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2016 (4) TMI 496 - CESTAT MUMBAI

2016 (4) TMI 496 - CESTAT MUMBAI - 2016 (42) S.T.R. 1057 (Tri. - Mumbai) - Activity of deputation of employees to group companies - Manufacturer of pharmaceutical products and having their own marketing network - Whether marketing network services provided by appellant to its group companies comes under Business auxiliary Services - Recovery of expenses in return - Held that:- as per the contract, the appellant is only deputing the employees to the group companies and said employees are called b .....

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/12-Mum - Final Order No. A/86860/2016-WZB/STB - Dated:- 5-1-2016 - MR. M.V. RAVINDRAN, MEMBER (JUDICIAL) AND MR. C.J. MATHEW, MEMBER (TECHNICAL) For the Petitioner : Shri O.P. Khanduja, Advocate For the Respondent : Ms P. Vinitha Sekher, Deputy Commissioner (AR) ORDER PER: M.V. RAVINDRAN This appeal is directed against Order-in-Original No. 62/STC-I/SKS/11-12 dated 29/02/2012. 2. The issue in brief is appellant is manufacturer of pharmaceutical products and having their own marketing network. T .....

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case of the revenue that the recovery of such expenses is in the nature of services rendered under the category of Business Auxiliary Services (promotion or marketing or sale of goods produced are belonging to the client). A show cause notice was issued for demand of the service tax liability, interest thereof and for imposition of penalties. Appellant contested the issue on merits as well as on limitation. After following the due process of law, the adjudicating authority confirmed the demand .....

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he agreement dated 8 November, 1982; he would submit that the infrastructure facility of Marketing Pharmaceutical being available with the appellant, they shared the same with their group companies and recovered the cost attributable to salary, wages, bonus, demand and incidental expenses of the employees who were deputed to the work of marketing of the group companies. He would submit that the issue is now squarely covered by the decision of the tribunal in the case of K. Raheja Real Estate Ser .....

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hat the appellant has been promoting or marketing products manufactured by group companies is the claim, which is incorrect as group companies are separate entity having identity of their own. It is her submission that having separate identity, the marketing of their goods by the appellant would be rendering the services or the services which are covered under Business Auxiliary Services and if not under Business Auxiliary Services , at least under Manpower Recruitment or Supply Services . It is .....

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rt Services or Management Consultancy Services . She would submit that the same is the view expressed by the bench in the case of Artefact Infractructure Ltd. 2016-TIOL-31-CESTAT-Mum. It is her submission that the claim of limitation as raised by the learned advocate will be on no consequence as the appellant had not informed the department regarding the services rendered by them and receipt of consideration from the other three companies. 5. We heard both sides and perused the records. 6. On p .....

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arketing of pharmaceutical products. It is also undisputed that the three companies whose products are marketed by the appellants employees are sent on deputation to group companies. 6.2. On such a factual matrix we need to consider the definition of Business Auxiliary Services which reads as under. 2.16. Business Auxiliary Services as provided in Section 65, Sub Clause 19 of the Finance Act, 1994 is as under: Business Auxiliary Services means any service in relation to- (i) Promotion or Mark .....

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billing, issue or collection or recovery of cheque payments, maintenance or Account s and remittance, inventory management, evaluation or development of prospective consumer or vendor, public relation services, management or supervision and includes services as Commission Agent but does not include Information Technology service or any activity that amount to manufacture with the meaning of clause (f) of Section 2 of the Central Excise Act, 1944. It can be seen from the above reproduced definit .....

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ent talks about lending of services of the employees as required from time to time for the marketing of the goods. It is also seen from the agreement that the employees who are deputed to the group companies are governed by the rules, terms and conditions applicable to that group company; that the goods which are manufactured by the group companies and sold by the deputed employees has to be considered as the sale of that group companies and any complaint regarding the said product has to be add .....

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services of promotion or marketing of the goods manufactured by the group companies. 6.4. We find that similar issue cropped up before the bench in the case of K.Raheja Real Estate Services Pvt. Ltd. (supra) therein the bench after considering the entire issue held as under. 6. We have carefully considered the submissions and perused the record. Undisputedly the appellant stated paying service tax with effect from May 2006 under Business Support Services. Vide the impugned order, the learned Com .....

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Thereafter proceeded to decide the valuation aspect. We also find that learned Commissioner has not given any findings on the submissions made by the appellant. On the aspect of classification thus the order passed by the learned Commissioner is not a speaking order. 6.1. As per the principle of classification of taxable service shall be determined according to the terms in sub-clauses of clause 105 of Section 65. In case, the taxable service is classifiable under two or more under sub-clauses .....

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hand. We find the same in the view expressed by this bench in the case of Mahindra & Mahindra Contech Ltd. (supra) wherein the bench relying upon the judgment of Glaxo Smithkline Pharmaceuticals Ltd. 2006 (3) STR 711, allowed the appeal filed by the assessee. It is specifically recorded that in the case of Glaxo Smithkline Pharmaceuticals Ltd. the revenue sought to put the services under Management Consultancy Services or Business Auxiliary Services . On the face of direct judgments on the v .....

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is is true not only for the period under consideration but even at present under the new Negative List Regime of taxation post-2002. Whether such service are rendered by an employee to one employer or to many, as in the case of joint employment, cannot make any difference to the tax treatment of the emoluments earned by the employee. We find support for this conclusion from a Draft Circular of the Board dated 27.7.2012 which deals with the cases of joint employment . Though a final Circular does .....

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a consideration, it shall not be a case of joint employment. 6. Another arrangement could be where one entity pays the salary and other expenses of the staff on behalf of other joint employers which are later trcouped from the other employers on an agreed basis on actual. Such recoveries will not be liable to service tax as it is merely a case of cost reimbursement. 7.1. We find that in the present case, the revenue would have had no objection if the contract of employment with the employees had .....

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be willing to sign contracts with several employer-companies who collectively do not even constitute a separate legal entity. Not only for this reason, but even for the sake of convenience in contracting and accounting, contracts of such joint employment may be signed by only one employer-company and not by all. This, however, cannot make a difference to the taxability or otherwise of the employment contract. No doubt, an employee who signs a contract of employment with one company can legitimat .....

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