Custom, Excise & Service Tax Tribunal
Kelly Services India Pvt. Ltd vs C.C.E., & S.T., Gurgaon-Ii on 6 October, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
SINGLE MEMBER
Date of Hearing: 18/09/2015
Date of Pronouncement: 06.10.2015
Appeal No. ST/52527/2015-ST(SM)
(Arising out of OIO No. 29/ST/APPL/D-II/14 dated 24/03/2014 passed by the Commissioner (Appeals-II) Service Tax, Gurgaon, Haryana.)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
Kelly Services India Pvt. Ltd. Appellant
Vs.
C.C.E., & S.T., Gurgaon-II Respondent
Appearance:
Present for the Appellant: Shri Harish Bindumadhavan, Advocate Present for the Respondent: Shri M.R. Sharma, AR Coram: Honble Ms. Sulekha Beevi C.S., Member (Judicial) Final Order No.53084/2015 Per: Sulekha Beevi C.S.
1. The above appeal raises two issues for consideration (i) disallowance of Cenvat credit on medical insurance services (ii) demand of interest alleging delay in payment of service tax on transactions with Associated Enterprises prior to 10.5.2008.
2. The appellant is engaged in providing services of manpower recruitment and are registered for various services. They are also availing Cenvat credit. It was observed that for the period 2007-08 to 2010-2011 the appellant wrongly availed credit on medical insurance services of employees as these services according to the department did not qualify as input services. The second allegation is with regard to delay in payment of service tax. The appellant was receiving services from outside India and was liable to pay service tax under Section 66A of Finance Act, 1994. During the Financial Year 2006-2007 and 2007-08, the appellant received services from its overseas affiliate and made entries in the books of account. Service tax pertaining to these book entries was paid by appellant in January 2009. Department entertained the view that as per amendment brought forth by the Explanation to gross amount charged w.e.f. 10.5.2008, the appellant is liable to pay service tax on the due date reckoned as per date of making the book adjustments and that when service tax was paid by appellant in 2009 pertaining to book entries made in 2006-07, 2007-08, there is delay in payment of service tax and therefore appellant is liable to pay interest of Rs.3,25,360/- for delayed payment of service tax. The show cause notice issued to appellant raising the above allegations culminated in the Order-in-Original which confirmed the disallowance of credit, availed on medical insurance services, and ordered recovery of same alongwith interest besides imposing penalty. The demand of interest on delayed payment was also confirmed and also imposed penalty of Rs.1000/- under Section 77 of the Finance Act, 1994. In appeal, the same was upheld by the Commissioner (Appeals). Aggrieved, the appellant is before the tribunal.
3. The disputed period with regard to the denial of Cenvat credit on medical insurance services is prior to 1.4.2011 when the definition of input services included activities relating to business. The appellant received insurance services for providing insurance cover to its employees. The learned Counsel submitted that appellant was providing manpower recruitment services, and the agreements with clients most of the times was such that appellant had to obtain insurance cover for the employees who are provided temporarily to customers. Further medical insurance was provided to the appellants own employees. That these services being an important part of the business of the appellant, they qualify as input services, and that appellant has rightly availed the credit. To fortify his arguments the learned Counsel relied upon the judgment in Commissioner of Service Tax, Bangalore Vs. M/s Team Lease Services (P) Ltd. 2014-TIOL-510-HC-KAR-ST.
4. The credit is seen denied in the impugned order observing that medical insurance service has no direct nexus with the output services. In a catena of decisions it has been held that, the definition of input service, as it stood during the relevant period (prior to 1.4.2011) covered every conceivable service used in the business of the assessee. The judgment of the Honble High Court of Karnataka relied by the appellant in the case cited supra covers the issue, the facts being identical. Following the dictum laid in the said judgment I am of the view that the disallowance of credit on medical insurance services cannot be sustained.
5. The next issue to be addressed is with regard to the demand of interest alleging delay in payment of service tax. During the period 2006-07 and 2007-08 the appellant received services from overseas associate. They made book entries showing as amount payable for the consideration yet to be paid for these services. The actual payment for services received was made by appellant in 2011. The service tax for these services were paid in January 2009. According to the department the amendment brought forth w.e.f. 10.5.2008 clarified that gross value charged included book adjustments made and that therefore appellants are liable to pay service tax after due date on making the book entries till the payment of tax i.e; January 2009. For better appreciation the amendment inserted w.e.f. 10.5.2008 is noticed as under:
Explanation (c) to Section 67 of the Act reads as under:-
Explanation (till 09.05.2008)
(c) gross amount charged includes payment by cheque, credit card, deduction from amount and any form of payment by issue of credit notes and book adjustment.
Explanation (w.e.f. 10.05.2008)
(c) gross amount charged includes payment by cheque, credit card, deduction from amount and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise. Explanation inserted in Rule 6(1) of Service Tax Rules is as below:
Explanation For the removal or doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax.
6. The learned counsel for appellant submitted that appellant has paid interest upon the delayed payment after 10.5.2008 upto the date of payment. The appellant disputes the claim of interest prior to 10.5.2008 only. According to the appellant, they have deposited Rs.2,94,277/- as interest applicable for the book adjustments which actually is excess payment, as the actual liability of interest for the admitted period would be only 266,695/-. The department is claiming payment of interest of Rs.3,25,360/- for delayed payment. As per the Order-in-Original the book entries of the Financial Year 2006-07 and 2007-08 are considered to have been made on 10.5.2008 and the adjudicating authority has held that the due date for payment of tax on these entries is from 5.6.2008. The relevant portion of Order-in-original is reproduced as under:
I find that the assessee has contended that the amendment is prospective in nature and cannot have retrospective effect and this it would be applicable to the book entries made w.e.f. 10.5.2008, I find that the department has also proposed to apply the provisions with prospective effect only as the assessee has been asked to pay the service tax on 05.06.2008 only which is perfectly in accordance with the provisions contained in Rule 6(1) of the Rules ibid. The department has not proposed to demand service tax from various dated in 2006-07 to 2007-08 itself when the book entries were made in the books of accounts of the assessee. I find that since the provisions have been clarified on 10.05.2008, the department has treated the entries made by them in 2006-07 to 2007-08 as having been made on 10.5.2008 and since the assessee is a person other than individual/proprietary firm/partnership firm, they become liable to pay the service tax on 05.06.2008 i.e. by 5th of the calendar month immediately following the calendar month in which the payment are made towards the value of taxable services. The assessees contention that the department is applying the provisions with retrospective effect is, therefore, not tenable.
7. According to the department, liability to pay service tax arises as soon as service is rendered although the service tax is required to be paid at the time of receipt /making of payment of consideration or as advances, before rendering of services. Section 68 of the Finance Act read with Rule 6 of the Service Tax Rules provide for the manner of payment. The gross value has to be determined in terms of Section 67 of the Finance Act, 1994. The appellant received the taxable services in 2006-07 to 2007-08 and made book entries in their account then. But the service tax was paid only in January 2009.
8. The department is of the view that as the book adjustments were made by appellant at the time of receiving services as amount to be paid, under Rule 6 of Service Tax Rules, the due date for payment of tax on book adjustment made would be 5.6.2008. That Explanation to Rule 6(1) of Service Tax Rules, 1994 as inserted w.e.f. 10.5.2008, does not bring any change but merely clarifies the position in the case of Associated Enterprises.
9. Controverting the stand taken by the department, the learned Counsel for the appellant laid thrust on the judgment of CESTAT in Sify Technologies Ltd. Vs. CCE reported in 2011-TIOL-123-CESTAT-Mad. While deciding similar issue, the Tribunal held as follows:
The statutory provision for demanding service tax in respect of transactions between associated enterprises, immediately upon amendment, has been introduced only w.e.f. 10.5.08. Prior to 10.5.08, neither the Finance Act, 1994 not the Service Tax Rules, 1994 contain any provision enabling demand of service tax prior to the realization of taxable services, in any circumstances. This being so, it is not legally permissible to give retrospective effect to the Explanation inserted in Rule 6 of the Service Tax Rules. The Legislative intention behind the amendments was explained by the Board as for plugging avoidance of tax on the ground of non-realization of money from associated enterprises and the intention of the Legislature in bringing the amendments is to introduce a new provision and not to remove any doubts in the existing provision. It is not, nor can it be, anybodys case, that Explanation shall always take effect retrospectively. In the case of Commissioner of Customs Vs. Skycell Communications Ltd. (2008-TIOL-1898-CESTAT-MAD-LB) = [2008 (232) ELT 434], the Larger Bench of the Tribunal has held that Explanation placing restrictions prejudicial to the assessee will not be retrospective In the instant case also, Notification No. 19/08 introducing Explanation to Rule 6 of the Service Tax Rules, 1994 contains a provision that it shall be effective only from the date of its publication. The amendment to Section 67 is a substantive one and will be applicable only from the date of its introduction and not retrospectively, eventhough the Explanation uses the expression for removal of doubts.
10. The Tribunal in M/s Nortel Networks (I) Pvt. Ltd. Vs. Commissioner of Service Tax, New Delhi-2015 TIOL-1558-Cestat-Delhi has followed Sify Case (supra) and observed as follows:
On the demonstrable and apparent facts, entries were made in the books of account by the appellant in respect of amounts due from overseas entities, prior to 10.05.2008. On this count there is no contest. For entries made prior to 10.05.2008 there is no liability to remittance of tax merely on account of amendment to the provisions of Section 67 of the Act is a principle concluded by decisions of this Tribunal in Sift Technologies vs. CCE 2011 (21) STR 252 (Tri. Chennai) 2011-TIOL-123-CESTAT-MAD and Cecas Services India Pvt. Ltd. Vs. CST, New Delhi 2014 (36) STR 556 (Tri. Del.) = 2014 (36) STR 556 (Tri.-Del.) = 2014-TIOL-1079-CESTAT-DEL.
11. From the foregoing it is clear that there is no liability on the part of appellants to pay interest on the book adjustments made prior to 10.5.2008. The appellants have deposited the interest applicable after 10.5.2008. The department has not disputed this figure. On such score, the impugned demand of interest of Rs.3,25,360/- is not sustainable. Both issues are answered in favour of appellant.
12. In view thereof, the impugned order is set aside. Appeal is allowed with consequential reliefs if any.
(Pronounced on 06.10.2015) (Sulekha Beevi C.S.) Member (Judicial) K. Gupta 10