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TMI Blog2021 (4) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed at Para 5 of the notice under proviso to Section 73(1) Finance Act, 1994 and Section 73(2) of the Finance Act, 1994 (iii) demand the Service Tax amount of Rs. 5,99,09,585/- on income received in foreign currency as discussed at Para 7 of the notice under proviso to Section 73(1) Finance Act, 1994 and Section 73(2) of the Finance Act, 1994 (iv) appropriate interest, on the Service Tax quantified at (i) to (iii) above under the provision of Section 5 of the Finance Act, 1994 (V) penalty of Rs. 10,000/- under Section 77(1)(a) of the Finance Act, 1994 and Rs. 10,000/- under Section 77(2) of the Finance Act, 1994 (vi) penalty of Rs. 43,85,68,253/- on the assessee in terms of Section 78 of the Finance Act, 1994 2. Briefly the facts of the present case are that the appellants are engaged in the manufacturing, trading and maintenance of Automated Teller Machines (ATM) and registered with the Service Tax Department for the taxable services falling in the category of Scientific and Technical Services, ATM Operation Services, Management, Maintenance or Repair Services, Works Contract Services, Renting of Immovable Property Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod FY 2006-07 to 2010-11, to the tune of INR 22,65,61,831/- along with the applicable interest. b) That on review of Balance Sheet of the Company for FY 2006-07, it was observed that the Company had incurred certain expenses in foreign exchange, categorized as 'Travel and 'Others in the balance sheet, which were related to the 'Professional Services' received under the ISA as referred to supra. As per provisions of Section 67 of the Finance Act, 1994 (hereinafter referred to as 'the Act') read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006, all expenses incurred in relation to provision of main services were includible in the gross value charged for provision of such service, and thereafter, leviable to Service Tax. Accordingly, such expenses incurred are to be included in the value of service referred to supra, and chargeable to service tax under the Reverse Charge Mechanism, under the taxable category of Business Support Services. Similar observation was made for the period FY 2007-08 to 2010-11 as well. The Authorities proposed to demand service tax to the tune of INR 15,20,96,837/- on this account, along with the applicable interest. c)&n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest and equal amount of penalty under Section 78. Aggrieved by the impugned order, the appellant filed the present appeal. 4. Heard both the parties and perused the records of the case. 5. Learned Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts, the law and the binding judicial precedents. He further submitted that in the present case following three issues are involved which are enumerated below: i. Whether the Appellant is liable to pay service tax for Group Company cross charge received from its overseas group company, under BSS category? ii. Whether the Appellant is liable to pay service tax on travel reimbursement paid to its own employees for their overseas business travel? And whether the Appellant is liable to pay service charge on third party vendor cross charge received from the overseas group companies? iii. Whether the Appellant is liable to pay service tax on employee-cost charged received from its overseas group companies? 6. With regard to first issue as to whether the appellant is liable to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gerial employees requiring specific business expertise and as per the learned Counsel, these services will not qualify as BSS. Learned Counsel further submitted that there is no finding whatsoever, other than mere assertion made in the impugned order before classifying these services as BSS. It can be seen from the definition of BSS that it contains various services. Neither the SCN nor the OIO clarifies how the services for which cross charge is received will qualify as Business Support Service. It is settled principle in law that the onus to prove taxability is on the revenue. He further submitted that that there was a significant amendment in the definition of BSS with effect from 01.05.2011 and the said amendment was clarified in the CBEC Circular F. No. 334/3/2011-TRU dated 28.02.2011 as under: 5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource. 5.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. He further submitted that these are mere pooling of costs to pay to a common vendor or operational or administrative assistance services received and hence not liable to be taxed as BSS for the same reasons stated overleaf. In support of non-taxability of all the above services due to cost sharing nature or in the nature of operational and administrative assistance taxable with effect from 01.05.2011, the Appellant refers to and relies upon the following decisions: a) Reliance ADA Group Pvt. Ltd. vs Commissioner of S.T., Mumbai-IV, 2016 (43) STR 372 (Tri-Mumbai) (page no. 9 of compilation) b) Historic Resort Hotels (Pvt.) Ltd. vs Commissioner of C. Ex., Jaipur-II, 2018 (9) GSTL 422 (Tri-Del.) (page no. 16 of compilation) c) HT Media Ltd vs Commissioner of Service Tax, New Delhi, 2017 (7) GSTL 364 (Tri-Del.) (page no. 18 of compilation) 7.1. As far as the third issue as to whether the appellant is liable to pay service tax on employee-cost cross charged to its overseas group companies, the learned Counsel submitted that the appellant receives cross charge from its overseas group company, at times, the Appellant also cross charges its overseas group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any suppression of material facts with intent to evade payment of duty. He further submitted that for the half-year October 2006 to March 2007, the appellant had filed the return on 18.04.2007 and hence the SCN issued on 24.04.2012 is beyond even the extended period of 5 years and thus not sustainable in law. Learned Counsel further submitted that the appellant have been subjected to various audits from time to time and the appellants have submitted the details of foreign exchange expenses including Integrated Services Agreement with the Revenue and the Revenue was in the know of these transactions all the times and therefore the appellant cannot be charged with the suppression or wilful mis-statement and hence the demand for the extended period is not sustainable in the present case. He also submitted that considering the situation revenue neutral, the charge of suppression will not be sustainable against the Appellant as the Appellant themselves were eligible for credit on these services, the demand alleging suppression, etc. for invoking of extended period and levy of penalties will not be sustainable. For this submission the appellant has relied upon the following decisions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility is on the Revenue and without putting the Appellant to specific notice, mere vague allegations and confirmation thereof are not sustainable in law because the SCN is the foundation of litigation and needs to put the Appellant to specific notice. For this submission, he relied upon the following decisions: a) CCE, Bangalore vs Brindavan Beverages - 2007 (213) E.L.T. 487 (S.C.) b) Union of India vs Garware Nylons Ltd., 1996 (87) E.L.T. 12 (S.C.) 7.5. Learned Counsel also submitted that after 1st May 2011, the appellant had started paying service tax under the taxable "Business Support Services" on cross charge payments made to the overseas entity on account of employee's costs or third party vendor costs, under reverse charge mechanism and the revenue has accepted the same. 8. On the other hand, learned AR strongly opposed grant of any relief to the appellant and submitted that the findings recorded in the impugned order are detailed, legal and proper. She took us through the relevant findings recorded in the Order-in-Original and attempted to distinguish the judgments relied upon by the appellant and persuaded us to dismiss the appeal and uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, [operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Explanation- For the purposes of this clause, the expression "infrastructural support services" includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;] 9.2. It is also relevant to reproduce the relevant Circular No.334/4/2006/TRU dated 28.02.2006 and Circular No. 334/3/2011/TRU dated 28.02.2011: 3.13. "Business Support Services: Business entities outsource a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the agreement the nature of services is not specifically mentioned but it provides sharing of cost incurred by the service providers in providing the services. Here it is relevant to reproduce the relevant Para of Integrated Services Agreement relating to cost sharing which is contained in Para 2B of the Agreement and reproduced herein below: "b. Because the Service Recipients directly benefit from the Services, the Fees will include a share of the total costs incurred by the Service Providers in providing the Services, which is proportionate to the benefits each Service Recipient receives from the Service. Additionally, a reasonable mark-up over cost will be included in the Fees to the extent required under internationally-accepted arm's-length standards relating to the charging of services between related parties. The Fees for each Service Recipient will be calculated according to methodologies provided in Appendix A." 10.2. Further, we find that as per the various Circulars cited supra issued by the Service Tax authorities, which specifies that for a transaction to liable to service tax under the category of Business Support Service, an element of outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islation during the disputed period and has confirmed the demand based on the reasoning and understanding which is not inconsonance with the provision of the law during the disputed period. We also find that the Tribunal in the case of Reliance ADA Group Pvt. Ltd. (cited supra) by the appellant, the Division Bench of the Tribunal has held that cost sharing agreement between the group entities are not subject to service tax prior to 01.05.2011. 10.4. In view of our discussion above, we are of the opinion that even if it is assumed that under the Integrated Services Agreement, the foreign company is providing any operational or administrative assistance to the appellant, then the same shall be taxable only w.e.f. 01.05.2011 and not prior to that. It is settled principle in law that when the scope of the taxable service is expanded, it will have only prospective effect. Further, it is not disputed that w.e.f. 01.05.2011, the appellant is paying the service tax under the category of Business Support Service hence the confirmation of demand under the Business Support Service for the disputed period is not sustainable in law and therefore we decide this issue in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in the hands of the appellant under Section 66A of the Finance Act, 1994. 10.7. Now coming to Part B of issue number two which relates to whether the expenses incurred under the category of "Others" would be liable to service tax or not? It is to be noted that the Department has proposed to tax such other expenses by holding that same have been incurred pursuant to Integrated Services Agreement entered into by the appellant and accordingly, by virtue of Section 5(1) of the Variation Rules, shall be includable in the value of such professional services received under the Integrated Services Agreement. On the other hand, the stand of the appellant from the very beginning when audit took place in 2004-05 was that these other expenses incurred in foreign exchange represent cost sharing expenses relating to certain functional points of a specific nature. Integrated Services Agreement charges and such other expenses are similar in the sense that Integrated Services Agreement charge represents the cost sharing with receipt, salary of employees whereas other expenses represents the cost shared in relation to certain other functional areas, hence the appellant submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group entities under the Integrated Services Agreement. Whereas on the other hand, the stand of the appellant is that appellant has cross charged its overseas Group Company towards its employee cost, for which payment is received in foreign exchange. As per the appellant, the activities undertaken by the appellant for the group entities located outside India are mainly by way of advice, consultancy or technical assistance in relation to financial management, HRD, marketing management, production management etc. Further, the appellant submitted that assuming but not admitting that the transaction clarifies as provision of service, then the company shall be eligible to claim exemption from payment of service tax as per the provisions of Export of Service Rules 2005. After examining the stand taken by both the parties and perusal of the material on record, we find that the appellant has provided various services to its group entities located outside India and has cross charged its overseas Group Company towards its employee cost which cannot be construed as provision of service and hence cannot be taxed under Business Support Service as sought to be done by the learned Commissioner. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation of each of the audit objection and there after nothing was done to issue the show-cause notice. Further we find that the appellant has also produced the reply to the audit objection for the period April 2004 to December 2005 vide Exhibit 1 dated 05/04/2006 whereby the appellant has informed the Department that foreign remittances are not paid for any services rendered to NCR India and is purely an expenses sharing process as required by the US law and also mandated by transfer pricing rules which have become applicable in India under Indian Income Tax law and the copy of the Integrated Service Agreement was also provided during the audit in the month of April 2006 itself whereas the learned Commissioner in the order has noted that the copy of the agreement was provided in 2010. We also find that for the period January 2006 to March 2007, appellant was also subjected to service tax audit during the financial year 2007-08 and appellant received the audit enquiry dated 20/06/2007 based on review of balance sheet for the period 2005-06 and appellant filed reply vide its letter dated 28/06/2007 clarifying that the expenses in relation to professional services we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inental Foundation Jt. Venture Vs. CCE, Chandigarh-I [2007(216) ELT 177 (SC)], the Hon'ble Apex Court has held in para 10 as under:- 10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. 13. We also find that the respondent has erred in passing the impugned order without considering that the demand raised is revenue neutral as service tax paid under reverse charge would be availa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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