Custom, Excise & Service Tax Tribunal
M/S. Johnson & Johnson Pvt. Ltd vs Commissioner, Ce&St(Ltu), Mumbai on 19 October, 2016
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No.
ST/335/12
(Arising out Order-in-Original No. 22/COMMR (KAP)/LTU-MST/2011 dated 22.02.2012 passed by the Commissioner of Service tax, Mumbai)
For approval and signature:
Honble Shri M.V. Ravindran, Member (Judicial)
Honble Shri Raju, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
M/s. Johnson & Johnson Pvt. Ltd.
Appellant
Vs.
Commissioner, CE&ST(LTU), Mumbai
Respondent
Appearance:
S/Shri Rohan Shah, Advocate with Shri Anay Banhatti and Suprema Kothari, Advocate for the appellant Shri A.B. Kulgod, AC (AR) for the respondent CORAM:
Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri Raju, Member (Technical) Date of hearing : 05-10-2016 Date of decision : 19-10-2016 O R D E R No: ..
Per: Raju The appellants were issued notice demanding service tax on the following services provided during the specified period. Notice was confirmed, except for demand of `92,837/-, by the Commissioner and penalty were imposed under Section 78 and 77 of Finance Act. Demands amounting to `81,809/- and `11,029/- were dropped. Aggrieved by the said orders, the appellants are before the Tribunal. Following are the services and period for which demands are raised. Sr. No. Category Period
1. Business Auxiliary Service 22.05.2006 to 18.12.2008
2. Manpower Recruitment or Supply Agency services 06.08.2006 to 18.09.2009
3. Management or Business Consultancy services 31.07.2007 to 09.01.2009
4. Management, Maintenance or Repair services 06.05.2005 to 30.05.2008
5. Video Tape production services 05.03.2007 to 12.04.2007
6. Internet Telecommunication service 05.01.2007 to 20.05.2008
7. Commercial Training & Coaching Service 08.04.2005 to 05.05.2008
8. Sponsorship services 18.07.2007 In respect of sr.no. 1, 3, 5, 6 and 8 the appellant paid the entire amount of service tax demanded and are not contesting the issue on merits. In respect of sr. No. 2 and 4, the appellants are contesting the issue on merits.
2. Ld. counsel argued that in case of sr.no. 1,3, 5, 6 and 8, they have discharged the duty obligation before issue of show-cause notice. Ld. counsel argued that the investigation in all the cases started with issue of summon on 27.09.2006 and thereafter he pointed out there were numerous letters exchanged between them and DGCI. Ld. counsel argued that it was for this period that these demands pertain. He argued that they have discharged the liability before issue of show-cause notice and in this case penalty should not be imposed. He argued that since the period for which demands have been raised, is same period during which investigation were conducted there cannot be a case for suppression etc. He would argue that they have discharged the entire amount of duty demanded before issue of show-cause notice.
3. Regarding the Manpower Recruitment or Supply Agency services for which demand has been raised (sr. No. 2 of table above) pertains to their agreement with Swiss Biogenic Ltd. (SBL) located in Sri Lanka. He argued that in terms of said agreement, SBL were appointed the distributor for the sale of the products of appellant. In terms of the agreement SBL was required to maintain certain staff in their pay roll to promote and market the J&J Range of products. The cost including the salary and related expenditure of this staff was reimbursed by J&J on monthly basis. The said clause of the agreement reads as follows:
SBL to maintain the required number of staff in their payroll to promote and market the J&J range of products and such costs including the salary and related expenditure will be reimbursed by J&J on a monthly basis. In the event of the agreement being terminated due to justifiable causes, J&J to compensate the staff of SBL adequately. He argued that such arrangement cannot be considered as Manpower Recruitment or Supply Agency services for the reason that SBL is not Manpower Recruitment or Supply Agency. Ld. counsel argued that SBL is a distributor of their goods and is employing these staff on behalf of the appellant to promote the sale of J&J range of products.
4. Ld. counsel argued that no staff has been supplied by SBL to the appellant. Furthermore, Ld. counsel argued that the actual cost and related expenditure is reimbursed to SBL and therefore it can be considered as reimbursement of expenditure and not provision of service. Ld. counsel relied on the decision of the Hon'ble High Court of Gujarat in Arvind Mills Ltd. 2014 (35) STR 496 (Guj). Para 5 of the decision reads as follows:-
5.?It is true that in the present form, the definition of Manpower Supply Recruitment Agency is wide and would cover within its sweep range of activities provided therein. However, in the present case, such definition would not cover the activity of the respondent as rightly held by the Tribunal. To recall, the respondent in order to reduce his cost of manufacturing, deputed some of its staff to its subsidiaries or group companies for stipulated work or limited period. All throughout the control and supervision remained with the respondent. As pointed out by the respondent, company is not in the business of providing recruitment or supply of manpower. Actual cost incurred by the company in terms of salary, remuneration and perquisites is only reimbursed by the group companies. There is no element of profit or finance benefit. The subsidiary companies cannot be said to be their clients. Deputation of the employees was only for and in the interest of the company. There was no relation of agency and client. It was pointed out that the employee deputed did not exclusively work under the direction of supervision or control of subsidiary company. All throughout he would be under the continuous control and direction of the company.
5. He further relied on the decision of the Hon'ble High Court of Delhi in the case of Intercontinental Consultants & Technocrafts P. Ltd. 2013 (29) STR 9 (Del.). In the said case Hon'ble High Court has held that value of reimbursement cannot be considered a part of assessable value of the taxable service. Ld. counsel argued that the payment made by appellant to SBL are only reimbursement and not charges for any service provided.
6. In respect of demand of Management, Maintenance or Repair services, ld. counsel argued that there are six invoices involved in respect of this demand. He argued that they have paid the tax in respect of one invoice which has been issued after 16.05.2008 which they are contesting. He argued that prior to 16.05.2008 no demand can be made on them under the said service. He argued that the said service was maintenance and repair of software and information technology. Maintenance or repair of Software was introduced under Section 65 of Finance Act w.e.f. 16.05.2008. Ld. counsel argued that prior to 16.05.2008 no demand can be raised in respect of maintenance and repair of information technology software. Ld. counsel argued that for the period 16.06.2005 to 30.04.2006 the definition of maintenance and repair service reads as follows:-
maintenance or repair means any service provided by
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,
(a) maintenance or repair including reconditioning or restoration, or servicing of any goods or equipment, excluding motor vehicle; or
(b) maintenance or management of immovable property;
After 01.05.2006 the definition became as follows:-
(64) management, maintenance or repair means any service provided by
(i) any person under a contract or an agreement; or
(ii) a manufacturer or any person authorised by him, in relation to,
(a) management of properties, whether immovable or not;
(b) maintenance or repair of properties, whether immovable or not; or
(c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle.
With effect from 01.06.2007, Explanation was added to the said definition vide Finance Act, 2007, which reads as follows:-
Explanation For the removal of doubts, it is hereby declared that for the purposes of this clause, goods includes computer software; The said explanation to the said definition was substituted by Finance Act, 2008 w.e.f. 16.05.2008 which reads as under:-
Explanation For the removal of doubts, it is hereby declared that for the purposes of this clause,
(a) goods includes computer software;
(b) properties includes information technology software;
Ld. counsel argued that only w.e.f. 16.05.2008 can service tax be demanded on the services provided by them. Ld. counsel relied on the decision of the Tribunal in Persistent System Ltd. 2016 (42) STR 890. In the said decision of the Tribunal a distinction has been made between computer software and information technology software. From the show-cause notice, it has been seen the appellant had received only Management, Maintenance or Repair services in respect of SAP as SAP maintenance charges. Ld. counsel argued that the said services would qualify as IT service and not computer software as SAP is not a canned software.
7. Ld. counsel further argued that they have discharged the duty liability before issue of show-cause notice and most of the period for which demands have been raised is the same is during which there were investigation by the revenue. He argued that in these circumstances, extended period cannot be invoked and penalty should not be imposed as the entire activity was during that period in investigation by the revenue.
8. Ld. AR relied on the impugned order.
9. We have gone through the rival submissions. We find that the investigations into the appellants activity started with issue of summons dated 27.09.2006. It is seen that the liability to pay tax in respect of sr.no. 2,3,5,6 and 8 had started after the initiation of investigation. In respect of sr.no. 3,5,6, and 8 the appellant have paid the service tax along with interest before issue of show-cause notice. However, the fact remains that the tax was not paid voluntarily and is not being disputed on merits. In these circumstances, while the demand of service tax and interest is upheld, penalties imposed in respect of these demands are set aside invoking sub-section (3) of section 73. In these cases, since liability itself arises while the case was being investigated by the revenue, no charge of suppression can be invoked.
10. In respect of sr.no. 1 and 7, it is seen that the liability for service tax arose before the investigation started. In these circumstances, it cannot be said that there was no suppression or misdeclaration. The fact that part of the period for which demand is made is same as the duration of investigation does not make any difference. In respect of sr. No. 1 & 7, the penalties imposed are upheld.
11. Appellants have been demanded duty under the head of Manpower Recruitment or Supply Agency services in respect of services allegedly from SBL. Ld. counsel argued that the agreement with SBL is not an agreement of service provision but it is an agreement involving only reimbursement. Ld. counsel has relied on the decision of the Hon'ble High Court of Delhi in Intercontinental Consultants & Technocrafts (supra). Ld. counsel has also relied on the decision of Arvind Mills Ltd. (supra) wherein the Tribunal has held as follows:-
5.?It is true that in the present form, the definition of Manpower Supply Recruitment Agency is wide and would cover within its sweep range of activities provided therein. However, in the present case, such definition would not cover the activity of the respondent as rightly held by the Tribunal. To recall, the respondent in order to reduce his cost of manufacturing, deputed some of its staff to its subsidiaries or group companies for stipulated work or limited period. All throughout the control and supervision remained with the respondent. As pointed out by the respondent, company is not in the business of providing recruitment or supply of manpower. Actual cost incurred by the company in terms of salary, remuneration and perquisites is only reimbursed by the group companies. There is no element of profit or finance benefit. The subsidiary companies cannot be said to be their clients. Deputation of the employees was only for and in the interest of the company. There was no relation of agency and client. It was pointed out that the employee deputed did not exclusively work under the direction of supervision or control of subsidiary company. All throughout he would be under the continuous control and direction of the company.
12. We find that the facts of the case in the decision of the Hon'ble High Court of Ahmedabad in Arvind Mills Ltd. (supra) are similar to the facts of the instant case. In the instant case also, SBL is not engaged in the business of supplying manpower. Only actual cost incurred is recovered from the appellant and there is no element of profit to SBL. In these circumstances, the decision of the Hon'ble High Court becomes applicable to the instant case. Accordingly, the demand in respect of Manpower Recruitment or Supply Agency services is set aside. Penalties on this count are also set aside.
13. Demand has been raised in respect of Management, Maintenance or Repair services in respect of SAP software which is maintained by service provider out of India. It is seen that the issue has been examined in detail in the decision of the Tribunal in the case of Persistent System Ltd. (supra). In the said decision, it has been held that while canned software can be treated as goods the customer specific software would be classified as Information Technology software. Since SAP is customer specific software, the decision in Persistent System Ltd. (supra) would be applicable in the case. Accordingly, service tax can only be demanded on the service received w.e.f. 16.05.2008. The demand and penalties in respect of services received prior to 16.05.2008 are set aside.
14. In view of the above, the duty demand, interest and penalty in respect of sr.no.2 of the table above is set aside. Duty demand, penalty and interest in respect of sr.no. 4 for the period prior to 16.05.2008 is set aside. Duty demand and interest in respect of sr.no. 3,5,6 and 8 are upheld. However, benefit of section 73(3) is granted and penalties are set aside. Duty demand interest and penalty in respect of 1 & 7 are upheld.
15. The appeal is disposed of in the above terms.
(Pronounced in Court on ...............................) (M.V. Ravindran) Member (Judicial) (Raju) Member (Technical) //SR
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ST/335/12