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2016 (3) TMI 810 - CESTAT MUMBAI

2016 (3) TMI 810 - CESTAT MUMBAI - 2016 (43) S.T.R. 372 (Tri. - Mumbai), [2016] 93 VST 338 (CESTAT) - Sharing of resources and cost / expenses with the group companies - Business Support Services provided for the period 2006-07 and 2007-08 - Section 65(105)(zzzq) of the Finance Act, 1994 - Appellant providing services by way of accounting and processing of certain transaction and certain operational assistance as required by the Participating Group companies under an agreement between the appell .....

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No taxable service is provided by the appellant and therefore in absence of rendition of such service by the appellant to the 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 .....

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le 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 tax on their activities, would be entitled to avail the CENVAT Credit thereof. - Demand of Servive tax - Invokation of extended period of limitation - Held that:- by rel .....

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ppellant with consequential relief - Appeal No. ST/86341/15 - A/85928/16/STB - Dated:- 22-2-2016 - M. V. Ravindran, Member (J) And C J Mathew, Member (T) For the Appellant : Shri V.S. Nankani, Sr. Adv. Shri Gopal Mundra, C.A. Ms. Ginita Bodani, Adv. Shri Prithviraj Chaudhari, Adv For the Respondent : Shri V. K. Singh, Spl. Counsel ORDER Per M. V. Ravindran The instant appeal under section 84 of Finance Act, 1994 is arising out of the Order-in-Original No. 08/STC-IV/SKS/14-15 dated 30.04 .....

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their behalf so as to share the cost among the Participating Group Companies. This arrangement is a mere cost sharing arrangement, and the role of the appellant is limited to monitoring and coordinating the arrangement for all participants. Such procurement inter alia includes provision of Aircraft Hiring Services, Branding Services, Professional Services, Custodian Services etc. The expenses / cost incurred by the Appellant in procuring the specified services on behalf of the Participating Gro .....

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s 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 th .....

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r an amount of ₹ 33,01,29,105/- and ₹ 1,13,53,17,136/- respectively. The Respondent vide its final Audit Report No. ST/HQ/Audit/EA2000/Gr.6/Reliance/2010 dated 05.08.2011 inter alia alleged that the Appellant has neither taken the Service Tax Registration for the impugned period nor has discharged the Service tax liability on the service rendered to the Participating Group Companies under taxable category "Support Services of Business or Commerce" under Section 65(105)(zzzq .....

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inistrative assistance provided in any manner; (ii) The Department has erroneously computed the demand by taking the total amount shown in the Profit & Loss account as the receipts from the Participating Group Companies; (iii) The Appellant does not provide any "services" to the Participating Group Companies. The services are provided by various service providers with whom the appellant enters into contractual arrangements on behalf and for the benefit of the Participating Group Co .....

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er been received by the Appellant from the Participating Group Companies. Such remuneration, even if charged and/or received would alone be liable to service tax being the fee accruing to the Appellant. The arrangement has been accepted as such by the Income Tax Authorities who have not considered the recoveries 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 .....

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iness 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 incorp .....

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nt has recovered from the recipient of service not only such amount as has been paid by Appellant to the third party but an additional amount by way of administrative expenditure, salary etc. as per the contractual agreement. 3.5 On the basis of these allegations, the Appellant was called upon to show cause as to why:- (i) The service provided by the Appellant to its Group Companies should not be classified under the category of Support Services of Business or Commerce' under the Section 65( .....

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-payment of the Service tax; (v) Penalty should not be imposed on the Appellant for suppressing and mis-stating the facts under the provisions of Section 78 of the Act. 3.6 In its reply, the appellant refuted all the allegations and submitted that - (i) The Appellant is a Guarantee Company, without any share capital and has entered into cost sharing arrangement with the Group Companies and they have incurred the expenditure and subsequently allocated the cost to its Participating Group Companies .....

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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 .....

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011, the value for the purpose of levying Service tax be the gross amount charged by the service provider for such services provided or to be provided. (viii) Without prejudice, even if the Rule 5(2) of the Valuation Rules is applied, the Appellant is acting only as a pure agent being the trustee and manager of the Participating Group Companies; (ix) The Appellant has acted under a bona fide belief that the cost sharing activity is chargeable to Service tax only with effect from the 01.05.2011 t .....

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various services for providing the disputed output services and therefore the Appellant would be entitled to avail CENVAT Credit of such services if the demand is confirmed on such output services. 3.8 Thereafter, the Respondent vide an e-mail dated 27.04.2015 enlisted certain invoices pertaining to Financial year 2006-07 and 2007-08 and asked the Appellant to furnish the copies thereof so as to substantiate the claim of the Appellant in respect of CENVAT Credit. The Appellant after seeking som .....

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nt appeal was preferred by the Appellant. 3.11 The learned Senior Counsel has taken us through the elaborate grounds of appeal. He vehemently argued that the impugned Order-in-Original was erroneous on several grounds as urged in the appeal. HE relied upon several decision in support of the appeal. 4.1 The Learned Departmental Representative strongly opposed grant of any relief to the appellant and submitted that the findings recorded in the impugned Order are detailed, legal and proper. He took .....

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t 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 or .....

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ding office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;" 5.3 Admittedly, the object of the appellant company as per the Memorandum of Association is to promote, manage, administer, counsel or otherwise assist in the growth and operation of the Group Companies. The said objective is pursued by way of entering into a cost sharing agreement with the Participating Group Co .....

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nts specify the appointment of the Appellant as a Trustee or Manager to obtain, hold and manage the resources required for jointly carrying out the activities. The Agreements also prescribe that the Participating Group Companies would share the cost of obtaining and employing resources in relation to the specified activities. Further, the Appellant shall be entitled for a fixed remuneration of Rs. One Crore per annum for acting as a manager. The Appellant has agreed to act as such Manager on the .....

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f common services because 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 Ta .....

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tion 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 consideration flowing to the Appellant towards the taxable service provided by the Appellant rather the receipts are towards the reimbursements of the cost/expenses incurred by the Appellant in terms of the cost sharing agreement with the Participating Group Companies. 5.7 Section .....

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aring arrangement is to reduce the cost of operation of the Participating Group Companies. The activities carried out by the Appellant enables the Participating Group Companies to share the common services, the best available talent and resources required for carrying out their business activities. No taxable service is provided by the Appellant and therefore in absence of rendition of such service by the Appellant to the Participating Group Companies, the demand of Service tax cannot sustain. 5 .....

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ties do fall under the definition of Business Support Services' under Section 65(104c) read with Section 65(105)(zzzq). We find that these observations and findings of the adjudicating authority emanate from the confusion that the Appellant provides the services in question, whereas the Appellant at best acts as an agency to procure services and allocate cost to various Participating Group Companies for which it can claim an amount of Rs. One Crore jointly from all participating group compan .....

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hat 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 o .....

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evidence, and contrary to the findings recorded in earlier part of the same impugned Order (in para 4.3 thereof). 5.11 We find that the activity of incurring cost as service is not in the nature of outsourced activity as contemplated in the definition of Business Support Services and therefore would not be taxable under the category of Business Support Services'. In JM Financial Services Pvt Ltd. vs. Commissioner of Services Tax, 2014 (36) STR 151, the Tribunal held that such reimbursement .....

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has been admitted by the appellant. So far electric charges and other expenses are concerned, the same have been received by way of share of the expenses and o service has been rendered, and accordingly, reimbursement of expenses is not leviable to Service Tax. Further, the Revenue has not discharged their onus by establishing that the taxable service has been rendered or any service has been rendered under the category of 'Business Support Services'." In Tata Technologies Limited v .....

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ultancy service to the affiliates." In Kumar Beheray Rathi vs. Commissioner of Central Excise, Pune 2014 (34) STR 139, the Tribunal held that the assessee was acting merely as a trustee or a pure agent as it was not engaged 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 reimbu .....

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(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 the service recipient are not subject to Service tax. (iv) In CBEC Circular under F.N .....

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the reimbursement of expenses were not subject to the Service tax. 5.13 There is no dispute on the fact that w.e.f. 1.5.2011, the words operational assistance for marketing" earlier appearing in clause 104 (c) of section 65 were substituted with "operational or administrative assistance in any manner', to enhance the scope of the definition of "support services of business or commerce". This amendment is only prospective in operation. Therefore, in any event, prior to 1.5 .....

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nless the link between the amount and the taxable activity can be established, the amount cannot be subjected to Service tax, in the following manner- "The importance point here is regarding the presence or absence of a link between consideration' and taxable service. It is a settled legal position that unless the link or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to Service tax. …." 5.15 The adjudicating authority er .....

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he 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 .....

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ayment to the third party; (iv) the recipient of service authorizes the service provider to make payment of his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recover .....

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rson who- (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; (b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; (c) does not use such goods or services so procured; and (d) Receives only the actual amount incurred to procure such goods or services….." 5.17 As has been discussed ab .....

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ot recovered any amount over and above the actual expenses incurred by it in facilitating the provision of common services to its Participating Group Companies. The Appellant has made the payment to the third party vendors or service provider for procurement of specified services on behalf of the Participating Group Companies. The services so procured by the Appellant has been used or availed by the Participating Group Companies. Having used the services Participating Group Companies in law woul .....

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t 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/ .....

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rmalinks Agency (I) Pvt. Ltd. Vs CCE, 2015 (37) STR 305, the Tribunal in the matter of a clearing and forwarding agent, who was receiving reimbursement towards freight charges under a separate agreement from the service recipient, held that the assessee is acting as a Pure Agent by making the payment of expenses subsequently taking the reimbursement of the same from the service recipient. Therefore, in the instant case the amount so recovered by the Appellant is in the capacity of a Pure Agent a .....

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7; 3,58,24,163/- respectively. In the certificate, the Chartered Accountant had clearly mentioned the details of suppliers and particulars of payment of principal amount together with the Service tax. The letter also states that the Appellant could produce the invoices for examination if the Respondent wished to verify the same. This CA Certificate submitted by the Appellant detailing the CENVAT Credit otherwise available to the Appellant is not even noticed in the impugned Order. The Appellant .....

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uly registered 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 th .....

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tion 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 which has held that at the time of levy of any new services if there are interpretational issue, for that purpose the person should not be penalized. Judgments are also there that wherever there is a question of interpretation of law, the assessee should not be penalized. I .....

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