TMI Blog2024 (3) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 65(105) ibid, which enumerated each of the specified services. For the period postnegative list regime, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., service as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. In the present case, the disputed transactions have been undertaken during April, 2014 to September, 2015. Hence, there is no legal basis on which the services rendered in marketing and sales promotion could be examined with respect to definition of Business Auxiliary Services that existed in the past i.e., prior to 01.07.2012 - Further, 65B(55) ibid does not provide for the words and expressions used prior to 01.07.2012 to be made applicable in respect of Chapter V of the Finance Act, 1994 for the purpose of service tax. Hence, the findings at para 8 of the impugned order does not have any legal basis, and thus on this basis itself the demand of service tax on marketing and sales promotion service received by the appellants on RCM basis, is liable to be set aside. The nature and value of the services provided are known to both parties i.e., the service provider and a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are no strong grounds to hold that the services received by the appellants from Hoshizaki Europe BV from its Dubai office for marketing and sales promotion services are liable for payment of service tax. Further, the value of goods and materials supplied free of cost by the appellants to the service provider of taxable construction service, would be outside the taxable value or the gross amount charged in terms of Section 67 ibid. Consequently the demands of service tax and imposition of penalties confirmed in the impugned order is not legally sustainable. The adjudged demands confirmed on the appellants in the impugned order dated 14.02.2018 is liable to be set aside - Appeal allowed. - MR. S.K. MOHANTY, MEMBER (JUDICIAL) AND MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) Shri Vinay Jain along with Ms Sambhavi Dewalkar, Advocates for the Appellants Shri Piyush Badhe Barasu, Authorized Representative for the Respondent ORDER This appeal has been filed by M/s Western Refrigeration Private Limited (herein after, referred to as the appellants ), assailing Order-in- Appeal No. MKK/526/RGD APP/2017-18 dated 14.02.2018 (herein after, referred to as the impugned order ) passed by the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have preferred this appeal before the Tribunal. 3.1 Learned Advocate for the appellants contends that the appellants had entered into a contract with M/s Hoshizaki Europe BV, for connecting with potential customers in the Middle East and African Nations and for receiving sale orders of the products manufactured by appellants; essentiality the services provided by M/s Hoshizaki Europe BV included locating prospective buyers for the products manufactured by the appellants, Price negotiation with prospecting buyer, procuring sales orders from various buyers abroad etc., for the appellants. Thus he stated that the services are essentially in the nature of sales promotion and marketing. Learned Advocate further stated that the transaction of the appellants with M/s Hoshizaki Europe BV is squarely and more specifically covered by the term intermediary services , as it qualifies all the three criteria viz., nature and value of the service is not possible to be altered; value of intermediary service is invariably identifiable from the main supply of service; and services provided by intermediary on behalf of the appellants is separately identifiable and distinguished from the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financing, marketing intelligence etc. However, in their case the services provided was limited to only procurement of sales orders for the appellants and is not other marketing activities as explained above, and as such it is in the nature of commission agent services. In refuting the conclusion of the Commissioner (Appeals) holding that Rule 3 of POPS Rules shall apply in their case and not Rule 9 of POPS Rules, inasmuch as place of provision of service shall be the location of service recipient, the learned Advocate claimed that the services received by the appellants is only a part and sub-set of sales promotion activities and thus are essentially an intermediary services. Accordingly, he submitted that Rule 9 of POPS would apply to their case. He further submitted that the entire exercise is revenue neutral as service tax paid under RCM basis will be available as input credit to the appellants; and the appellants having declared all their transactions in the specified records, there was no intention to evade payment of service tax and thus the extended period of limitation for demand of service tax is not maintainable. He also cited the conclusion arrived by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006. (ii) whether the demand of service tax invoking extended period of limitation is sustainable; and (iii) whether penalty under Section 78 of the Finance Act, 1994 can be imposed on the appellants in this case. 6.2. The transactions under present dispute are covered during the period commencing from April, 2014 to September, 2015. Thus, the relevant legal provisions of the Finance Act, 1994, as applicable in the present case are of post negative list regime i.e., after 01.07.2012, and the same are extracted and given below: Finance Act, 1994 65 . (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include (a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation. For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of the client; or (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, 5[but does not include any activity that amounts to manufacture of excisable goods.] Explanation. For the removal of doubts, it is hereby declared that for the purposes of this clause, (a) commission agent means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person (i) deals with goods or services or documents of title to such goods or services; or (ii) co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration. Service Tax (Determination of Value) Rules, 2006 (Notification No. 12/2006-S.T., dated 19-04-2006 as amended) 2. Definitions. In these rules, unless the context otherwise requires, (a) Act means the Finance Act, 1994 (32 of 1994); (b) section means the section of the Act; (c) value shall have the meaning assigned to it in section 67; (d) words and expressions used in these rules and not defined but defined in the Act shall have the meaning respectively assigned to them in the Act. 2A . Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:- (i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total amount charged for the works contract; Explanation 1. - For the purposes of this rule,- (a) original works means- (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; 7. From plain reading of the above legal provisions, it transpires that for the period relating to the pre-negative list regime i.e., prior to 01.07.2012, the taxability was determined in terms of coverage of an activity under the service tax net to be defined as taxable service under Section 65(105) ibid, which enumerated each of the specified services. For the period postnegative list regime, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., service as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. In the present case, the disputed transactions have been undertaken during April, 2014 to September, 2015. Hence, there is no legal basis on which the services rendered in marketing and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the services by Hoshizaki Europe to Western. 2. Appointment: Western appoints Hoshizaki to avail the services subject to the terms and conditions of this Agreement. In order to provide the aforesaid services to Western, Hoshizaki Europe will appoint dedicated personnel of managerial cadre and its Dubai Office to support and enhance Western s export business. 5. Services: Service is to be provided by Hoshizaki Europe to Western shall include: Sales promotion Marketing In order to provide the aforesaid services to Western, Hoshizaki Europe we find dedicated personnel of managerial cadre and its Dubai Office to support and enhance Western s export business. Hoshizaki Europe undertakes to provide the services to Western and further undertakes that any of its personnel used to render the services shall be competent to do so. The identified personnel appointed by Hoshizaki Europe to render the services to Western, will be an employee of Hoshizaki Europe in the bill work from Hoshizaki Europe s Dubai office to facilitate an increase Western s export business. 6. Service fee: Hoshizaki Europe shall charge Western the service fee for the supply of services. The service fee shall con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. It is claimed by the appellants that the nature of services received from Dubai office of service provider is an intermediary service, for which the applicable rule under POPS is Rule 9; whereas the Department has claimed that the applicable rule under POPS is Rule 3. In order to determine the correct application of the Rule, we have also examined the definition of the phrase intermediary services provided in Rule 2 ibid. Inasmuch as, the Dubai office of Hoshizaki Europe BV i.e., the service provider, had arranged for marketing and sales promotion service to the appellants, for supply of goods from their manufacturing facility in India to customers situated abroad, it is clearly proved that these services are covered under the definition intermediary services . 8.3 At the time of introduction of negative list regime of service tax, the Ministry of Finance had issued an Education Guide on Taxation of Services . The relevant paragraph dealing with intermediary services the clarification providing on the scope of levy are extracted as follows: 5.9.6 What are Intermediary Services ? Generally, an intermediary is a person who arranges or facilitates a supply of goods, or a provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfilled in the present case. The main transaction between the appellants and the customers situated abroad, is the sale of goods manufactured by the appellants; and this is distinct and is completely different from the services provided by Hoshizaki Europe BV. Thus, we find that all the three criteria laid down by the CBIC s clarification is fulfilled in the present case to categorize the disputed services, as intermediary services . 8.5 Further, we also find that Ministry of Finance vide its notification dated 11.07.2014 had also amended the definition of intermediary in order to include specifically the supply of goods , as follows: [TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance (Department of Revenue) Notification No. 14/2014-Service Tax New Delhi, the 11thJuly, 2014 G.S.R.....(E).- In exercise of the powers conferred by sub-section (1) of section 66C and clause (hhh) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules to amend the Place of Provision of Services Rules, 2012, namely: (1) (1) These rules may be called th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of Section 67 ibid. The relevant paragraph of the said order is extracted below: 16 . In conclusion we answer the reference as follows : (a) The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994; and (b) Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-S.T., including the Explanation thereto as introduced by Notification No. 4/2005-S.T. 9.2 We further find that Hon ble Supreme Court in the Civil Appeal filed by the department in the above case of Bhayana Builders Pvt. Ltd. (supra) had also upheld the Order of the Tribunal by dismissing the Civil Appeal filed by the department. The relevant paragraphs in the above order of the Hon ble Apex Court is extracted below: 15 . It was argued that payment received in any form and any amount credited or debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. 17 . Faced with the aforesaid situation, the argument of the Learned Counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated March 1, 2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67% : 33% and to provide a ready formula for paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h goods and materials for the purpose of arriving at gross amount charged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount gross amount charged . 19 . Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala v. M/s. Larsen Toubro Ltd. - (2016) 1 SCC 170 = 2015 (39) S.T.R. 913 (S.C.). This Court was concerned with exemption notifications which were issued in respect of taxable services covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five taxable services [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under : 23. A close look at the Finance Act, 1994 would show that the fixed taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines taxable serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said that there is any intention to evade payment of duty, which is a pre-requisite for invoking the extending period of limitation. In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute being revenue neutral. This being the case the invocation of extended period of limitation is clearly not justified :- (a) Reliance Industries Ltd. v. CCE - 2009 (244) E.L.T. 254 (Tri.) (b) CCE v. Indeos ABS Ltd. - 2010 (254) E.L.T. 628 (Guj.) (c) Mafatlal Industries Ltd. v. CCE - 2009 (241) E.L.T. 153 (T); affirmed by the Apex Court by dismissing the Civil Appeal reported in 2010 (255) E.L.T. A77 (S.C.) (d) Nirlon Ltd. v. CCE - 2015 (320) E.L.T. 22 (S.C.) 13 . The appeal is accordingly allowed and the impugned order is set aside with consequential relief in accordance with law. Thus, we find that the issue of invoking extended period of time for demand of service is answered in favour of the appellants. 10. In view of the foregoing discussions and analysis, and in terms of the judgements of the Hon ble Supreme Court, we find that there are no strong grounds to hold that the services received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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