as required by these Group of companies under an agreement between the appellant and the group companies. As per the Agreements entered by the appellant, the Participating Group Companies would jointly pay fixed fee of ₹ 1 Crore per annum as remuneration to the appellant for acting as a manager and carrying out the activities envisaged under the agreement. As per the Memorandum of Association the objective of the company is to promote, manage, administer, counsel or otherwise assist in the growth and operation of the Group Companies. It was also observed that the appellant has classified these services under the category of Support Services of Business or Commerce and have been paying service tax since 2008-09 onwards. It was alleged that in the Financial Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Participating Group Companies as income of the Appellant nor considered the amounts paid to the various services providers as expenditure of the Appellant. 3.3 Pursuant to its reply to the Audit Objections dated 23.08.2011, the Appellant vide an e-mail dated 06.09.2011 communicated to the Department the details of the reimbursement received from the Participating Group Companies during the impugned period under the Agreements. 3.4 A Show Cause notice No. ST/MUM/DIV-III/Gr.VIII/Reliance ADAG/2011/2791 dated 20.10.2011 (Impugned SCN) was issued to the appellant, alleging therein that- (i) The services rendered by the Appellant to its Group Companies is classifiable under Business Support Services' under Section 65(105)(zzzq) of the Act; (ii) Chargeability of Service tax is unconnected with profit or loss made by the Appellant. As long as the taxable services are provided and the taxable value is collected and paid, the service tax is chargeable. (iii) The appellant also recovers all the expenses like communication expenses, staff salaries etc from the group companies and do not have to spend anything from their own pocket. (iv) The Appellant is a Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the majority (90%) of the Appellant's expenses pertaining to the reimbursement of Aircraft Expenses, the Appellant under an abundant caution applied for Service tax registration and started discharging Service tax from 2008 onwards. (iv) The cost sharing arrangement cannot be covered under the broader category of Business Support Services as the definition of Business Support Services has limited application to the word and phrases used therein and cannot be simply extended to all the services; (v) The Circular No. 120 (A)/2/2010-ST dated 16.04.2010 clarifies that the arrangement between the Insurance Company and Reinsurance Company is only sharing of expenses and there is no service provided by the Insurance Company to the Reinsurance Company for a consideration; (vi) Section 74 of the Finance Act, 2011 has expanded the definition of Business Support Services' to include operational or administrative assistance in any manner' with effect from 01.05.2011 prospectively. (vii) Without prejudice, even if the cost sharing is held to be covered under the definition of Business Support Services' even prior to 01.05.2011, the value for the purpose of levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings recorded in the impugned Order are detailed, legal and proper. He took us through the findings recorded in the impugned Order-in-Original and with the help of several case laws made efforts to persuade us to dismiss the appeal and uphold the findings of the Respondent Commissioner. 5. After hearing both sides at considerable length, considering their submissions and perusing the illustrative contracts and various case laws relied upon by both the sides, we are of considered opinion that- 5.1 The main issue is whether the activities of the appellant, at the relevant time i.e. in 2006-07 and 2007-08, qualified as taxable service classifiable as Business Support Services under section 65(105)(zzzq) of the Finance Act, 1994 as amended by Finance Act, 2006. 5.2 The definition of Business Support Services' as per section 65(104c) is as follows: Support services of business or commerce means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cost advantage and share the services with the group companies and expenditure are allowed based upon agreed methodology. The nature of common services procured by the assessee includes Aircraft hiring, Branding expenses, Professional Charges, Employees expenses, Travelling expenses, Custodian expenses (for shares and securities). The above expenses have been detailed in Schedule 6 of the Balance Sheet. The Input Service Invoice on which they have paid Service Tax to the service provider also shows that most of the payments have been made for Aircraft hiring, professional charges, branding expenses, Auditor's fee etc 5.5 It is therefore clear that common services are not provided' by the appellant but, only these are only procured' by the appellant from the Service Providers. Cost thereof are shared by the recipient Participating Group Companies by making reimbursements to the Appellant. The Appellant merely carries out the agency function of procurement of services for the Participating Group Companies which share the costs and expenses thereon. 5.6 We find that the reimbursements of the cost/expenses incurred by the Appellant cannot be regarded as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory provision or any binding precedent could be shown to us by the Revenue, which for the relevant time, covers the activity of incurring costs and seeking reimbursements as Pure Agent under the purview of the Business Support Services under clause (105) of section 65 of the Finance Act, 1994 as amended by Finance Act, 2006. There is no dispute on the fact that no additional fees or profits or consideration for Pure Agent services is received by the appellant, who has merely recovered actual costs incurred from the Participating Group Companies. 5.10 We find that the definition of Business Support Services' covers only specific activities in its inclusive part of the definition. Only if such specific activities are carried out, it would be classifiable as Business Support Services. The Appellant per se in its own capacity has not provided nay of the specified services to the Participating Group Companies. The attempt of the adjudicating authority to link all the activities of the Appellant with the marketing policies, customer evaluation procurement policies, distribution policies, customer relation policies, taxation policies etc., and also considering the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in providing any service but only paying on behalf of various flat buyers to various service providers. 5.12 The Hon'ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. Unionof India, 2012-TIOL-966-HC-DEL-ST held that reimbursement of expenses at actual is not includible in the value of taxable service. Moreover, before that various Circulars issued by the Central Board of Excise Customs also clarified the position regarding chargeability of Service Tax on reimbursement of expenses. For eg.- (i) In CBEC Circular under F.No. B 43/1/97 dt 6.6.97 it was clarified in respect of customs house agent's service and steamer agent's service, that the reimbursements of expenses are not chargeable to Service tax (ii) In CBEC Circular under F.No. 343/5/97 dt. 2.7.97 it was clarified in relation to Consulting Engineers Service and Manpower Recruitment Agents Service that the reimbursements of actual expenses were not subject to Service tax. (iii) In CBEC Circular under F.No. B11/3/98 TRU dt. 7.10.98 it was clarified in respect of Market Research Agency Services and Security Agency Services that the expenses reimbursed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to fall within the ambit of Pure Agent . The pre-requisite is that the expenses should have been incurred by the person on behalf of the service recipient and the expenses so incurred should be reimbursed to him on actual basis. Rule 5(2) of the Valuation Rules prescribes certain expenses that can be excluded from the value of taxable services, if incurred by the service provider as a pure agent on fulfillment of certain conditions specified therein. Relevant extract of the said Rule is as follows- (2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:- (i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured; (ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; (iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup Companies. Having used the services Participating Group Companies in law would be liable to make the payment directly for such services to third party vendors or service providers, however, for convenience such payment has been routed through the Appellant under the pass through mechanism. The Participating Group Companies have authorized the Appellant to procure the services. Such authorization has been executed in the form of contractual agreement between the Appellant and Participating Group Companies. Participating Group Companies are completely aware of the fact that the services are procured from the third party vendors or services providers and the Appellant is only facilitating the provision of such Services. The invoice issued by the Appellant categorically specifies that the Appellant recovers only the amount that is being paid to the third party on behalf of the Participating Group Companies. The amount recovered by the Appellant from the Participating Group Companies is precisely the same as has been paid by the Appellant to the third party vendors/service providers. The goods or services procured by the Appellant for the use of participating Group Company are not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered with the Service tax authorities during the relevant period and were discharging Service tax on their activities, would be entitled to avail the CENVAT Credit thereof. Copies of the Service Tax Return (ST3) filed by the Participating Group Companies namely Reliance Communication Infrastructure Limited, Reliance Energy Limited, Reliance Capital Limited, Reliance Communications Limited and Reliance Telecom Limited for the Financial year 2006-07 and 2007-08 were submitted by the appellant in the adjudication proceedings. The adjudicating authority has also categorically accepted the position of revenue neutrality and recorded the relevant findings at Para 4.26 of the impugned Order as under:- 4.26 .I find that this is a case where Support Services for Business and Commerce was introduced in 2006 and at the initial period, the assesse might not have paid the Service Tax on the understanding that sharing of expenses may not be covered in the definition of business support service'. Infact, there is no clear mention of such sharing of expenses' in the definition or in the instruction issued by the Board. I also find that there are number of judgments of Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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