Custom, Excise & Service Tax Tribunal
Shriram Chits Private Limited vs Hyderabad-Iii on 13 December, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
HYDERABAD
REGIONAL BENCH - COURT NO. I
Service TaxAppeal No. 27391 of 2013
(Arising out of Order-in-Original No. 13/2013-ST-HYD-III-Adjn (Commnr.)(TRF) dated
31.03.2013 passed by the Commissioner of Central Excise, Customs and Service Tax,
Hyderabad-III Commissionerate, KendriyaShulkBhavan, L.B. Stadium Road,
Basheerbagh, Hyderabad - 500 004)
M/s. Shriram Chits Private Limited, : Appellant
No. 3-6-478, 6th Floor, Anand Estates,
Opp. Indian bank,
Liberty Road, Himayat Nagar,
Hyderabad - 500 029
VERSUS
The Commissioner of C.Ex.,Cus. & Service Tax, : Respondent
Hyderabad III Commissionerate, KendriyaShulkBhavan, L.B. Stadium Road, Basheerbagh, Hyderabad - 500 004 APPEARANCE:
Shri. S. Thirumalai,Advocatefor the Appellant Shri. A. Rangadham,Authorized Representative (A.R.) for the Respondent CORAM:
HON'BLE MR. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL) HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) FINAL ORDER NO. A/31119/2019 DATE OF HEARING: 19.09.2019 DATE OF DECISION: 13.12.2019 ORDER PER: HON'BLE MR. P. DINESHA The present appeal is filed by the assessee against the Order-in-Original No. 13/2013-ST dated 31.03.2013 passed by the Commissioner of Central Excise, Customs and Service Tax, Hyderabad-III Commissionerate.2
2. The assessee-appellant entered into an agreement with M/s. Shriram Financial Services HoldingsPvt. Ltd. (hereinafter referred to as 'M/s. SFSH') on 01.12.2005 and the title of the agreement is "AGREEMENT FOR PROVIDING ACCESS TO BRANCH NETWORK". The term of the agreement was three years and upon expiry of the said three years, another agreement titled "AGREEMENT FOR PROVIDING ACCESS TO BRANCH NETWORK" was signed on 01.12.2008 and the term of the agreement was for a period of ten years. In terms of the first agreement, the appellant was paid a sum of INR 20,00,00,000/-,with the prelude "... M/s. ShriramChits who hereby agrees to grant SFSH or its nominees,the right to access to its entire branch network and agency force, both present and future ...", during the existence of the agreement. The second agreement was for the payment of INR 15,00,00,000/- and for the same reasons.
3. Picking up the above, a Show Cause Notice dated 19.10.2011 was issued by the Revenue on the ground that the consideration received by the assessee for having provided support services of business carried out by M/s. SFSH fell within the purview of 'Business Support Services' taxable with effect from 01.05.2006. It was inter alia alleged in the Show Cause Notice that the appellant had provided "operational assistance for marketing" to M/s. Shriram Capital Ltd. (formerly M/s. SFSH) or its nominees, for keeping intact entire branch network and agency force ready to use whenever requested; that the appellant was liable to pay Service Tax of Rs.3,99,30,000/-on the consideration received by them during 2006-08, 2008-09 and 2009-10; that the appellant had contravened provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994; that the appellant had also contravened Section 70 read with Rule 7 ibid by not reflecting the consideration received towards the value of taxable services in their ST-3 returns and that therefore, a proposal was made to demand the above tax along with applicable interest and penalties.
34.1 The appellant filed its detailed reply, mainly contending that the appellant had only agreed to provide services in case the same were required, but had not rendered any services and that mere keeping intact as per the agreement would not ipso facto amounts to rendering of any service. The assessee also contended, inter alia, that in terms of Section 66, Service Tax would only be on services provided or to be provided, but not on the services agreed to be provided; that the taxability on the services agreed to be provided was introduced only under the Negative List regime effective from 01.07.2012; that obviously, prior to the introduction of Negative List, there was no liability at all and that the 'Branch Network Fee' received by the appellant would at best be a grant /aid/financial support/subsidy orcommitment/reservation fees with no service element whatsoever involved and hence, the same could never be taxed under Service Tax, much less under Business Support Services, in particular.
4.2 The assessee also relied on the following decisions:
(i) Indian National Shipowners' AssociationVs. U.O.I - 2009 (14) S.T.R. 289 (Bom.);
(ii) C.C.E., Nagpur Vs. Vicco Laboratories - 2005 (179) E.L.T. 17 (S.C.);
(iii) Jetlite (India) Ltd. Vs. C.C.E., New Delhi - 2011 (21) S.T.R. 119 (Tri. - Del.);
(iv) Maulana Azad National Institute of Technology Vs. C.C.E., Bhopal - 2018-TIOL-3838-CESTAT-DEL;
(v) Agricultural Produce Market Committee Vs. C.C.E., Nagpur - 2014 (36) S.T.R. 382 (Tri. - Mum.);
(vi) Reliance ADA Group P. Ltd. Vs. C.S.T., Mumbai-IV -
2016 (43) S.T.R. 372 (Tri. - Mum.);
(vii) Hindustan Shipyard Ltd. Vs. C.C.E. & S.T., Visakhapatnam-I - 2019 (21) G.S.T.L. 394 (Tri. - Hyd.);
(viii) New Mangalore Port Trust Vs. C.S.T., Mangalore - 2008 (9) S.T.R. 235 (Tri. - Bang.);
(ix) Cricket Club of India Ltd. Vs. C.S.T., Mumbai - 2015 (40) S.T.R. 973 (Tri. - Mum.);
(x) Mormugao Port Trust Vs. C.C.E. & S.T., Goa - 2017 (48) S.T.R. 69 (Tri. - Mum.).4
5. The Adjudicating Authority, i.e., the Commissioner of Central Excise, Customs and Service Tax, Hyderabad- III vide impugned Order-in-Original dated 31.03.2013 after considering the submissions of the appellant, however, confirmed the demands as proposed in the Show Cause Notice along with interest and penalties and this has led to the present litigation before this forum.
6. Shri. S. Thirumalai, Ld. Advocate, appeared for the assessee-appellant and Shri. A.Rangadham, Ld. Departmental Representative, appeared for the Revenue- respondent.
7.1 Ld. Advocate for the appellant seriously contended that the impugned demand is not tenable primarily for the reason that up to the date of introduction of Negative List, mere agreeing to provide any service was never a taxable event. He also further emphasized that even the Business Support Service was brought into the statute with effect from 01.05.2006; the first agreement having been entered into on 01.12.2005, the alleged services cannot be taxed since the chargeability was not having retrospective effect, or for the events that happened earlier to the very introduction of the charging Section.
7.2 Ld. Advocate also submitted, without prejudice to his other contentions, that the appellant should have been given the cum-duty benefit, which was not extended by the authorities. He further submitted, pointing to the documents relied on by the Ld. Commissioner for issue of Show Cause Notice, that the very basis inter aliawas the balance-sheet, Profit & Loss (P & L) Account and ST-3 returns for the period 2005-06 to 2009-10; that the Show Cause Notice dated 19.10.2011 was issued much thereafter, i.e., at least five years after the date of the first agreement entered into during 2005-06, which is beyond the prescribed period of five years.
57.3 He further submitted that the extended period of limitation could not have been invoked as the Revenue was having prior knowledge of all the relevant facts, which were picked up only from the balance-sheet, P & L Account and ST-3 returns filed from time to time wherein the consideration received as network access fee is very much available.
8. Per contra, Ld. Departmental Representative for the Revenue relied on the findings in the impugned order of the Ld. Commissioner. He also submitted that a perusal of the agreements would clearly reflect that the fact of consideration received is a colourable transaction. Further, he also contended that providing access as per agreement would only mean providing operational assistance for marketing of the holding company.
9. We have considered the rival contentions and gone through the documents placed on record as well as various decisions referred to during the course of hearing.
10. The only issue involved in the above factual background, with there being no disputes on the facts, is "whether the 'Branch Network Fee' received by the appellant under the agreements is taxable under 'Business Support Service' ?"
11. Firstly, dealing with the issue of limitation, the documents relied on by the authority for issuing Show Cause Notice are the balance-sheet, P & L Account and ST-3 returns for the period from 2005-06 to 2009-10 and clearly, these are the statutory documents which have to be prepared and filed before the respective authorities within the time-frame prescribed under the respective statutes like the Income Tax Act or the Companies Act, as the case may be. Clearly, the network access fee has been picked up from these very statutory documents and therefore, there cannot be any scope to allege suppression of the same.
612.1 Business Support Services introduced with effect from 01.07.2012 covers only specific activities in the inclusive part of its definition and only those specific activities, if carried out, would get covered under Business Support Services. Admittedly, the appellant is nowhere alleged to have provided any of those services which are specified therein, but rather has only asked to 'keep intact ...' for access whenever required. The exclusive definition of Business Support Service clearly does not cover this service.
12.2 Further, the Revenue has nowhere endeavoured to bring on record anything as to whether the appellant did provide any other service other than merely agreeing to grant M/s. SFSH or its nominees right to access its branch network and agency force during the period under consideration. Although the consideration appears to be disproportionate, but however, in the absence of any evidence on record, we also cannot go any further. The law as it stood up to the introduction of Negative List did not take under Service Tax the agreement for providing any services and only with effect from 01.07.2012 did such services become taxable.
13. In this connection, it is relevant to refer to some of the judgements referred to during the course of arguments.
14.1 The relevant portion in the case of Commissioner of C.Ex., Meerut-I Vs. M/s. Indian Institute of Petroleum reported in 2008 (12) S.T.R. 113 (Uttarakhand) reads as under :
"6. Having heard learned counsel for the parties and after going through the record, we are clear about the fact that the letter of intent was issued by NRL to IIP (respondent assessee) much before the 'Scientific and Technical Consultancy' was brought under the net of service tax. Not only this the payment of Rs. 1.03 lakhs was paid by the customer to the respondent assessee much before the aforesaid date 16-7-2001 i.e. the date of bringing the service under the net of the service tax. No doubt, final project report may have been submitted by the respondent assessee after 16-7-2001, but that by 7 itself does not make the assessee liable to pay the service tax in respect of the service provided prior to 16- 7-2001. Also, it is to be kept in mind that nature of service tax is that of an indirect tax, and if the respondent assessee is made to pay service tax in respect of the service already provided by him prior to 16-7-2001, it is not left with option to charge the indirect tax from the customer, as the payment was to be made by the party to the assessee as per the contract only.
Accordingly, the question of law stands answered."
14.2 In the decision in the case of M/s. Cricket Club of India Ltd. Vs. Commissioner of Service Tax, Mumbai reported in 2015 (40) S.T.R. 973 (Tri. - Mumbai), the relevant paragraph reads as under :
"12. For that very reason, mere capacity to deliver a service cannot be equated with providing or agreeing to provide a service; such service has to reach the recipient in exchange for the consideration or the consideration is made over in exchange for a schedule of delivery of the service. In a combined human activity, contribution of, or agreement to contribute, funds cannot, therefore, be construed as consideration to be taxed under Finance Act, 1994 unless attributable to an activity or performance or promise thereof on the part of an identified provider to an identified recipient. Unless the existence of provision of a service can be established, the question of taxing an attendant monetary transaction will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived."
We note that all other decisions referred to/relied on by the Ld. Advocate for the appellant are in the same line as that of the above decisions.
814.3 The common takeaway from these decisions is that the scope of Business Support Service would include only such specific activities which are rendered by the service provider to promote or market to the customers and hence, merely agreeing to grant the right to access as in this case, as per agreement, would not form part of the exclusive definition of 'Business Support Service'.
15. In view of the above discussions, we are of the considered opinion that the liability has been wrongly fastened under Business Support Service. Firstly, the definition of 'Business Support Service' did not cover mere agreeing to grant right to access, which was introduced only with effect from 01.07.2012 and secondly, even on limitation, the Revenue has not been able to establish the suppression in any manner.
16.1 Let us look at the salient features in this regard vis-à-vis the settled position of law. The demand for the extended period can be issued and confirmed only in cases where the non-payment of tax is by reason of fraud/collusion/wilful mis-statement/suppression of facts/contravention of any statutory provision with an intent to evade tax. In the present case, as noticed by us elsewhere in this Order, the enquiry into the activities of the appellant were carried out vide audit. The materials/documents submitted by the assessee in response were with the Revenue. However, with the same set of facts/background and based on the records maintained by the appellant, the demand alleging suppression of facts was issued in 2011. While we are aware that the relevant date for issue of demand is with reference to the periodical returns to be filed, the Department has to allege and establish with supporting evidence the existence of factors indicating wilful mis- statement, suppression of facts, etc., which should be a positive act of the appellant. The particulars which form the basis of demand were all recorded and maintained in the books of the appellant.
916.2 Schedule to P & L Account duly signed by the auditor and the audit report are placed on record; specific entry of the P & L Account is at page number 177 of the Appeal Memorandum, which is the grouping schedule of the P & L Account whereby receipt is reflected, the exchange of letters that took place, some of which are also kept in the Appeal Memorandum at page numbers 188 to 191 and none of this is in dispute.
17.1 The Show Cause Notice in the given case reflects noticing during audit by the officers of the Department of the receipt of considerations in money reflected in P & L Account pertaining to year ending 31.03.2006, 31.03.2009 and 31.03.2010 and the Show Cause Notice is dated 19.10.2011. The Show Cause Notice is issued covering the periods 2006-08, 2008-09 and 2009-10 with the sole allegation at paragraph 7 (page number 3) of the Show Cause Notice that "granting right .... for consideration of money, would have gone un-noticed but for the verification of their records during audit .... have wilfully suppressed the fact of receipt ... and thereby contravened the provision with an intention to evade payment of tax ... Hence, the proviso to Section 73 (1) of the Finance Act, 1994 ... invokable ..."
17.2 Clearly, the Show Cause Notice is issued alleging wilful and intentional suppression of facts by the appellant. It is trite in law that the suppression (intentional and deliberate) can never be said to exist when material and relevant facts forming the basis of the demand were already within the knowledge of the Revenue. Accordingly, the pre-conditions for applicability of the proviso to Section 73 (1) ibid. cannot be said to be met. In such eventuality, the extended period of limitation cannot be invoked and the demand to be confined to the normal period of one year.
17.3 In one of the decisions of the Co-ordinate Bench of New Delhi in the case of M/s. Amway India Enterprises Pvt. Ltd. Vs. Commissioner of C.Ex., New Delhi reported in 2017 (3) G.S.T.L. 69 (Tri. -
10Del.), the Ld. Bench while analysing the applicability of larger period in a more or less similar set of facts, has held that the larger period could not have been invoked. The relevant portion of the findings reads as under :
"8. In context with issuance of show cause notice, where there is no involvement of suppression on the part of the assessee, the Hon'ble Supreme Court in the case of Pragathi Concrete Products Ltd. (supra) have held that extended period of limitation not to be invoked where the show cause notice was issued in 2000 for the period from 1995-1999 as no case of suppression could be made out when the Department had conducted several audits of the appellant during the period prior to issue of show cause notice. Further, in the case of Blue Star Ltd. (supra), it has been held by the Hon'ble Supreme Court that no case of suppression could be made out where all the relevant facts were within the knowledge of the Department and consequently, the extended period of limitation could not be invoked. In the case of Shah Alloys Ltd. (supra), the SLP filed by Revenue was dismissed, holding that the extended period of limitation cannot be invoked, when it is established that the Department had knowledge of the facts. In the case of Monsanto Manufactures Pvt. Ltd. (supra), the Hon'ble Supreme Court held that the appellant's transaction was on the basis of an agreement which was within the knowledge of the Department from 1995 and accordingly, the extended period of limitation under Section 11A of the Central Excise Act, 1944 could not be invoked vide show cause notice issued in 2000.
In case of KushalFertilisers (supra), the Department carried out periodic inspections of the factories and was also intimated in 1991 by the assessee of the details of its business. In this background, the Department issued a show cause notice to the assessee in 1994 invoking extended period of limitation. The Hon'ble Apex Court held that since the requisite information had always been provided to the Department when requested, no case of suppression could be made out against the assessee. Where the Department had inspected and collected necessary information and details from the assessee, the Hon'ble Supreme Court in the case of Damnet Chemicals Pvt. Ltd. (supra) held that the relevant facts were within the knowledge of Departmental Authorities and accordingly the extended period of limitation could not be invoked. Where the assessee had filed declarations of the products manufactured and where the sales literature and catalogue were examined during search operations, the Hon'ble Supreme Court in the case of Pioneer Scientific Glass Works (supra) held that the Department could not have alleged suppression at a later date when all the relevant facts were within the knowledge of the Department. Further, in the case of Loyd Chiles Offshore Ltd. (supra), the Hon'ble Supreme Court held that since the Department was all throughout aware of the appellant's operations, the extended period of limitation under proviso to Section 28 of the Customs Act cannot be invoked. In the case of Chemphar Drugs & Liniments (supra), it has been held by the Hon'ble Supreme Court that when the Department had full knowledge and the 11 assessee's non-disclosure was based on its interpretation of the law, the extended period of limitation could not have been invoked.
9. The judgments of Hon'ble Supreme Court and High Courts relied upon by the Revenue are distinguishable from the facts of the present case, inasmuch as the assessees in those cases were indulged in suppression, misstatement, fraud, collusion, etc., with intent to evade payment of duty and only on the basis of proceedings initiated by the Department, the desired information/particulars were furnished. In such circumstances, it has been held by the judicial forums that once it is established that pre-conditions of the proviso to Section 73(1) ibid/Section 11A ibid (i.e. fraud, suppression, collusion, wilful misstatement and contravention of any provisions with an intent to evade payment of tax), stand satisfied, then it becomes necessary to determine the date from which the extended period should be computed; and in such eventuality, the extended period of limitation should be computed from the date when the evasion of tax (fraud, suppression, collusion, wilful misstatement or contravention of provisions) came to the knowledge of the Department.
10. On a collective reading of the decisions cited by both the counsels, it is clear that the consistent position of law with regard to applicability of the proviso to Section 73(1)/Section 11A ibid has been that suppression cannot be established where material facts were within the knowledge of the Revenue. Accordingly, where there is no suppression, the pre-condition for applicability of proviso to Section 73(1) cannot be said to be met and hence, extended period of limitation contemplated therein cannot be invoked. On the contrary, where the ingredients for invoking proviso to Section 73(1) are established or admitted and thus the pre-conditions for applicability of such proviso stands satisfied, and only in such cases, the period of 5 years is required to be computed from the date when the evasion came to the knowledge of the Department.
11. In the case in hand, since the modus operandi adopted by the appellant for selling its products were known to the Department and based on the information/documents furnished by the appellant in 2005, the show cause proceedings were initiated by the Department on 12-3-2009, seeking confirmation of service tax demand under 'Franchise Service' for the period October' 2003 to March' 2007, we are of the considered view that the proceedings are barred by limitation of time. Thus, the appeal should succeed on the ground of limitation."
17.4 It is not the case of the Revenue that only on the basis of proceedings initiated by the Department the desired information/particulars were furnished which never existed prior thereto. Moreover, the facts, as noted 12 from the statutory documents of the appellant, were known to the Revenue based on which the proceedings were initiated vide Show Cause Notice dated 19.10.2011 seeking confirmation of Service Tax demand under Business Support Services.
17.5 In view of our discussions as also the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Amway India Enterprises Pvt. Ltd. (supra), we are of the considered view that the proceedings are barred by limitation of time and hence, the appeal should succeed on the ground of limitation as well.
18. The appeal therefore stands allowed both on merits as well as limitation.
(Order pronounced in the open court on 13.12.2019) (P. VENKATA SUBBA RAO) MEMBER (TECHNICAL) (P. DINESHA) MEMBER (JUDICICAL) Sdd