Custom, Excise & Service Tax Tribunal
Givaudan (India) Pvt Ltd vs Bangalore-Ltu on 3 December, 2024
ST/951, 952/2010
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 951 of 2010
(Arising out of Order-in-Appeal No. 05/2010 dated 23.02.2010
passed by the Commissioner (Appeals), LTU, Bangalore.)
M/s. Givaudan (India) Pvt. Ltd.,
(Formerly known as M/s. Vinoram
Pvt. Ltd.) Appellant(s)
Plot No. 25-26, II Cross,
Jigani Industrial Area,
Anekal Taluk,
Bangalore - 562 106.
VERSUS
The Commissioner,
LTU Commissionerate,
JSS Towers, Banashankari III Stage, Respondent(s)
100 Ft. Ring Road, Bangalore - 560 085.
WITH Service Tax Appeal No. 952 of 2010 (Arising out of Order-in-Appeal No. 09/2010 dated 26.02.2010 passed by the Commissioner (Appeals), LTU, Bangalore.) M/s. Givaudan (India) Pvt. Ltd., (Formerly known as M/s. Vinoram Pvt. Ltd.) Appellant(s) Plot No. 25-26, II Cross, Jigani Industrial Area, Anekal Taluk, Bangalore - 562 106.
VERSUS The Commissioner, LTU Commissionerate, JSS Towers, Banashankari III Stage, Respondent(s) 100 Ft. Ring Road, Bangalore - 560 085.
APPEARANCE:
Mr. Bhanumurthy, Advocate for the Appellant Mr. M.A. Jithendra, Superintendent (AR) for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) FINAL ORDER NO. 21204 - 21205 /2024 Page 1 of 13 ST/951, 952/2010 DATE OF HEARING: 30.07.2024 DATE OF DECISION: 03.12.2024 PER: R. BHAGYA DEVI These two appeals are filed against Order-in-Appeal No. 05/2010 dated 23.02.2010 and Order-in-Appeal No. 9/2010 dated 26.02.2010 passed by the Commissioner (Appeals), LTU, Bangalore.
2. Brief facts of the cases are that the appellant M/s. Vinoram (P) Ltd. presently known as M/s. Givaudan (India) Pvt. Ltd. are manufacturers of flavours and fragrances. Originally, the Commissioner (Appeals) had dismissed the appeal for non-
compliance of pre-deposit and on appeal to this Tribunal, the Tribunal vide Final Order No. 1111/2009 dated 27.08.2009 directed the appellant to deposit Rs.5,00,000/- and subject to compliance, Commissioner (Appeals) was directed to hear and dispose the appeal on merits. Based on the above order, the Commissioner (Appeals) in the impugned order referring to various provisions of 'Online Information and Database Access or Retrieval Services' (OIDAR) under Section 65(105)(zh) of the Finance Act, 1994 held that the appellants being the recipient of the said services were liable to pay Service Tax as per Section 66A read with Section 68 of the Finance Act, 1994 read with Rule 2(1)(d)(4) of the Service Tax Rules, 1994. The Commissioner (A) taking into consideration the activities undertaken by the appellant as per the agreement held that they were liable to service tax under OIDAR Services. In Appeal No. ST/951/2010 though the notice was issued for confirming the demand from 01.09.2006 to 28.08.2008, the Commissioner (A) upheld the demand only for the normal period and accordingly, confirmed the demand for the period 01.10.2006 to 28.02.2008 under Section 73(1) of the Finance Act, 1994 and confirmed penalty under Section 76 of the Finance Act, 1994. In Appeal No. ST/952/2010 for the period March 2008, the Commissioner (A) confirmed the demand of service tax along with interest and imposed penalty under Section 76 and Section 77.
Page 2 of 13ST/951, 952/2010
3. The learned counsel submits that the appellant is engaged in the manufacture of perfumery compounds and is registered under the provisions of Central Excise Act and availed IT services in terms of IT services agreement entered into with M/s. Givaudan Suisse SA, a company incorporated in Switzerland and also received IT support services from Givaudan, Singapore. It is submitted that the services received by them are in the nature of providing hardware, software and other facilities like IT disaster recovery plan, maintenance, network and PC software distribution etc., which are rightly classifiable as Information Technology Services.
3.1 It is further submitted that the allegation that the said services are OIDAR services because the appellant had access to the parent company is erroneous since the access was limited to usage of various software tools and not to the records of the foreign company. Running a dedicated server, allowing access to the said server and allowing usage of various software/ operating systems/ tools for day-to-day operations and also providing IT disaster recovery support services cannot be termed as access to data and retrieval of data/ information. Referring to the various clauses of the agreement, it is submitted that during the term of the agreement, the operating software related to various applications such as maintenance services which includes providing upgrades, technical support, security administration, backup, Application development and support, Application Training. Thus, the essence of the agreement is IT services including IT infrastructure usage and management, usage of ERP systems providing required Hardware and also providing maintenance and upgrades and also providing support services functional service relating to data management, bio statistics and reporting etc., fall under the category of Information Technology Software Services. The remuneration for the services of use of software, hardware and network is determined based on total cost incurred by Givaudan SA and number of users at Vinarom (Givaudan India). Since, the nature of services covered under agreement fall under IT services and Information Page 3 of 13 ST/951, 952/2010 Technology Software Services' being taxable only w.e.f 16.05.2008, they were not liable to pay any service tax. He relied upon the following judgments:
• United Telecom Ltd. Vs. CST., Bangalore, 2009(14) S.T.R. 212(Tri.-Bang)- appeal dismissed 2014 (33) S.T.R. J193 (Kar) • Intimate Fashions Pvt Ltd Vs. CCE, 2023-TIOL-873-
CESTAT-MAD.
• Ferromatik Milacron India Pvt Ltd Vs. CST, 2023-TIOL- 907-CESTAT-AHM • Philips Electronics India Ltd., Vs. CST, 2019 (21) G.S.T.L. 450 (Tri. - Chennai) 3.2 It is further submitted that even if tax is payable under the reverse charge mechanism by the appellant, the appellant is entitled for cenvat credit of the same and due to which the entire exercise will amount to revenue neutral. The learned counsel further stated that the Appellant had reasonable belief that the services received by them are covered under IT services and hence, in terms of Section 80, the penalty under section 76 is not imposable when there are two views possible on the basis of interpretation of legal provisions, notifications, circulars, instructions, etc, penalty cannot be imposed. Relying on the decision in the case of Infosys Ltd. vs. CST, Bangalore: 2015 (37) S.T.R. 862 (Tri. - Bang), it has been submitted that in view of the provisions under Section 80, the penalty to be dispensed with.
4. The learned Authorized Representative (AR) on behalf of the Revenue submitted that the appellant had entered into an agreement with their principal in Givaudan, Switzerland to provide services of remote access of production and pilot environment of Business planning control systems to perform daily operations for manufacturing, Supply chain and Finance, Remote use of quality and laboratory information systems, software tool for cost accounting, fragrance business support systems for daily operations like formulas management, global project management, creating, regulation product library, remote use of Data ware house, electronic mail systems, PC Page 4 of 13 ST/951, 952/2010 software distribution, Disaster recovery etc., and hence the above activity is classifiable under OIDAR services.
4.1 It is further submitted that the services received by the Appellant are in the nature of database access as they are not getting the software program but only access to the data base for hosting the software, which can be used by them on a daily basis for their operations. They have access to data warehouse containing information and data about formulation of fragrances, product formulas, product information, product library is allowed to be accessed. Therefore, the services are rightly classifiable under OIDAR services and are liable to pay service tax under reverse charge basis.
5. Heard both sides and perused the documents placed on record. The only issue to be decided is whether the services received by the appellant are classifiable as OIDAR services and whether as a recipient he is liable for service tax. First let's examine the definition of OIDAR services and then the terms of the agreement based on which the classification is discernible.
Section 65 (75) of the Finance Act, 1994 'Online Information and Database Access or Retrieval' (OIDAR) means providing data of information, retrievable or otherwise, through a customer, in electronic form through a computer network.
Section 65 (105) of Finance Act, 1994 defines 'Taxable Services' as any service provided to a customer by any person in relation to online information and database access or retrieval (OIDAR) or both in electronic form through computer network, in any manner.
Section 65 (36) of Finance Act, 1994 'data' has the meaning assigned to it in clause (o) of sub-section (1) of Section 2 of the Information Technology Act, 2000.
Section 2 (1) (o) of the Information Technology Act says data means a representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized manner, and is intended to be processed, is being processed or has being processed in a computer system or computer network, and may be in any form (including computer print outs, magnetic or optical storage, media, Page 5 of 13 ST/951, 952/2010 punched cards, punched tapes) or stored internally in the memory of the computer.
Section 65 (53) of the Finance Act, 1994 'Information' as the meaning assigned to it in clause (v) of sub-section (1) of Section 2 of the Information Technology Act, 2000 (IT Act) and the IT Act Section 2 (1) (v) states 'information includes data, message, text, images, sound, voice, codes, computer programmes, software and data bases or micro film or computer-generated micro fiche;'.
Section 2 (1) (j) of Information Technology Act, computer network means the inter-connection of one or more computers or computer systems or communication device through-
(i) the use of satellite, microwave, terrestrial line, wire, wireless or other communication media; and
(ii) terminals or a complex consisting of two or more interconnected computers or communication device whether or not the inter- connection is continuously maintained;
5.1 From the above definitions, it is clear that OIDAR service means providing of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized manner and is intended to be processed, is being processed or has being processed through the inter-connection of one or more computers or computer systems or communication device through the use of satellite, microwave, terrestrial line, wire, wireless or other communication media; and through terminals or a complex consisting of two or more interconnected computers or communication device whether or not the inter-connection is continuously maintained.
5.2 Now, let's examine the agreement entered by the appellant with their holding company M/s. Givaudan Suisse SA Chent De La Parfumerie, Switzerland. The IT services agreement entered between Givaudan Suisse SA and VINAROM Pvt. Ltd. (M/s. Givaudan (India) Pvt. Ltd.), the holding company during the term of the agreement grants the appellant the right of access to and reserve for the appellant the required capacity and service on the Worldwide Series and Unix server and the services provided under these Articles are as follows:
Page 6 of 13ST/951, 952/2010 Article 1: Under Hardware the following services are available • Usage of ISeries hardware and software utilities, • Usage of the UNIX hardware and software utilities. Under application software the appellant can use the following services:
• Use of supply chain, manufacturing and finance systems • Use of quality and laboratory information systems • Business Support System for fragrances • Business Support System for flavours • Data warehouse • Electronic Mail Back Bone • Internet and Intranet servers Article 2 With regard to software the services include remote use of at least a production and a pilot environment of BPCS, to perform daily operations for manufacturing, supply chain and finance. They are also allowed to use the quality and laboratory information system. The CS as a software tool for costing accounting purpose, use of production and pilot environment after fragrances business support systems to perform daily operations for formula management, global project management, creation, regulatory, product library and use all related applications to support the fragrances marketing sales and creation activities. Use of data warehouse systems usage of electronic mail systems, usage of intranet and connection to Internet.
Article 3 and 4 Usage of worldwide network, global network management, PC software distribution, implementation and maintenance of IT disaster recovery plan procedures, implementation of IT disaster recovery tests, usage of disaster recovery related network. In addition, they get Technical Support Security Administration and supply of backup procedures application development and support application training, running of local software to perform appellants business and data accuracy management and integration with other local systems of the appellant.
5.3 The services under Article 1 and Article 2 are available 24 hours a day, 6 days a week and the services and Article 3 are available 24 hours a day 7 days a week. The agreement also assures that information will be handled confidentially, meaning that only authorised users will be enabled to access their own environment and the appellant is to comply with the parent company systems security and computer operations policies and standards. Under Annexure-2 of the Agreement, remuneration is Page 7 of 13 ST/951, 952/2010 discussed and it states that under Article 5, the amount to be paid by the appellant to the parent company for the right of access, the reservation of capacity and the service on iSeries and UNIX including the running of the application software mentioned under Section 2 of the agreement shall be determined on the basis of the effective cost incurred by the parent company and the number of users at the appellants.
5.4 Based on the above agreement, it is clear that the appellant is not only using the hardware and software facilities of their holding company but it is allowed to use the applications such as supply chain manufacturing and finance systems, use of quality and laboratory information systems, business support systems for fragrances, flavours, data warehouse, Internet and intranet. The fragrance business support system also allows the appellant to perform daily operations for formula management, global project management, access to regulatory data and product library through remote logging, it also helps in supporting the flavours marketing and creation activities.
Therefore, the observations of the Commissioner in the impugned order that the contract specifically provides for remote use and access of the data warehouse systems of their holding company through a dedicated Internet which is nothing but a computer network and the fact that the agreement allows access for automatic global directory update with mailing interfaces, clearly establishes that the services provided under the agreement cited above squarely fall into the category of 'online information and database access or retrieval service' cannot be ignored. The Commissioner also observed that the appellant's contention that these services are in the nature of 'information technology services' is not acceptable in as much as the agreement not only provides for use of the reserved capacity of the regional server but also grants access to the databases on flavours, fragrances product, library EC based on the definition under section 65 (75) of the Finance Act 1994, it is clear that any information knowledge concepts or instructions which are prepared in a formalised manner and intended to be used or Page 8 of 13 ST/951, 952/2010 processed in a computer system would get covered under the aforementioned services. In view of the above, based on the services received by the appellant, it is clear that it is not mere Information Technology Services but the services received include whole lot of access to the data worldwide with regard to technology, production and various other services essential for day-to-day manufacturing activities. Therefore, we are in agreement with the Commissioner that the services received by the appellant fall under OIDAR services. The decisions relied upon by the appellant are purely on IT services and hence, they are not applicable for the present set of facts. For instance, in the case of Philips Electronics India Ltd. vs. Commissioner of S.T., Chennai: 2019 (21) G.S.T.L. 450 (Tri. - Chennai), the Tribunal observed as follows:
'5.3 The main take away from the definitions is that services provided should facilitate not only online information but also Database Access or Retrieval. From the facts on record, it appears to reason that the infrastructure services are nothing but a spider web group which connects Philips Netherlands to all its locations worldwide through the Wide Area Network (WAN) of internet protocol. For such Philips Global Network Services, payment is made on the basis of invoices raised by Philips Netherlands towards maintenance of server/portal, license fees, server software maintenance cost, infrastructure for global platform, hiring of web space for storing data, management and maintenance of web portal, licence cost for access for wireless WAN environment, Directory services for listing etc. Some of these services which can be availed by Philips locations and employees are of the nature of "Calendaring and Scheduling Directory, Philips e-mail, file backup etc. In any case, all these infrastructure services are only in the nature of providing intra connectivity between Philips locations worldwide and the payments made are obviously then for sharing of the maintenance cost between the Philips' units and not as fees for supply of online information or retrieval of data from the portal'.
5.5 In the instant case there is no doubt that the agreement entered between the appellant and the holding company was not mere exchange of data but access and retrieval of data for manufacturing purposes, supply chain meant for marketing purposes, their finance systems, data access to the quality and Page 9 of 13 ST/951, 952/2010 laboratory information systems and usage of data warehouse goes to prove that the entire gamut of manufacturing/marketing/ finance were made accessible to the appellant through computer network systems. Therefore, distinguishing from the facts of cases relied upon by the appellant, we uphold the classification of the services under OIDAR.
5.6. The Board vide Circular No. 202/12/2016 -ST dated 09.11.2016 has provided an indicative List of OIDAR services which is as follows:
(1) Website supply, web-hosting, distance maintenance of programmes and equipment;
(a) Website hosting and webpage hosting;
(b) automated, online and distance maintenance of programmes;
(c) remote systems administration;
(d) online data warehousing where specific data is stored and retrieved electronically;
(e) online supply of on-demand disc space.
(2) Supply of software and updating thereof;
(a) Accessing or downloading software (including procurement/ accountancy programmes and anti-virus software) plus updates;
(b) software to block banner adverts showing, otherwise known as Banner blockers;
(c) download drivers, such as software that interfaces computers with peripheral equipment (such as printers);
(d) online automated installation of filters on websites;
(e) online automated installation of firewalls.
(3) supply of images, text and information and making available of databases;
(a) Accessing or downloading desktop themes;
(b) accessing or downloading photographic or pictorial images or screensavers;
(c) the digitised content of books and other electronic publications;
(d) subscription to online newspapers and journals;
(e) weblogs and website statistics;
(f) online news, traffic information and weather reports;
(g) online information generated automatically by software from specific data input by the customer, such as legal and financial Page 10 of 13 ST/951, 952/2010 data, (in particular such data as continually updated stock market data, in real time);
(h) the provision of advertising space including banner ads on a website/web page;
(i) use of search engines and Internet directories.
From the Agreement, it is very clear that most of the above services are being rendered by the holding company and their services received by the appellant company clearly fall under the above listed services.
6. The second issue that the services being provided from outside India, whether the recipient is liable for service tax under Section 66A of the Finance Act, 1994. The period of dispute is from 01.09.2006 to 29.02.2008 in the first appeal and March 2008 in the second appeal. The statutory provisions with regard to liability of service tax on recipient of services is very clear after the amendment of Rule 2(1)(d) 4 of the Service Tax Rules, 1994 consequent to the inception of Section 66A in the Finance Act, 1994. This issue is also settled in view of the decision of the Hon'ble High Court in the case of Indian National Shipowners Association Versus Union of India 2009 (13) S.T.R. 235 (Bom.) dated on 11-12-2008 which has been upheld by the Supreme Court. The Hon'ble High Court held as follows:
"20. It appears that a similar provision in the rules was made applicable by the Government in relation to the Clearing Agents by making customers of the Clearing Agent liable for levy of the service tax. That question has been decided by the Supreme Court by its judgment in the case of Laghu Udyog Bharati (supra) and the Supreme Court has clearly laid down that the imposition of the service tax is on the persons rendering the services and by making a provision in the Rules, levy of tax cannot be shifted to the recipients of the services and the Rule framed which brought about this situation has been declared by the Supreme Court to be invalid. The law laid down by the Supreme Court in its judgment in Laghu Udyog (supra) is squarely applicable to Rule 2(1)(d)(iv), which is relied on in this case. It appears that it is first time when the Act was amended and Section 66A was inserted by Finance Act, 2006 w.e.f. 18-4-2006, the Respondents got legal authority to levy service tax on the recipients of the taxable service. Now, because of the Page 11 of 13 ST/951, 952/2010 enactment of Section 66A, a person who is resident in India or business in India becomes liable to be levied service tax when he receives service outside India from a person who is non-resident or is from outside India. Before enactment of Section 66A it is apparent that there was no authority vested by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India. In that case till Section 66A was enacted a person liable was the one who rendered the services. In other words, it is only after enactment of Section 66A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66A, there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association."
Therefore, with effect from 18.04.2006 though the service provider is outside India, the appellant being recipient of services is liable to pay service tax as per Section 66A and Section 68 of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules 1994. In view of the above, the appellant is liable for payment of service tax for the period from 01.10.2006 to 28.02.2008 (Appeal No. ST/951/2010) and for the month of March 2008 (Appeal No. ST/952/2010) under Section 73(1) of the Finance Act, 1994 as held by the Commissioner in the impugned order along with interest under Section 75 of the Finance Act, 1994.
7. The Appellant had stated that they had reasonable belief that the services received by them are covered under IT services and hence, in terms of Section 80, the penalty under section 76 is not imposable and on account of interpretation of legal provisions, penalty cannot be imposed. In the case of Infosys Ltd. vs CST, Bangalore 2015 (37) S.T.R. 862 (Tri. - Bang) relied upon by the appellant this Tribunal observed as follows:
"8. The next issue is suppression of facts and imposition of penalty under Section 78 of the Finance Act, 1994. After considering the submissions made by both the sides and going through the records and our discussion above would clearly show that in all the cases, there can be two views on various issues and the demands have arisen Page 12 of 13 ST/951, 952/2010 because of interpretation of legal provisions, notifications, circulars, instructions, etc. In all these cases, wherever there is demand for Service Tax, the appellant would be eligible for the benefit of Cenvat credit also and therefore it cannot be said that there was any intention to evade payment of duty. In the case of insurance premium and constructions activities and maintenance and repair, question involves interpretation of definition of input service which in our opinion is yet to attain finality and there are several grey areas. We spent considerable time herein on the subject and learned counsel submitted very detailed arguments and also brought to our notice why the interpretation given by us may not be correct according to him. We feel that in view of the above position, the invocation of suppression of facts and imposition of penalty in respect of Cenvat credit also cannot be sustained. Therefore, the demands wherever are sustainable in our opinion and where we have held so, would be only to the extent of denial of Cenvat credit within the normal period of limitation with interest but penalties are not sustained."
8. In the instant case since the Commissioner (Appeals) has already held that there is no suppression of facts and confirmed the duty only for the normal period based on the interpretation of law, we do not find any reason to uphold the penalty. Hence, penalties under Section 76 and 77 are set aside.
9. In view of the above, confirmation of demand of service tax with interest is upheld in both the appeals but penalties are set aside.
10. Appeals are partially allowed only to the extent of setting aside the penalty.
(Order pronounced in Open Court on 03.12.2024.) (D.M. MISRA) MEMBER (JUDICIAL) (R. BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 13 of 13