Custom, Excise & Service Tax Tribunal
Shri M.H.Patil, Advocate With Mrs. ... vs Shri S.Dewalwar, Addl. ... on 30 October, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.1
APPEAL NO. ST/156, 173/08-Mum
(Arising out of Order-in- Original No.29/Commr.(A.K.)/08 dtd.19.3.2008 passed by the Commissioner of Central Excise(Adj.)Mumbai)
For approval and signature:
Honble Mr S.S.Kang, Vice President
Honble Mr.P.K.Jain, Member(Technical)
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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 :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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Sodexho Pass Services India Private Limited
:
Appellant
VS
Commissioner of Service Tax, Mumbai
Commissioner of Service Tax Mumbai
Vs
Sodexho Pass Services India Private Ltd.
Respondent
Appellant
Respondent
Appearance
Shri M.H.Patil, Advocate with Mrs. Aparna Rao, advocate and Ms. Mansi Patil, Consultant for Appellant
Shri S.Dewalwar, Addl. Commissioner(A.R.) for Respondent
CORAM:
Mr. S. S. Kang, Vice President
Mr.P.K.Jain, Member(Technical)
Date of hearing: 11/09/2013
Date of decision 30/10 /2013
ORDER NO.
Per : P.K.Jain
The assessee are in the business of issuing meal/gift coupon vouchers. The assessee have large number of affiliates. These affiliates are different business entity such as restaurants, eating places and other establishments who have agreed to accept the vouchers of the assessee as payment for goods or services provided by them. The assessee entered into an agreement with such affiliates. After providing goods or services to the user, these meal/gift vouchers are presented to the assessee (by the affiliates) who after deducing certain amounts as service charge make payment for the face value of the vouchers. The assessee approaches various customers who are generally in business public and pvt. organisations who wish to make benefits in kind available to the employees. The assessee entered into agreement with such customers. The customers as per their requirement purchase the meal vouchers from the assessee. The assessee charges in addition to the face value of the meal vouchers certain amount as service charges as also delivery charges. The customers in turn distribute such meal vouchers to their employees as per the terms of the employment. The employees (hereinafter termed as user) in turn uses such vouchers for purchase of food from one of the affiliates. These vouchers are not honoured by the business establishment in general but only by the affiliates of the assessee. Thus the user has no option but to purchase the goods and other services from one of the affiliates of the assessee. One of the advantage of this system is that such meal vouchers are considered as fringe benefit for employees. The value of such vouchers is therefore, not taxable in the hands of user under the Income tax law. For the customer (employer of such user) it becomes expenditure and this helps in saving taxes. Similar to the meal vouchers, the assessee also issues gift vouchers which can be used for purchase of other variety of goods. Gift vouchers can be used for purchase in book shops, music shops and other departmental shops for buying such items from their affiliates. The main business is relating to meal vouchers.
2. The assessee were issued a show-cause notice dated 28.4.2006 demanding service tax on the service charges collected from the affiliates under the Business Auxiliary Services for the period 1.7.2003 to 31.12.2005. In the show-cause notice, the assessee were also asked to pay service tax on the service charges collected from their customers under Business Auxiliary Services for the period 10.9.2004 to 31.12.2005. The definition of Business Auxiliary Service underwent a change w.e.f. 10.9.2004. The case was adjudicated by the Commissioner who confirmed the demand relating to the service charges collected from affiliates. However, the Commissioner dropped the demand relating to service charges collected from the customers. The assessee as well as Revenue are in appeals against the said order of the Commissioner. The assessee are in appeal against the confirmation of the demand, interest and penalty as according to the assessee no service charge is leviable during the period under Business Auxiliary Service.
3. The Revenue on the other hand is in appeal on the grounds that the Commissioner has examined the demand only under sub-clause (vi) of the definition of Business Auxiliary Service at the relevant time, the Commissioner should have examined all the clauses and the service provided by the assessee would be covered by clause (iv). In addition to the above issue, revenue has taken up the issue relating to imposition of penalty by the Commissioner in relation to service charges collected from the affiliates. The Commissioner in his order has confined the demand as also imposed the penalty under Sec.78 of the Finance Act. However, while imposing the penalty the Commissioner has not taken into account the Education Cess amounting to Rs. 2,66,385/-.
4. The assessee in addition to the appeal have also submitted the additional submissions vide letter dated 14/1/2009, 19/2/2013 and 27/5/2013.
5. The main contention of the ld. advocate to the assessee is that their services are similar to Credit/Debit cards and therefore such transactions are not covered under the purview of service tax prior to 1.5.2006. The assessee have also stated that they have been suo motu paying service tax on their services under the category of Supports Services of Business or Commerce from 1.5.2006 onwards. They have contended that since their service is covered under the business support services from1.5.2006, the said service cannot be taxed under any pre existing category before 1.5.2006. In support of this contention, they had cited certain judgements. Another contention is that providing a list of affiliates does not amount to promotion or marketing of affiliates as it is merely a facilitating mechanism. In support of this contention also they have cited case laws. The assessee have contended that purpose of providing list of affiliates is not promoting the business of affiliates but is for convenience of users. The other contention is that vouchers are nothing but an alternative payment mechanism similar to credit/debit cards and therefore such instruments cannot be taxed under the category of Business Auxiliary Services. They have also contended that voucher business does not involve promotion of business of the affiliates. Another contention raised by the Ld.advocate to assessee is that there is no suppression of facts to justify invokation of extended period of limitation. In support of this contention, they argued that while taking centralized service tax registration, they have indicated in the documents that they are in the business of vouchers and therefore, all their activities were within the knowledge of the department and therefore extended period cannot be invoked. Since extended period cannot be invoked, there is no question of imposition of any penalty. They have also filed written submissions against the appeal filed by the Revenue. Their main argument against the appeal filed by the Revenue is that Revenues contention that the business auxiliary service should be read in its entirety is not sustainable as the show-cause notice very specifically alleged clause (vi) of Business Auxiliary Service which covers provisions of services on behalf of clients. They further contended that none of the provisions covers the service provided by them to their customers/clients.
6. Ld. A.R. on the other hand has submitted that the assessee are promoting the business of their affiliates in as much as a user/employee has to purchase goods and services from one of the affiliates and he can not use these vouchers in any other establishments or for any other purpose. He further argued that the assessee contention that since from 1.5.2006 services are being classified under Business Support Service, no tax can be levied prior to the said date in any other entry is not correct. It is not the department who have asked them to classify the service under business support service with effect from 1.5.2006. It is assessee own decision and department has no role in the said decision. Since the rate of duty in both the classifications is same, it is immaterial whether a person classifies the goods under Business Auxiliary Service or Business Support Services. Just because they have submitted returns post 2006 by classifying the service under Business Support Service does not mean the department has accepted correct classification of the service as Business Support Service. The ld.A.R. also argued that keeping in view the nature of the service assessee are providing business auxiliary service and the demands have been correctly raised in the demand notice. Since services are classifiable under Business auxiliary service, their arguments about pre existing entry, invocation of larger period etc. will not hold water. He further submitted that just mentioning about vouchers business while taking centralized registration for outdoor catering service does not imply that they have informed the department about all the activities. The purpose of taking centralized registration is to get registration certificate at one place for all its branches relating to outdoor catering service. At this point of time, the departmental officials are expected to process the application form registration angle alone and not from the angle about various services provided and their taxability. In view of this position, the extended period has been correctly invoked. The ld.A.R. further argued that the adjudicating authority has incorrectly dropped the demand by only examining that the services are not classifiable under clause (vi) of Business Auxiliary services. It was the duty of the adjudicating authority to examine various clauses under business auxiliary services and then decide the issue. Ld. A.R also submitted that since extended period has been confirmed by the adjudicating authority, the penalty should have been imposed equal to the duty confirmed. Penalty amount should have included the education cess.
7 We have considered the rival submissions and given considerable thoughts to the various issues. The business auxiliary service has been defined under the Finance Act, 1994 as under:-
business auxiliary service means any service in relation to -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
(v) production or processing of goods for, or on behalf of the client;
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor,public relation services, management or supervision.
The said definition is as per amendment w.e.f. 10.9.2004. Prior to this, definition included clause (i) to (iii) and (vii) only.
8. The first issue to be decided is whether meal vouchers issued by the assessee promotes sale of goods and services produced or provided by or belonging to the affiliates. In the present situation, user/employee does not purchase the meal vouchers. It is his employer who purchases such meal vouchers from assessee. User employee has no say in this process. When a user/employee gets such meal vouchers from his employer (assessee customer), the user has to look the list of affiliates and thereafter approach one of the affiliates of the assessee to buy goods and services. The user can not approach any other entity or business establishment but to limit himself to the affiliates of the assessee. In our view, such a scheme/ restrictions viz. purchase of vouchers by employer and purchase of goods and services by employee from affiliate itself promotes the sale of goods and services of the affiliates and therefore meal vouchers of the assessee definitely helps in promoting sale of goods and services of assessee affiliates. We, therefore have no hesitation in holding that the assessee are providing business auxiliary service to its affiliates.
9 The ld.Counsel for the assessee has given a lot of emphasis that these vouchers are similar to credit/debit cards. We do not find any merit in this contention. Credit/debit card are nothing but substitute of carrying the cash by an individual. The credit/debit card holder directly pays to the bank and bank in turn pays the amount to the shop and establishment. Thus in case of credit/debit card, the user has wide option to go practically to any business establishment and buy any goods or services. In the case of assessee voucher, user is constrained to go and buy goods/services from the assessee affiliates and that also buy meal/other gift. In case of credit/debit card, card holder pays to the bank. Further in case of voucher, it is not the user who pays to the assessee but it is the employer of the user who pays to the assessee. Further, it is common that certain percentage of vouchers purchased by customers and in turn given to user/employee are never used (due to expiry date or user has forgotten to use such vouchers etc.) but appellant still gets and retain value of such vouchers. In credit/debit card, card holder pays only for the goods & services purchased. Moreover, when a user presents such meal vouchers to an affiliate and if value of goods and services availed in less than the value of vouchers, he does not get refund and excess amount is retained by affiliates. No such thing happens in credit/debit card. In India, the above voucher system is used mainly to save tax. In view of this position, in our view, meal voucher cannot be compared with credit/debit cards and cannot be called a payment system which is true for the debit/credit card. Vouchers are definitely not substitute for carrying cash as is the case with credit/debit card. In fact, in real life value of such meal vouchers is limited to two thousand per month per employee.
10. The other contention of the assessee is that they are paying service tax under Business Support service with effect from 1.5.2006 and therefore pre 1.5.2006 it cannot be covered under any other entry. The Business Support Service is defined under Sec.65(104c) of the Finance Act which is as under:-
support services of business or commerce means services provided in relation to business or commerce and 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 assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
Explanation.For the purposes of this clause, the expression infrastructural support services includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;
11. The assessee have not explained either before the lower adjudicating authority or in the appeal before us under which particular wording in the said definition, their services are covered. Prima facie, we are of the view that their services are not covered under the said definition of business support service. In any case, since we have held that services provided by the assessee are covered under business auxiliary service and at the relevant time business support service was not in existence, we consider it unnecessary to go into any further discussion on this issue.
12. Ld. Counsel has given a lot of emphasis and cited certain judgements to argue the point that once a new entry is introduced covering a particular activity without amending the earlier entry, it cannot be said that earlier entry covered the subsequently introduced entry. We are of the view that this proposition may be true in certain situations while in other situations, this may not be true.
After the introduction of Finance Act, 1994, practically every year new services were introduced in the service tax net. The introduction of new service did not bear any specific pattern or coverage to particularly sector. In Central Excise Tariff as also Customs Tariff, the classification is based upon scientific principle and pattern. Keeping in view the evoluation of various entries in the service tax, it is not unusual to find that a particular activity service may get covered by more than one entry classification. In fact, Sec. 65 A of the Finance Act, 1994 recognizes this fact. The said Section is reproduced below:-
65A. Classification of taxable services (1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause(105) of section 65.
(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:-
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause(b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.
13. It is obvious from the section that the Act itself recognizes that service may be classifiable under two or more sub-clauses of clause (105) of Section 65, In view of the above provision, we are of the view that the proposition made by the ld.counsel does not hold merit. Ld.counsel has cited certain case laws in support of his contention. We have gone through the cited case laws. In the case of Indian National Shipowners Association vs. Union of India reported in 2009(14) S.T.R. 289(Bom) the Honble Mumbai High Court was considering the question whether marine logistics services offshore support vessels, marine construction barges and harbour tugs provided to exploration and production companies would get covered under supply of Tangible Goods service from 16.5.2008 or under Mining service prior to that date. It is in this context that they had made observation relating to the said two entries. In fact, in this case, the Supreme Court had observed that the nature of work that was required to be carried out could not be strictly said to be a service in relation to mining of mineral, oil or gas. It is in this context that the Court has made certain observation. Another case cited by the ld.counsel is Cameo Corporation Services Ltd. vs. Commr.of Service Tax, Chennai reported in 2008(11)S.T.R. 161 (Tri-Chennai). In this case, the issue before the Tribunal was, whether Share transfer agent service which was introduced with effect from 1.5.2006 could be covered under Business Auxiliary Services prior to that date. Share Transfer Agents are a separate category and they do the work for their own and registered with SEBI and it is in this context, the Tribunal held that this cannot be covered under Business Auxiliary Services and made certain observations. Similarly in the case of CCE vs. Trumac Engg. Co. Pvt.Ltd. reported in 2008(10)STR 148 (Tri-Ahmd.) the issue was between the Consulting Engineer Service and Intellectual property service w.e.f. 10.9.2004. The fees and royalty paid for technical know-how was not to be covered under Consulting Engineer Service and in this context the Tribunal held that the services are chargeable under Intellectual property service with effect from 10.9.2004 and are not covered under Consulting Engineer services prior to that date and observations are made in that context. Similarly in the case of Glaxo Smithkline Pharmaceuticals Ltd. vs. CCE, Mumbai.IV reported in 2005(188)E.L.T. 171 (Tri-Mumbai) the issue was whether the activities which are in the nature of executory services would be covered under Management Consultancy Services. The executory services were held to be not covered under Management Consultancy services. In the case of IBM India Pvt. Ltd. vs. Commissioner of Service Tax, Bangalore reported in 2010(17)S.T.R.317(Tri-Bang.) the issue was relating to Management consultant service, software implementation which was executory in nature and it in this context certain observation was made by the Tribunal. The facts in the present case are very very different. As discussed earlier, we are of the view that the activity of the assessee helps in promoting the sale of goods and services of its affiliates and clearly covered by the specific entry under Business Auxiliary Services. Moreover, prima facie, we do not find that the said activity gets covered under Business Support services. In any case, since the activities are more specifically covered under Business Auxiliary services as per Sec.65A(2), the same would be covered under Business Auxiliary Services. The various observation made in various case laws cited are not applicable in the facts and circumstances of the present case.
14. Another contention of the assessee is that by preparing a list of affiliates and providing the same to the customers/users they are not promoting the business of affiliates and in support of this the ld. Counsel has cited the judgement of the Tribunal in the case of Federation of Gujarat State Chemist & Druggist Association vs. CCE, Rajkot reported in 2012(27)S.T.R. 292 (Tri-Ahmd.). In the said case, the Association of Chemist & Druggists were publishing details of medicines/products of manufacturers in monthly news magazine and were collecting advertisement charges from manufacturers. The main purpose was to provide information regarding product prices to druggist and chemist. The Tribunal took a view that in the absence of information regarding products application, utilization, efficacy and benefits, promotion and marketing is not possible. Mere publication of names and price details not amounts to sale or promotion. The facts in the present case are very different. Here directory is given to the customer/user employees who are required to know the details of affiliates before using meal vouchers. Publication of directory is an important link in the overall activities of the assessee, which definitely helps in promoting the business of the affiliates.
15. Coming to the invocation of the extended period, we find that the main contention of the assessee is that they have taken centralized registration in respect of outdoor catering service and while taking the said registration, in documents it was indicated that they are in the business of meal voucher. We are in full agreement with the ld.A.R. that while granting the centralized registration for outdoor category service, Revenue is not expected to examine whether other activities are dutiable or classification of various services provided by them. In case of centralized registration, all that Revenue officials are expected is to know from the applicant whether he has proper/centralized accounting system. We also note that even their registration was taken as late at Octo.2004 while demand is for earlier period also. It is an admitted fact that the assessee in their returns details relating to such activity were suppressed by them. Under these circumstances, we hold that extended period has been correctly invoked.
16. Ld. Counsel for the assessee also stated that they have bonafide belief that service tax was not payable and therefore penalty under Sec.76, 77 & 78 are not to be imposed. In support of the said contention, he has cited certain case laws. In the case of Commissioner of Service Tax, Mumbai vs. S.R.Enterprises reported in 2008(9)S.T.R. 123(BOM), the Honble Bombay High Court has stated that the CESTAT is empowered to reduce penalty as per statutory provisions keeping in view the facts and circumstances of the case. Another case law cited is that of this Tribunal in the case of Flyingman Air Courier Pvt.Ltd. vs. CCE, Jaipur reported in 2006(3)S.T.R. 283 (Tri-Del.) wherein this tribunal, after taking into account that the appellant had bonafide belief that their service was not being covered under definition of courier service, held that penalty was not sustainable. Similarly in the case of Hutchison Telecom vs. CCE, Mumbai reported in 2006(1) S.T.R. 80 (Tri-Del.) this tribunal has waived the penalty under Sec. 80 of the Finance Act, 1994, keeping in view the fact that SIM card and activation charges were treated by appellant as sale of goods and sales tax paid thereon under a bona fide belief. In another case relating to sale of SIM card where the issue was not free from doubt whether to pay service tax or to pay sales tax, the Honble Bombay High Court in the case of Commissioner of Service Tax vs Hutchison Mson Max Telecom Pvt.Ltd. reported in 2008(9) S.T.R. 455(Bom) has waived the penalty. In the facts and circumstances of the case before us, the assessee have not been able to provide any evidence to come to the conclusion that the assessee were having a bonafide belief that they were not required to pay service tax during the period under Business Auxiliary Services. No attempt was made by the assessee to ascertain their tax liability from the department before the investigation started. We do not find any reason to hold that the assessee had bonafide belief and therefore in our view penalty is imposable.
17. As far as Revenues appeal is concerned, the main contention of the Revenue is that the Commissioner has not examined all the clauses under business auxiliary service and based his decision only on clause (vi). We do not find strength in this argument for the simple reason that the show cause notice itself invoked clause (vi) of business auxiliary service and therefore, even the appellant was put to notice with reference to that clause alone. The adjudicating authority is not expected to expand the scope of the show-cause notice. Coverage under clause (iv) has been raised for the first time by Revenue before this tribunal. In view of this position, we reject the Revenues appeal on this ground. As far as the Revenues contention about the amount of penalty under Sec.78 relating to Education Cess is concerned, we find that the contention is correct. The adjudicating authority appears to have missed the amount of education cess while imposing penalty under Sec.78.
18. In the result, both the appeals are dismissed except the Revenues appeal relating to penalty.
(Pronounced in Court on 30/10/2013) S. S. Kang Vice President P.K.Jain Member(Technical) pv 19