Service Tax

The period for which the assessee was under the bona fide belief that no refund is due to him (as the excess service tax paid was adjusted by him in TRANS-1), should not be reckoned for the counting period of limitation u/s 11B of the Central Excise Act

 

FACTS

For the period April to June, 2017, Service Tax return was filed on 14th August, 2017. Due to the cancellation of some of the invoices, the appellant revised the return on 21st September, 2017. The excess tax paid as a result of the cancellation of invoices was adjusted by it in Form TRAN-1. The GST Department objected to the said adjustment and it was reversed along with payment of interest on 27th February, 2019. Thereafter, a refund application was filed on 5th April, 2019 for the excess payment. The refund claim was rejected on the ground of time bar by treating the relevant date as the date of payment of service tax, i.e., 5th July, 2017, u/s 11B of the Central Excise Act, 1944.

HELD

The Hon’ble Tribunal held that since the amount of excess paid service tax was adjusted against the TRAN-1 account and the same was reversed on 27th February, 2019 along with interest, till such date there is no cause for claiming refund of this amount. The refund arises only after the amount is reversed. The refund was admittedly filed on 5th April, 2019, i.e., well within the prescribed time limit of one year in terms of section 11B and hence is not time-barred.

26. [2021 (123) taxmann.com 444 (CESTAT-Bang.)] Target Corporation India (P) Ltd. vs. Commissioner of Central Excise Date of order: 10th January, 2021

Reimbursement of salaries and out of pocket expenses to the foreign group entity in respect of employees seconded by it to the Indian entity would not be regarded as ‘Manpower Recruitment and Supply of Manpower Agency Service’ as the group companies are not in the business of supplying manpower

FACTS

The appellant entered into an agreement with its group company in the USA (Target, USA) for secondment of employees. Apart from the agreement, it issued a letter of assignment to such seconded employees specifying the location of work, the position of duties, hours of work, computation of employee benefits, terms of employment, annual revision, termination of employment and taxation, etc., relevant to their secondment. The terms of the agreement provided that the employees seconded shall continue to have their payroll processed by Target, USA. They will act in accordance with the instructions and directions of the appellants and the appellant shall reimburse Target, USA all remuneration including the out of pocket expenses incurred by the seconded employees at actuals. In addition, a service charge was to be paid to Target, USA for processing of the payroll and it was agreed that during the secondment period the role of Target, USA is restricted to that of payroll service provider only.

Target, USA raised debit notes towards salaries and the payments were remitted in foreign currency. In the financials the same were grouped as ‘salaries, wages and bonus’ under the head ‘expenditure incurred in foreign exchange’. Further, the amount under the said head also contained salaries deposited in the foreign bank accounts of its own employees deputed on overseas assignments. After investigation, the Revenue authorities entertained the view that the assessee has evaded the payment of service tax towards import of services on ‘Manpower Recruitment and Supply of Manpower Agency Service’.

HELD

The Tribunal referred to the definition of ‘Manpower Recruitment or Supply Agency’ Services u/s 105(k) under the Finance Act, 1994, the scope of the said services explained by Circular F. No. B1/6/2005-TRU dated 27th July, 2005, and also to the definition of service u/s 65B(44) for a period on or after 1st July, 2012. The Tribunal held that the legal position post the negative list regime does not make any departure from the settled position of law as it existed before 2012 with respect to the service tax implications on deputation of employees. It further held that the agreement entered into with the group entity is for provision of certain specialised services and is not related to the supply of manpower services and that the group companies are not in the business of supplying manpower. It further held that the persons seconded to the appellant were working in the capacity of employees and payment of salaries, etc., is made to such employees by group companies only for disbursement purposes and hence an employer-employee relationship exists between the appellant and such employees and such an activity cannot be termed as ‘manpower recruitment or supply agency’ and the whole arrangement between the appellant and its group companies does not fall under the taxable service of ‘manpower recruitment or supply agency’ service as defined under the Finance Act, 1994.

The Tribunal also referred to many decisions, including that of Honeywell Technology Solutions Pvt. Ltd. vs. CST, Bangalore, 2020-TIOL-1277-CESTAT-Bang., M/s Volkswagen India Pvt. Ltd. vs. CCE, Pune-I 2014 (34) S.T.R. 135 (Tri.-Mumbai), Computer Sciences Corporation India Pvt. Ltd. vs. Commissioner of Service Tax, Noida reported in 2014-TIOL-434-CESTAT Del, etc., in support of its conclusion.

27. [2021 (124) taxmann.com 355 (CESTAT-Mum.) Vantage International Management Company vs. CCGST Date of order: 12th February, 2021

The value of diesel supplied free of charge by the receiver as per the agreement in the course of execution of the contract does not form part of the taxable value even after the amendment made in section 67 by the Finance Act, 2015 (20 of 2015), with effect from 14th May, 2015

FACTS

The appellant was engaged in providing mining services to ONGC for performing drilling operations on oil wells in the East and West Coasts of India. The agreement was entered into with M/s ONGC for carrying out the drilling operations. The agreement inter alia provided that there will be an average consumption of diesel @ 50 KL/per day which will be provided by M/s ONGC at their cost. The Revenue authorities took a view that the cost of such fuel should form part of the gross amount u/s 67 of the Finance Act, 1994 for payment of service tax on such value.

HELD

On perusal of the agreement, the Tribunal observed that M/s ONGC was required to supply the fuel (diesel) for running of the drilling equipment; that it was not required to make payment of fuel to the appellant; and that the same was in fact supplied free of cost to accomplish the assigned task. The Tribunal also noted that as per the amendment made in section 67 by the Finance Act, 2015 with effect from 14th May, 2015, the taxable value includes inter alia any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, subject to the fulfilment of the prescribed conditions. However, in the present case it is an admitted fact on record that the appellant had never charged any cost of fuel to M/s ONGC over and above the amount claimed by it for providing the taxable service. Therefore, the value of the fuel cannot be added to the taxable value both under the non-amended and the amended provisions of section 67.

Further, the Tribunal held that the entire consideration was received in monetary terms. Hence, it cannot be said that it was not properly able to determine the value of taxable service in order to attract the provisions of Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006. Similarly, the provisions of Rule 5 ibid also would not attract in this case inasmuch as no cost of fuel was charged or billed to the recipient of the service. The decision of the Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd. 2018 (10) GSTL 118 (SC) was referred to in support of the aforesaid conclusions.

28. [2021 (44) GSTL 284 (Tri.-Ahmd.)] Lakshmi Exports vs. Commissioner of C.Ex.&S.T., Surat Date of order: 22nd September, 2019

Amount deducted from invoice under the head of commission cannot be treated as business auxiliary service (commission) where the transaction itself is on principal-to-principal basis

FACTS

The appellants are merchant exporters and engaged in the export of goods such as fabric, scarves, saris, dress material, etc. While charging consideration to the buyer located in the foreign country, the appellant had reduced amounts ranging from 11% to 12.5% from the invoice value under the heading of ‘commission’. During the audit of refund claims of the appellant, the Department observed that the said amount being reduced under the head ‘commission’ amounts to commission paid by the appellant to the commission agent in relation to export of their goods and that the commission is liable to service tax under the head ‘Business Auxiliary Service.’

HELD

The Tribunal, after considering the facts of the case, observed that since the transaction was of sale and purchase between the appellant and the buyer of the goods, whatever was shown on the invoice was the sale value and the deduction shown was nothing but discount given by the exporter to the foreign buyer. Further, it also noticed that the Department had grossly failed to bring any evidence on record to show that there existed a commission agent in the entire transaction. In the entire transaction only two persons were involved, one, the appellant as exporter of the goods, and two, the buyer of the goods. In the sale of goods, in case of the service of a commission agent, if involved, there has to be a third person as service provider to facilitate and promote the sale of an exporter to a different foreign buyer. In the present case, there was absolutely no evidence that this 11% was paid to some third person as commission. There was no contract of commission agent service with any of the commission agents and there was no person to whom payment of commission was made; therefore, no service provider, i.e., foreign commission agent, exists in the present case and no service was provided by any person to the appellant. In the absence of any provision of service, no service tax can be demanded. The Tribunal, citing various precedents, held that no service tax exists in the entire transaction and accordingly quashed the demand.

It was also observed that if at all the amount deducted was considered as business auxiliary service, the said service being provided for export of goods in any case shall not be liable to service tax. Hence, the entire exercise would be revenue neutral. Further, as the appellant had shown all the figures and data in the documents, there was absolutely no suppression of facts and thus the longer period of demand shall not be invoked. Accordingly, the impugned orders were set aside and the present appeals were allowed.

29. [2020 (43) GSTL 183 (Tri.-Mum.)] V. Express vs. Commissioner of Service Tax-I, Mumbai Date of order: 28th February, 2020

Tax demand by the Department where there is a clarificatory confusion or uncertainty in the provisions of the law cannot be maintainable on such shaky foundation

FACTS

The appellant, as a ‘goods transport agency’, had been rendering service of ‘transportation of goods by road’.  On investigation it was alleged that the service rendered by the appellant was liable as ‘courier agency service’ instead of the acknowledged taxability. Though both services are, admittedly, taxable, the differential tax arises from the benefits available to providers of ‘transport of goods by road service’.

HELD

In the given case, the Department emphasised on ‘door-to-door delivery’ and ‘time sensitive’ nature of the delivered documents, goods or articles, thus considering it as a ‘courier agency service’. The Tribunal held that the two taxable entries, i.e., ‘goods transport’ and ‘courier agency’, are opposite in nature and suffer clarificatory confusion. Thus, due to uncertain conformity with the definition of ‘courier agency’ in its entirety and inability to discard, with certainty, the demand of differential tax is not maintainable. Therefore, the matter is dismissed.