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TMI Blog2025 (5) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... g and installation services, Works contract service, Maintenance & repair services, Business Support service, Commercial training & coaching service, Market research agency, Management Consultants, Manpower Recruitment agency, Storage & Warehousing service, Technical Inspection & Certification, GTA, and Sponsorship service etc. and are registered with Service Tax Department. Revenue got the audit of the records of the appellant, conducted by a special auditor, M/s Gianender & Associates, under Section 72A of the Finance Act,1994; On the basis of Scrutiny of the Records, it appeared to the department that the appellant evaded payment of service Tax, on various services, as below. Category of service Amount Remarks Management or Business Consultancy Services received from outside India 2011-12 3,66,07,637 Expenses incurred under project management service in favour of M/s. Huawei Technology Limited, China Market Research Agency Services claimed as Export of Service (2010-11 to 2011-12) 11,92,94,464 Appellant paid service tax under Business Auxiliary Service and claimed rebate/refund erroneously whereas the said services were falling under Market Research Agency service Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest and penalty. The order summarized in respect of Show Cause Notice dated22.01.2016 is as follows. Category of service Amount of Service Tax demanded Order in OIO Management or Business Consultancy Services received from outside India 2011-12 3,66,07,637 Dropped the demand holding that the services provided by Huawei, China in Nepal falls under Erection, Commissioning or Installation service and not under Management or Business Consultancy Services as alleged in the SHOW CAUSE NOTICE. Market Research Agency Services claimed as Export of Service (2010-11to 2011-12) 11,92,94,464 confirmed the allegation of SHOW CAUSE NOTICE and ordered for recovery of erroneously sanctioned rebate/refund under proviso to section 73(1) along with interest and equal penalty under section 78 of the Act. Banking and other Financial Services under RCM-Corporate Guarantee given by M/s. The Overseas Associate Enterprises to Banks on behalf of appellant (2010-11 to 2014-15) 10,69,70,856 (SHOW CAUSE NOTICE dated 22.01.2016) confirmed the demand of service tax along with interest and penalty of Rs. 39,63,852/- under section 76 (for SHOW CAUSE NOTICE dated 19.04.2016) & equal penalty of Rs. 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, dated 08.01.2020, confirmed the demand of service tax of Rs 2,92,14,000/- along with interest and penalty of Rs. 50,00,000 under Section 76 and a penalty of Rs. 10000 under section 77 of the Act. Being aggrieved, the appellant has filed appeal No. ST/60160/2020. 3. Shri Tarun Gulati, Learned Senior counsel for the appellants submits that Appeals Nos. ST/61636/2018 (by assessee ) and No. ST/61696/2018 (by Department's Appeal) are against common Impugned Order dated 14.06.2018, vide which, Learned Commissioner rejected the appellant's claim of export Business Auxiliary Services, confirmed demand on account of corporate guarantee services received from overseas associated enterprises and irregular availment of Cenvat Credit along with interest and penalties but dropped demand on account of alleged import of "Management or Business Consultancy Service" and alleged differences on re-conciliation between financial statements and ST-3 returns; Appeal No. ST/60160/2020 (by the appellant) was filed against Order dated 08.01.2020, wherein demand on corporate guarantees, for subsequent period, was confirmed. He submitted specific details of demand and amounts are captured in the Basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (SC), wherein it is held that delegation of entire operation does not amount to merely rendering an advise or consultancy; the terminology used in financial statements and invoices cannot be solely considered for determining classification as held in ONGC Ltd - 2017 (6) GSTL 537 (Tri. Mumbai); British Physical Laboratories (1) Ltd 1999 (107) ELT 107 (Tri); Basti Sugar Mills Co. 2007 (7) STR 431 (Tri Del.) and 2012 (25) STR H154 (SC); Merti Trac Services Pvt Ltd - (2023) 10 Centax 74 (Tri. Bang.); Daelim Industrial Co. Ltd - 2003 (155) ELT 457 (Tri. Del.) and 2007 (5) STR J99 (SC) and TGL Poshak Corporation- 2002 (140) ELT 187 (Tri-Chennai). Service Tax demand of Rebate Claimed under "Market Research Agency" services 5. Learned Senior Counsel submits that Learned Commissioner Confirmed demand of Rs. 11,92,94,464/-along with equivalent penalty and interest, for the period, December 2010-March, 2011 on the grounds that the subject services appear to be MRAS as the Assessee is supposed to explore the market for overseas entity and such activities fall under MRAS; rebate order dated 26.12.2013) is erroneous and the rebate granted is liable to be recovered; the Assessee classified se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd ST/60160/2020) 6. Learned Senior Counsel submits that the Impugned Orders confirmed demand of Rs 4,66,09,376 and 2,92,14,000 along with interest and penalty, for the period December 2010-March, 2014, on the ground that the term banking and other financial services in Section 65(12) encompasses various services including bank guarantee; Function of bank guarantee is akin to corporate guarantee; the activity/transaction involves benefits to Huawei and in the absence of this activity/transaction, it would have incurred certain costs and the value of consideration was determined @ 2% of the guaranteed amount relying on the Safe Harbour Rules. 6.1. Learned Senior Counsel submits also that there is no service nor any consideration involved in cases where corporate guarantee is provided by the associated enterprises to the banks for working capital related loans required; it is held in a number of cases that no Service Tax, under the category of banking and other financial services, can be demanded on Corporate Guarantee provided by Associated Enterprise by the Assessee and that there is no provision under the Finance Act, 1944 to impose any notional value on services; he relies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering (P) Ltd 2014 (310) ELT 509. Double availment of CENVAT credit on input services; Time Bar; Penalties etc 9. Learned Senior Counsel submits further that the appellant has paid of Rs. 92,78,438 towards Service Tax liability along with interest of Rs. 44,82,945, on the double availment of Cenvat credit and Service Tax liability on various other services; impugned order appropriates the same and imposes penalty of equivalent amount; the appellant has not committed any positive act in order to wrongfully avail Cenvat Credit; moreover, the amount of demand was paid along with interest before Issuance of Show Cause Notice; as held in Bio Med Health Care Products 2015 (37) STR 381 (Tri.-Delhi) and DLF Home (supra) no show cause notice is required to be issued under Section 73(1) of the Finance Act, 1994, in terms of Section 73(3), where the Assessee pays the service tax; no penalty is imposable. He relies on Chemphar Drugs and Liniments, 1989 (40) ELT 276 (SC)Chemphar Drugs and Liniments, 1989 (40) ELT 276 (SC) Hindustan Steel 1978 (2) ELT J159 (SC)Hindustan Steel 1978 (2) ELT J159 (SC) Pushpam Pharmaceuticals Company 1995 (78) ELT 401 (S.C.)Pushpam Pharmaceuticals Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Guwahati in the case of Laxmi Narayan Sahu 2018 (19) G.S.T.L. 626 (Gau.) Submissions on claim of the appellants that the services provided by them qualify as business auxiliary service (BAS) 11. Learned Special Counsel takes us through various clauses of the agreement, CBEC Letter No. 11/3/98-TRU dated 07.10.1998 and submits that it may be noticed from the key features of the two agreements that though the wordings have changed in the agreement of 2009, yet the nature of the major and significant services undertaken by the appellant viz. "providing information on customers", "Liaising with customers for obtaining inquiries or feedback or correspondence concerning the products", "development of market plan or providing information related to Indian market, customers, vendors etc" did not change even after April 2009; the said activities majorly fall under the category of MRAS and not under BAS as per the definition of MRAS contained in section 65(69) of the Act; it is undisputed on record that the appellant classified the services provided under the said agreement as MRAS till March 2010 and thereafter they unilaterally changed the classification of the same service t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant; the case of Medallion Consulting relied upon by the appellant is based on facts which are not relevant to the case in hand and the appellant has not brought any evidence on record any report on market research sent to their service recipients; he relies on Alnoori Tobacco Products 2004 (170) ELT 135 (SC), Srikumar Agencies 2008 (232) ELT 577 (SC) and Allied Airconditioning Corporation 2006 (202) ELT 209 (SC) and submits that cases with no comparable facts cannot be relied upon. On the submission that refund cannot be demanded back without appealing against the order sanctioning refund. 14. Learned Special Counsel submits that this plea was also not raised before the adjudicating authority, as the same has not been addressed in the impugned order. Hence, its being an additional ground, which was not adjudicated at lower level cannot be allowed to be presented before Tribunal as per settled law; cases relied upon by the appellant were examined critically by the Hon'ble High Court of Bombay in an identical facts and circumstances as is involved in the instant case, and held in case of Indian Dyestuff Industries Ltd vs UOI 2003 (161) ELT 12 (Bom.) and it was held that the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate guarantee is used as a substitute to Bank Guarantee; it helped in reduction of the cost of funding in the form of lower rate of interest to the appellant; it benefitted the appellant in two ways, one in form of lower rate of interest on loans and secondly in the form of zero cost for corporate guarantee to be provided to the lender/ bank; taxable value in the matter has to be determined under section 67(1)(ii) of the Act read with Service Tax (Determination of Value) Rules 2006 (Valuation Rules in short); SHOW CAUSE NOTICE has applied a notional rate of 2% as prescribed for International transactions between Associated Enterprises as per Rule 10TC(V)(a) of Safe Harbour Rules in Income Tax Law, for the purpose of determining the taxable value; the plea of the appellant that corporate guarantee is not akin to bank guarantee has been rejected by the impugned OIO; case of Glenmark Pharmaceuticals Ltd of ITAT relied upon by the appellant has also been found not relevant to the case. 15.2. Learned Special Counsel submits that relying on Sterlite Industries Ltd 2014 (35) STR 849 (T-Chennai) and ED Chennai vs ICOMM Tele Ltd 2017 (347) ELT 717 (ATFE), the adjudicating authority obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order, conceding that no consideration was actually paid by the appellant to Huawei Tech; however, the provisions of section 67(1)(iii) of the Act clearly become operational in such kind of situation, where the activity involves benefit to the appellant as in absence of such corporate guarantee they would have incurred certain cost for seeking loans from the banks as per prevalent practice; Rule 3(b) of Valuation Rules, 2006 provides the manner of determination of value stating in cases where the value cannot be determined as equivalent money value of such consideration; notional value was taken as per Safe Harbour Rules for the corporate guarantee given in international transaction; hence, the same cannot be found to be unreasonable at all; the case laws relied upon by the appellant are not applicable to facts of this case. 15.4. Learned Special Counsel submits as regards the appellants submissions in Appeal No. ST/16160/2020 filed against the impugned order dated 03.01.2020 that apart from the aforesaid grounds, the appellant has relied upon the case of L&T Ltd 2016(44)STR 391 (Guj), Bhayana Builders 2018 (10) GSTL 118 (SC), DLF Cybercity Developers Ltd 2019 (28) GSTL 478 (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42) S.T.R. 417 (S.C.) 18. Learned Special Counsel submits, on the issue of demand of penalty and interest after reversal of CENVAT Credit, which was only availed but not utilised, before issuance of Notice, and Payment of Service Tax, for, that the provisions of Section 73(3) of the Act are applicable only subject to ingredients provided in Section 73(4) of the Act; since the case has been held to involve suppression of facts with intent to evade payment of service tax, the plea is liable to be rejected in terms of provisions of section 73(4) of the Act. Learned Special Counsel submits, on the issue of applicability of interest when credit availed is reversed without utilization, and appellant's reliance on the case of M/s. Strategic Engineering (P) Ltd. 2014-TIOL466-HC-MAD-CX, learned Counsel submits that the point may be considered if the appellant had not utilised the credit during the period under examination. Learned Counsel submits on the reversal of Cenvat credit of Rs 82,82,930, which was erroneously availed and utilized by the Appellant, that due to suppression of facts with intent to evade payment of duty, the appellant has rendered themselves liable to pay penalty under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brief issues that require consideration in the appeals are as to (i) whether the Learned Commissioner was correct in dropping the demand of Rs 3,66,07,637, on services received from M/s HTCL, China, during 2011-12, holding that the services provided by Huawei, China in Nepal fall under 'Erection, Commissioning or Installation service' and not under 'Management or Business Consultancy Services' as alleged in the Show Cause Notice. (ii). whether the Learned Commissioner was correct in dropping the demand of Rs 6,75,40,376, on the basis of reconciliation submitted by the appellant during adjudication, out of the demand issued on the basis of discrepancy of accounts?? (iii). Whether the appellants are eligible to rebate of Rs 11,92,94,464, along with interest and equal penalty, considering the Market Research Agency Services, claimed as Export of Service, during 2010-11to 2011-12?? and as to whether it was open for the Revenue to Recover, the rebate already sanctioned, invoking proviso to section 73(1) along with interest and equal penalty under section 78 of the Act, holding the same to be 'Erroneous Refund' without reviewing/appealing against the rebate sanctioning order?? (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only and not the actual performance of the function. We find that learned Commissioner has considered a certificate, produced by the appellants, from M/s Huawei Technologies Co. Ltd., stating that activities undertaken by them as per the Agreement dated 09.12.2010 and that in order to undertake the principal activity of installation of equipment, the following activities were undertaken by Huawei, China: Physical handling of material to be installed, unpacking of Physical handling of material to be installed, unpacking of materials.materials. Verification of materials on the basis of agreed packing listVerification of materials on the basis of agreed packing list.. Installation of Basement Unit of BTS & DDCU.Installation of Basement Unit of BTS & DDCU. Installation of RRU.Installation of RRU. Connecting telecom equipment and cables.Connecting telecom equipment and cables. After installation, testing of installed hardware.After installation, testing of installed hardware. 22.1. Learned Special Counsel for the Revenue submits that Network Roll-out Service is a composite service as it comprises of delivery and installation of mobile network system; it includes project man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so described the work to be network roll-out. We are of the considered opinion that the nature of the work cannot be inferred from the terminology used in the books of accounts but it has to be taken from the terms of the agreement and the actual service performed. Roll-out of 2G/ 3G understandably involves laying of cables, towers etc. and as such, involves actual installation and not Consultancy or Management Service. Therefore, we find that there is no infirmity in the findings of the learned Commissioner, who has based his observations on the terms of the contract. To this extent, we find that Revenue has not made out any case for confirmation of duty under Management, Consultancy Services and the appeal No. ST/61696/2018 filed by Revenue, as far as it relates to the dropping of demand of Rs.3,66,07,677/- is concerned, liable to be rejected. 23. Coming to the question, as at No.(ii) in Para 19 above as to whether the Learned Commissioner was correct in dropping the demand of Rs 6,75,40,376, on the basis of reconciliation submitted by the appellant during adjudication, out of the demand issued on the basis of discrepancy of accounts, we find that the noticee submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Export of Service, during 2010-11to 2011-12?? and as to whether it was open for the Revenue to Recover, the rebate already sanctioned, invoking proviso to section 73(1) along with interest and equal penalty under section 78 of the Act, holding the same to be 'Erroneous Refund' without reviewing/appealing against the rebate sanctioning order. We find that the appellants classified services under MRAS till March, 2010 and thereafter changed the classification to BAS; Adjudicating Authority confirmed the demand, for the period, December 2010 - March, 2011, on the grounds that the subject services appear to be MRAS, as the Assessee is supposed to explore the market for overseas entity and such activities fall under MRAS. The appellant pleads that the services provided by the Appellant to Huawei Technologies Co. Ltd (Huawei China) and Huawei International Pte Ltd (Huawei Singapore) qualify as BAS in terms of Section 65(19) of the Act. 24.1. On going through the definition of the Services Agreement between Huawei China/Singapore as the services provided by the Appellant, we find that the services are in relation to promotion and marketing of goods, customer services, development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecovery of any duty of excise which has not been levied or paid or has been short levied or short paid or erroneously refunded. The recovery of such amount of excise duty can be made under Section 11A(1) irrespective of whether such non 11 levy or nonpayment or short levy or short payment or erroneously refund was on the basis of any approval, acceptance or assessment relating to rate of duty or on valuation of excisable goods under any other provisions of this Act, or Rules made thereunder. 29. Section 35 of the Act, provides for appeals to Commissioner (Appeals), wherein any person aggrieved by any decision or order passed under this Act, may appeal within 60 days from the date of communication. Further, Section 35E which confers power on Committee of Chief Commissioner of Central Excise to either call for and examine the records of any proceedings in which a Principal Chief Commissioner of Central Excise or Commissioner of Central Excise as an Adjudicating authority has passed a decision or order under the Act, and may direct such Commissioner or any other Commissioner to apply before Appellate Tribunal for decision. While Section 11B of the Act, provides for claim for refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accompanied by documents referred to in Sub-section (1) of Section 11B to establish that amount of duty of excise and interest, if any paid on such duty in relation to which such refund is claimed was collected from, or paid by him and the incidence of such duty and interest, if any, paid on such duty has not been passed on by him to any other person. It is on the receipt of this application, Assistant Commissioner or Deputy Commissioner of Central Excise, if satisfied may make an order for refund. Thus, it is only after the adjudication of the application that an order of refund of duty and interest is passed. 34. Sub-section (3) of Section 11B which is a non-obstante clause makes it clear that dehors any judgment, decree, order or direction of appellate Tribunal or Court or any other provision of the Act, no refund shall be made except as provided in Sub-section (2). Thus, the procedure prescribed under Section 11B not only regulates the manner and form in which an application for refund is to be made but also prescribes period of limitation as well as method of adjudication in which refund has to be made. 35. Thus, Section 11B assumes great significance, as any order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner (Appeals). Meaning thereby that it is always open to Principal Commissioner or Commissioner or Central Excise to examine the order passed by adjudicating authority under Section 11B and direct the competent authority to file appeal against order of refund. In the present case, order of refund was never taken to higher forum and it became final. 40. Decisions relied upon by the counsel for the revenue in case of Jain Shudh Vanaspati (supra) relates to proceedings which were vitiated by fraud. Further, the Apex Court recorded a clear finding that goods were cleared for home consumption under Section 47 of the Act, by playing fraud upon the Department. Therefore, the Court held that fraud vitiates all solemn Acts, while in present case department has not alleged any fraud upon the petitioner-assessee. 41. Further reliance placed by counsel for revenue on the decision of Addison and Company (supra), wherein it was held that recovery under Section 11A can be made where excise duty was refunded erroneously, but the Apex Court had also held that where the incidence of duty was not passed on and the assessee had borne burden of duty, thus he was entitled for the refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming to the issue, at question No (iv) as at Para 19 above, as to whether the appellants were required to pay service tax of Rs 10,69,70,856 plus Rs 3,96,38,520, along with interest and penalty on the reverse charge mechanism, on the Banking and other Financial Services, for the Corporate Guarantee given by the Overseas Associate Enterprises to Banks, during the period 2010-11 to 2014-15, on behalf of appellant, we find the adjudicating authority finds that the term banking and other financial services in Section 65(12) encompasses various services including bank guarantee; Function of bank guarantee is akin to corporate guarantee; the activity/transaction involves benefits to Huawei and in the absence of this activity/transaction; it would have incurred certain costs. He submits that the Adjudicating authority incorrectly relies on the Safe Harbour Rules for determining the value of consideration as 2% of the guaranteed amount. 25.1. Learned Counsel for the appellants submits that the issue is no longer res integra; there is neither a service nor any consideration involved in cases where corporate guarantee is provided by the associated enterprises to the banks for working capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. A/85986/2022 dated 16.02.2022) held that: 8. The criticality of "consideration" for determination of service, as defined in section 65B(44) of Finance Act, 1994, for the disputed period after introduction of "negative list" regime of taxation has been rightly construed by the adjudicating authority. Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation 7 ST/87134/2018 to another, reveal a "provider", but also the flow of "consideration" for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as "corporate guarantee" issued by respondent on behalf of their subsidiary companies is concerned. 25.2. We find that the ratio of the above case was followed in Jindal Stainless Steel; Sterlite Industries India Ltd. and Sowar Pvt Ltd (all supra) holding that Extending Corporate Guarantee is not a taxable service. We also find that there is no provision under the Finance Act, 1944 to impose any notional value on services. In view of the same, we find that the issue is decided in favour of the appellants. 26. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 2011-12 + Rs 3,60,500 on non-payment of service tax under RCM on expenses for Sponsorship services, during 2011-12 + Rs 5,59,344 on short payment of service tax under Erection and Commissioning and Installation Service, during 2010-11 to 2011-12), however the appellants submit that they have paid duty along with interest; even then penalty was imposed. Under the facts and circumstances of the case, where mens rea was not established, looking into the fact that the appellants had sufficient balance and have paid the service tax before issuance of show cause notice, we find that no penalty can be imposed. We find that the Tribunal held in the case of Bio -Med Healthcare Products Pvt Ltd (supra) that no show cause notice is required to be issued when service tax stands paid by the appellant. 28. In view of the above discussions and findings, the appeal Nos.ST/61636/2018; ST/60160/2020 filed by the appellants M/s Huwaei Telecommunications Co. India Pvt Ltd and appeal No. ST/61696/2018 filed by the Department are partly allowed in the following terms: (i) Impugned order dropping the demand of Rs.3,66,07,637/-, on account of Management Business Consultants Service, is upheld. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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