Custom, Excise & Service Tax Tribunal
Rural Electrification Corporation Ltd vs Service Tax - Delhi on 7 November, 2019
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPLELLATE TRIBUNAL,
NEW DELHI
PRINCIPAL BENCH COURT NO. 1
Service Tax Appeal No. 51998 / 2015
(Arising out of Order-in-Original No. 38/Commr/2014-15 dated 20.02.2015
passed by the Commissioner of Central Excise & Service Tax, New Delhi).
M/s. Rural Electrification Corpn. Ltd. Appellant
Core-4, Scope Complex,
7-Lodhi Road ,
New Delhi- 110003.
VERSUS
Commissioner of Service Tax Respondent
M G Marg, I P Estate, 17 B, IAEA House, I P Estate New Delhi 110002.
APPEARNANCE:
Shri Atul Gupta , Chartered Accountant for the Appellant Shri Sanjay Jain, Authorized Representative for the Respondent CORAM :
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. C L MAHAR, MEMBER (TECHNICAL) FINAL ORDER NO. 51431 /2019 DATE OF HEARING : 24 /05/2019 DATE OF DECISION: 07/11/2019 PER C L MAHAR :
The brief facts of the matter are that the Appellant is a Public sector undertaking engaged in non-banking and other financial services and is duly registered with the Service Tax Department for banking and financial services as defined under section 65 (105)(zm) of the Finance Act, 1994(hereinafter referred to as the „Act‟. During the course of Audit of the 1 ST/51998/2015 financial statements of the appellant, it was noticed by the Department that it had received an amount of Rs.9,99,97,488/- and an amount of Rs.6,95,16,415/- respectively from their subsidiary companies namely M/s. REC Power Distribution Co.Ltd. and M/s. REC Transmission Power Co. Ltd. These amount were received by the Appellant under the description „Establishment Expenses‟ and „Administrative Expenses‟ and the amount had been shown accordingly in their financial statements such as, balance sheet, profit and loss account etc. On being asked by the Department with regard to the nature of these receipts from their subsidiary companies, it was explained by the Appellant that the above mentioned amount had been received by it from the subsidiary companies for providing expert manpower to them for discharging certain functions and since these persons remained posted with the subsidiary companies, the appellant had received the reimbursement of the expenditure which the appellant have incurred on these employees in the form of salary, allowance etc. This amount has been accounted for in their books of accounts under the head of „Establishment Expenses‟ and „Administrative Expenses‟ received from the subsidiary companies.
2. The Department entertained a view that the reimbursement of the Administrative and other expenses received by the Appellant from the subsidiary companies is covered under the category of „Business Support Services‟ as per the provisions of section 65(105)(zzzq) of the Act and therefore, the Appellant should have discharged the Service Tax on the amount received by it from the subsidiary companies under the category of „Business Support Service‟.
3. Accordingly, a show cause notice dated 09 October, 2013 was issued to the Appellant wherein Service Tax of Rs1,58,09,015/- was demanded under section 73 (1) read with Section 66 and 68 of the Act. Provisions of Section 75 for 2 ST/51998/2015 charging interest as well as provisions of Section 77(2) for imposition of penalty were also invoked.
4. The matter was adjudicated by the impugned Order dated 21 January, 2015 issued on 20 February, 2015. The learned Commissioner vide the above mentioned Order passed the following order:
"(i) I, hereby, hold that the extended period of limitation, for recovery of Service Tax not paid / short paid, as provided under proviso to Section 73(1) of the finance Act, 1994 as amended is invokable.
(ii) I, hereby, confirm the demand of Service Tax amounting to Rs.1,58,09,015/- (Rupees One crore fifty eight lacs nine thousand fifteen only), as detailed above, from them by invoking extended period of limitation under proviso to Section 73(1) read with Section 66 and 68 of the Finance Act, 1994 and Rule 6 of the Service Tax rules, 1994; and therefore, since the said amount has already been paid by the Large Tax Payer, accordingly, I hereby appropriate the same order under the Act ibid against the demand so confirmed.
(iii) I, hereby, confirm the demand of Education Cess amounting to Rs. 3,16,181/- (Rupees three lacs sixteen thousand one Hundred eighty one only) and Secondary and Higher Education Cess amounting to Rs.1,58,090/- (Rupees One lacs fifty eight thousand ninety only) as detailed above, from them by invoking extended period of limitation under proviso to Section 73(1) read with Section 66,67 & 68 of the Finance Act, 1994, as amended, and Section 91 read with Section 95 of the Finance (No.2) Act, 2004 and Section 136 read with Section 140 of the Finance Act, 2007 for Education Cess and Secondary & Higher Education Cess respectively; and therefore, since the said amount has already been paid by the Large Tax Payer, accordingly, I hereby appropriate the same under the Act ibid against the demand so confirmed.3
ST/51998/2015
(iv) I, hereby, confirm the demand of interest amounting to Rs.67,41,753/- (Rupees sixty seven lacs forty one thousand seven hundred fifty three only) at the rates applicable on the amount of service tax from them under Section 75 of the Finance Act, 1994; and therefore, since the said amount has already been paid by the Large Tax Payer, accordingly, I hereby appropriate the same under the Act ibid against the demand so confirmed.
(v) I, hereby, impose penalty equal to one per cent of the confirmed demand, for each month, for the period till the deposit of the said amount, up to a maximum of twenty five per cent of the tax amount in terms of Section 73(4A) of the Finance Act, 1994 for the reason already discussed above.
(vi) I, hereby, impose penalty of Rs.10,000/- under Section 77(2) of the Finance Act, 1994 for contravening the provisions of Section 66, 67 and 70 of the Finance Act, 1994 and Rule 6 & 7 of the Service Tax Rules, 1994."
5. The Appellant is before us against the above mentioned impugned Order-in-Original. The Learned Counsel appearing on behalf of the Appellant contended that it had received reimbursement of the amount of salary paid to the employees who remained posted with the subsidiary companies and it was in a way, reimbursement of the expenses incurred by the Appellant on the employees who would otherwise be working on some specific project with the subsidiary companies; that the activity of deputing employees to the subsidiary companies is not covered under the taxable category of „Business Support Service‟ and infact no service has been provided by the Appellant to the subsidiary companies and, therefore, the question of payment of Service Tax on such an activity does not arise. It has further been contended that the Appellant is transferring its employees to its subsidiary companies on temporary basis for a specific 4 ST/51998/2015 purpose and the cost of recovery from its subsidiary companies which is more in the form of sharing of expenses, cannot be categoried as a service. The contention is that sharing of the expenses of the employees is in no way akin to any kind of service provided to the companies nor there is any economic benefit to the Appellant and sharing of employees between two companies is more a matter of convenience and accountability of the same can in no way can be considered as rendering of service. The learned Counsel has relied upon a decision of the Gujarat High Court in Commissioner of Service Tax vs. Arivind Mills Ltd. reported in [2014] 45 taxman.com 376 (Gujarat) wherein the High Court observed that " where an assesse was in any business of providing recruitment or supply of manpower; and (b) only actual cost incurred by assesse in terms of salary, remuneration and perquisites was reimbursed and (c) there was no element of profit or financial benefit, accordingly, service tax would not be charged upon the same transaction"
6. The learned Counsel has also relied on case law in :
i) M/s. Dell India Pvt Ltd. vs CST, Bangalore [ 2013( 31) STR 322-CESTAT-Bangalore];
ii) M/s. Tata Technologies Ltd. Vs CCE [2007 (8) STR 358];
iii) M/s. J M Financial Services P Ltd. Vs. CST [2012-TIOL-325-CESTAT-Mumbai];
iv) Home Solution Retail India Ltd. Vs. Union of India [2009 (14) STR 433 (Del)]
7. The learned Counsel has also submitted that the Appellant was under a bonafide belief that it had not rendered any kind of service to its subsidiary companies and, therefore, no service tax was payable on the expenses which got reimbursed by the sub subsidiaries.5
ST/51998/2015
8. The learned Counsel also stated that on insistence of the Department, the Appellant deposited the service tax liability as demanded under the impugned show cause notice on 26 March, 2013 and the department had also been informed on 28 March, 2013 which was much before the issuance of show cause notice. The learned Counsel vehemently contested the invocation of the extended time proviso in this case, as the Appellant had no intention of evading the service tax as it was always complying with the provisions of service tax laws. It has also been stated that the financial statement of the Appellant had been audited by the Central Excise Revenue Audit of C&AG for the period 2008- 2009 and 2009-2010 in the year 2010 and no audit objection was raised on this issue, inspite of the fact that reimbursement of cost of their employees provided to it by the subsidiary companies had always been mentioned in their books of accounts.
9. The learned Counsel has relied upon following decisions in support of the arguments:
i) Anand Nishikawa Co. Ltd. Vs. CCE
[2005 (09) LCX0013];
ii) Singh Brothers vs CCE
[2009 (14) STR 552];
iii) CCE vs. Chemphar Drugs & Liniments
[1989 (40) ELT 276].
10. It has further been submitted that since the entire amount was been deposited much before the issuance of Show Cause Notice, the appellant is covered under the provisions of Section 73(3) of the Act and the provisions of Section 73(4A) cannot be invoked and the penalty is also not imposable under Section 77 of Act.
11. Learned Counsel has further placed the definition of „Business Support Service‟ as provided under section 65(105) 6 ST/51998/2015 (zzzq) and submitted that it does not cover the activity undertaken by the Appellant and therefore, the Show Cause Notice was issued under a wrong interpretation of law and needs to be set aside. The learned Counsel has further stated that if any service tax is charged on the activity undertaken by the appellant for providing certain manpower to subsidiary companies, the same can be charged to Service Tax only under „Manpower Recruitment or supply of agency service‟, and, therefore, the impugned Order-in-Original is not legally sustainable and should be set aside.
12. We have also heard the learned Departmental Representative of the Department who has reiterated the findings as given in the Order-in-Original.
13. Heard both the sides and perused the record of the appeal. It is a matter of record that the appellant had been deputing certain employees to the subsidiary companies namely, M/s. REC Power Distribution Co.Ltd. and M/s. REC Transmission Power Co. Ltd. We find from the record of the appeal that there has been reimbursement of the expenses incurred by the Appellant towards its employees been working with the two subsidiary companies of the appellant on a deputation basis. The recovery of administrative and establishment expenditures has been recorded under books of accounts under the head of „Establishment Expenses‟ and „Administrative Expenses‟. The Show Cause Notice as well as the impugned Order-in-Original demands service tax from the appellant under the category of „Business Support System‟ as provided under section 65(105)(zzzq) of the Act. It will be relevant to peruse the definition of „Business Support Service‟ before proceeding further. The taxable service given under the provisions of Section 65(105)(zzzq) reads as under:-
"Support services of business or commerce" means services provided in relation to business or commerce and 7 ST/51998/2015 includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment 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 purpose of this clause, the expression "infrastructural support services" includes providing office along with office utilities, lounge, and reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and securities [Section 65(104c)]."
14. It can be seen from the above definition that „Business Support Service‟ covers certain specific activities in its inclusive definition. Only if such specific activities are carried out by a Service provider, it would be classifiable under „Business Support Service‟. From a perusal of the activity undertaken by the Appellant, it is seen that the Appellant had only sent certain number of employees to its subsidiary companies on cost recovery basis. It would not be covered by any activity contemplated in the definition of „Business Support Service‟. Payment of certain amount towards establishment and administrative expenditure for providing certain employees to the subsidiary companies is in the nature of sharing of expenses between two companies and would not fall under any category of taxable service.
15. However, the adjudicating authority in the impugned order has held that the activity is taxable under the „Business Support Service‟ and the observations are as below:-
"24.6 From the definition of „support services of business or commerce‟ as given under Section 65(104(c) of the Act ibid, I find that the said definition has two parts. The first 8 ST/51998/2015 part indicates the basic definition and the second part indicates the inclusive part. Primarily, as per the interpretation rules, the basic definition needs to be analysed, It is not a disputed matter that the Large Tax Payers is a service provider as they provided their employees. Hence, it is necessary to understand whether the service in the form of providing employees against sharing of expenses in the guise of „Establishment Expenses" and "Administrative Expenses" by them to its subsidiary companies can be considered as "in relation to"
support services of business or commerce of the said recipients.
24.7 I notice that in the instant case, the Large Tax Payer is engaged in providing the services of Banking & Financial, Consulting Engineer, Management Consultants, Credit Rating Agencies, Sponsorship Services, Legal Consulting Services and Architect Services etc. The said services as being provided by the Large Tax Payer are taxable in nature and in order to provide the said services, the Large Tax Payer has professionally qualified employees having the technical knowledge. This implies that the Large Tax Payer has an expertise of employees and in a situation wherein such expert, professionally qualified and technically sound employees are provided by the Large Tax Payer to some other person for assistance and support to the betterment of the business of that other person. In the instant case, the said expert and technically sound employees were provided by the Large Tax Payer to its subsidiaries in order to support their business and assist them in their business activity. This clearly implies that in the instant case, the activity of providing manpower/ employees for the betterment as well as assistance in the business and the use of such manpower / employees in relation to „support services of business or commerce‟ of the subsidiaries is a taxable event falling under the category of Business Support Services under Section 65(105)(zzzq) of the Act ibid.
24.8 Having ascertained so, I do not find it exclusively to discuss the inclusive part as the basic part itself covers the impugned services. However, for academic purposes it can 9 ST/51998/2015 be stated that the definition is exhaustive and the specific items mentioned under the inclusive part is only for ready reference and such items are essentially to be considered as part of the definition. In any case, the said "inclusive" part does not limit the scope of the definition to the said items."
16. The logic given by the adjudicating authority in the above mentioned paragraphs justifying the classification of the activity under the „Business Support Service‟ is not legally tenable as providing expert man power on cost recovery basis does not fall under any of the inclusive category of „Business Support Service‟. The Central Board of Excise and Customs in its clarification issued from F.No. 137/35/2011-ST dated 13 July, 2011 has provided that:
"Representation has been receive d seeking clarification on applicability of service tax under Manpower Recruitment and Supply service in respect of employees sent on deputation by ONGC to Directorate General of Hydrocarbons (DGHC).
2. The matter has been examined and it is clarified that activity of ONGC for providing its staff on deputation to DGHC for a remuneration in the form of reimbursement from DGHC, is chargeable to service tax under „Manpower Recruitment or Supply Agency‟s Service‟ in terms of Section 65(105)(k) of the Finance Act. As per Section 65(68) of the Finance Act, Manpower Recruitment or Supply agency means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower temporarily or otherwise, to any other person.
3. In the said definition the key words are, any person; directly or indirectly; in any manner and temporarily or otherwise. It thus appears that organisations that make available their staff to other entities would be covered under the said definition. The motive for providing such manpower is of no consequence. The requirement for taxability is that the person should be engaged in an activity that is covered under Section 65(105)(k) ibid. The 10 ST/51998/2015 volume of activity undertaken or the presence or absence of the profit motive is irrelevant. "
17. It can be seen that the activity undertaken by the appellant of providing expert man power on deputation basis to the subsidiary companies is akin to the one which has been discussed in the above mentioned clarification issued by CBEC and it has categorically provided by the Board that such activity can only be classified as man power recruitment or supply of agency service as defined under Section 65 (105)(k) of the Act. The adjudicating authority has failed to appreciate the instructions issued by the CBEC which instructions have to be complied with.
18. Since the Show cause notice issued has demanded Service Tax under the category of „Business Support Service‟ and the CBEC has already clarified that such an activity is classifiable under „Manpower Recruitment or Supply Agency‟ service as provided under Section 65(105)(k) of the Act, the demand of Service Tax, is not sustainable and, deserves to be set aside.
19. Since the demand itself is not sustainable on merits, we refrain from discussing the other aspects like demand being time barred.
20. In view of the above, the impugned order deserves to be set aside and is set aside. The appeal is, accordingly, allowed.
(Order pronounced in the open Court on 07/11/2019 ) C. L. Mahar Justice Dilip Gupta (Technical Member) (President) ss 11