I. TRIBUNAL
12 Cadila Healthcare Limited vs. CST & ST, Ahmedabad [2021 127 taxmann.com 112 (CESTAT-Ahd)] Date of order: 27th April, 2021
Partners and partnership firm are not distinct persons and hence their relationship cannot be that of service providers and service receivers – The activities of the appellant performed as its obligation as a partner as per partnership deed and there being no separate contract of services between the appellant and the partnership firm, the remuneration received by the appellant is merely a special share of profits in terms of the partnership deed – Cannot be considered as consideration towards any services between two persons and, hence, not liable to service tax
FACTS
The appellant is a partner in a partnership firm. As per the terms of the partnership agreement, the appellant agreed to provide certain services related to the promotion and marketing of the firm’s products and other related services. The appellant received remuneration towards the said services from the firm and paid service tax. Subsequently, when it was realised, based on their consultant’s advice, that the services provided by a partner to a partnership firm do not fall under the ambit of services as per the Finance Act, 1994, they filed for a refund. The refund claims were rejected by the lower authorities, hence the appellant filed an appeal before the Tribunal. The period involved in the case was prior to 1st July, 2012.
HELD
Referring to the partnership deed, the CESTAT noted that the appellant in its capacity as a partner of the partnership firm was obliged to carry out certain activities such as distribution and marketing of the goods manufactured by the partnership firm, functioning as consignee and sales agent of the partnership firm, etc. The Tribunal also observed that these activities were not undertaken pursuant to a separate contract for the provision of services between the appellant and the partnership firm and that the consideration received by the appellant from the partnership firm has been accounted for as remuneration received from the partnership firm. The Tribunal held that as there was no definition of ‘person’ in the Finance Act, 1994 prior to 1st July, 2012, the same cannot be applied retrospectively. Referring to various Supreme Court judgments, the Tribunal held that the firm is not a different entity or a person in law than its partners. It is merely an association of individuals and a firm name is only a collective of those individuals who constitute a firm. Hence, it cannot be said that the appellant being a partner, he and his partnership firm have a relationship of service provider and service recipient.
Applying various judicial pronouncements, the Tribunal also held that the appellant received remuneration from the partnership firm towards certain activities performed in terms of the partnership deed and this is nothing but profit share in partnership sharing and the same cannot be treated as consideration towards the provision of service under the Finance Act, 1994. The Tribunal relied upon the decision of the Supreme Court in the case of Chandrakant Manilal Shah to hold that the remuneration received by a partner by employing his skill and labour as per the partnership deed is also a profit.
13 CSG Systems International (India) (P) Ltd. vs. CC Tax [2021 126 taxmann.com 139 (CESTAT-Bang)] Date of order: 29th March, 2021
Show cause notice is the foundation of any demand and any order passed beyond the notice is not legally permissible – Order passed on the basis of selectively picked up clauses in the Master Agreement without analysing the agreement as a whole is also bad in law – The sales, marketing and support services provided by Indian entities to its group companies abroad in pursuance of an agreement entered into on a principal-to-principal basis would qualify for export of services
FACTS
The appellant filed a refund application for refund of unutilised CENVAT credit of service tax availed on the input services used for providing output services said to have been exported during the period from January to March, 2013 in terms of the provisions of Rule 5 of CENVAT Credit Rules, 2004 declaring export turnover consisting of ITSS and BAS services treating the same as export of services under Rule 3 of the Provision of Services Rules, 2012. The Authorities denied part of the refund claim on the ground that as the sales, marketing, and administrative services classified as BAS are provided in India, the same cannot be treated as export of service. The appellant filed an appeal against the impugned order and the Commissioner (Appeals) set aside the said Order-in-Original to a limited extent of the refund rejected, by way of remand to the original adjudicating authority for fresh adjudication in the light of his earlier Order-in-Appeal in some other matter. The appellant, therefore, filed a refund claim for the said partially rejected amount.
However, the lower authorities once again denied the refund claim and reached the same conclusion that the BAS provided by the appellant to its group companies outside India would be considered as ‘Intermediary Services’ and cannot be treated as export of service. Aggrieved by the said order, the appellant filed an appeal before the Commissioner (Appeals) who rejected the appeal. Hence, the appellant came before the Tribunal in a second appeal.
HELD
The Tribunal observed that when the appellant filed the refund claim, the grounds raised in the show cause notice were lack of nexus, the claim was time-barred and there was lack of documentation or discrepancies in the documents; whereas when the first Order-in-Original was passed the original authority travelled beyond the show cause notice and came to a finding that the sales, marketing and administrative services are classified as BAS provided in India and hence Rule 6A was not fulfilled and the appellant is acting as an intermediary. The Tribunal held that all the orders, i.e., Order-in-Original, Remand Order-in-Original and the impugned Order-in-Appeal have travelled beyond the show cause notice and accepted the appellant’s contention that the show cause notice is the foundation of any demand and any order passed beyond the show cause notice is not legally permissible. The Tribunal referred to the following decisions in support of this proposition:
a) CCE & Cus., Surat vs. Sun Pharmaceuticals Inds. Ltd. [2015 (326) ELT 3 (SC)]
b) Caprihans India Ltd. vs. CCE [2015 (325) ELT 632 (SC)]
c) Mumbai vs. Toyo Engineering India Ltd. [2006 (201) ELT 513 (SC)]
d) CCE, Bangalore vs. Brindavan Beverages (P) Ltd. [2007 (213) ELT 487 (SC)]
As regards the merits of the case, referring to the Master Service Agreement between the appellant and its group entities abroad, the Tribunal held that the sales, marketing and support services provided to its group companies are export of service because the said services have been provided on principal-to-principal basis and there is no element of a principal-agent relationship. The Tribunal further observed that the Commissioner (Appeals) selectively picked up the clauses in the Master Agreement without analysing the agreement as a whole which is also bad in law as held by the Supreme Court in the case of Super Poly Fabriks Ltd. vs. Commissioner 2008 (10) STR 545 (SC). It also held that the appellant has satisfied all the six conditions of Rule 6A which proves that the services rendered by them are export of service.
The Tribunal relied upon the decision in the case of AMD India Pvt. Ltd. vs. CST, Bangalore 2017 (12) TMI 772 – CESTAT Bangalore wherein the Tribunal held that the denial of refund of service tax to the appellant under Rule 5 is contrary to the express provisions of law as clarified in CBEC Circular No. 111/5/2009-ST dated 24th February, 2009. The Board, in respect of business auxiliary services falling under Rule 3(1)(iii) of the Export of Services Rules, 2005, clarified thus: that the phrase ‘used outside India’ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, it is possible that the export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. Accordingly, the impugned order denying refund was set aside.
14 Ace Creative Learning (P) Ltd. vs Commissioner of Central Tax [2021 126 taxmann.com 215 (CESTAT-Bang)] Date of order: 15th April, 2021
Redemption in mutual fund is not same as trading in securities and hence in cases involving the redemption of mutual funds, reversal under Rule 6(3) of the CENVAT Credit Rules is not warranted
FACTS
The appellant is engaged in providing taxable services, viz., Commercial Training & Coaching Services, and availed CENVAT credit in respect of input, input services and capital goods. In the course of audit for the period 2104-15 to 2016-17, the Department observed that the appellant is engaged in the purchase and redemption of various mutual fund units and has declared profit on the sale of mutual fund investments. The Department took a view that as mutual funds are securities, i.e., goods and that the appellant has neither opted for nor followed the procedure prescribed under Rule 6(3)(ii) for payment of such amount as determined in Rule 6(3A), the appellant is liable to pay an amount as determined in terms of Rule 6(3)(i), i.e., 6% / 7% of the value of services contained in the trading activities. On this basis, a show cause notice was issued to the appellant and the demand was confirmed.
HELD
The Tribunal observed that the appellant has shown the profit earned from the redemption of mutual fund under the head ‘other income’. The Department has wrongly considered the investment in mutual funds as trading in mutual funds. The Tribunal held that ‘trading’ has not been defined under service tax but in the context of securities, ‘trading’ means an activity where a person is engaged in selling the goods for the purpose of making profit but certainly, trading is different from the redemption of mutual fund units. The appellant cannot transfer the mutual fund units to a third party and give only by way of redemption to the mutual fund because the appellant is not permitted to trade the mutual fund units in the absence of a license from SEBI. The Tribunal also held that the appellant cannot be termed as a ‘service provider’ because he only makes an investment in the mutual fund and earns profit from it. Accordingly, the Tribunal held that the Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services.
15 Cholamandalam MS General Insurance Co. Ltd. vs. The Commissioner of GST & Central Excise [2021 (47) GSTL 263 (Chennai Trib)] Date of order: 24th February, 2021
Rule 9 of CENVAT Credit Rules, 2004 – Credit cannot be denied at the recipient’s end unless the supplier’s assessment is revised
FACTS
The appellant was engaged in the business of general insurance and had entered into an agreement with car manufacturers for issuance of insurance policies through their dealers’ network, where car dealers collected premium from the customers and issued policies to them by accessing the portals of the insurance brokers. For insuring the vehicle, a pay-out was given to dealers for which dealers issued invoice with description of services as ‘Provision of Space, Computer, Internet and Administrative Support’. Service tax was also collected by the dealers vide said invoices and the same was availed as CENVAT credit by the appellant.
The Department alleged that no service was provided by the dealers to the appellant as per the description mentioned in the invoice and therefore the appellant was not eligible to avail CENVAT credit for non-compliance of Rule 9 of the CENVAT Credit Rules, 2004.
HELD
The Tribunal relied on the judgment of M/s. Modular Auto Ltd. vs. Commissioner of Central Excise, Chennai 2018-VIL-541-Mad-ST and held that unless and until the assessment made by the dealer was revised, the credit at the recipient’s end cannot be denied. Thus, the impugned order denying credit was set aside.
16 Gannon Dunkerley & Co. Ltd. vs. Commissioner (Adj.) of S.T., New Delhi [2021 (47) GSTL 35 (Del-Trib)] Date of order: 22nd October, 2020
Section 73 of Finance Act, 1994 – Extended period for issuing show cause notice cannot be invoked merely on the contention that had audit not been conducted, non-payment of service tax would have gone unnoticed
FACTS
The appellant was primarily engaged in the provision of commercial or industrial construction services and had been regularly filing its returns. During the course of audit, the Department identified certain discrepancies. Based on audit objections, a show cause notice was issued on 22nd October, 2009 for the period 2004-2007 by invoking extended period as per the proviso to section 73 of the Finance Act, 1994, stating that the appellant had disclosed incorrect assessment under self-assessment provisions, thereby leading to ‘suppression of facts’ and that had an audit not been conducted, such discrepancy would have gone unnoticed. This was further upheld by the Commissioner, Appeals.
HELD
The Tribunal stated that it was correct that section 70 of the Finance Act requires every person liable to pay service tax to himself assess the tax on the services provided by him and furnish a return, but at the same time the Circular dated 23rd April, 2009 also cast a duty on the A.O. to effectively scrutinise the returns, at least at the preliminary stage. As the appellant had been regularly filing the returns, the Department cannot take a stand that it was only during the audit that it could examine the factual position and that had audit not been conducted, non-payment of service tax would not have been unearthed. Thus, it was held that the Commissioner (Appeals) was not justified in holding that the extended period of limitation was correctly invoked; the order was set aside.
17 Dharti Dredging and Infrastructure Ltd. vs. CCT [2021-TIOL-223-CESTAT-Hyd-LB] Date of order: 1st April, 2021]
In case of a workmen’s compensation policy, it is the responsibility of the employer to provide compensation to the employee, therefore the employer is the beneficiary of the policy and hence credit is allowed
FACTS
The appellant availed CENVAT credit of service tax paid on the insurance premium paid in respect of ‘workmen compensation insurance policy’ which was denied by the lower authorities. When this matter was heard by the single member (Judicial), he found that contrary views had been expressed on the same issue by two Benches of the same strength (both single-member benches) [namely,
Hydus Technologies India Pvt. Ltd. 2017-TIOL-1189-CESTAT-Hyd which allowed the credit and
Ganesan Builders Ltd. 2017-TIOL-3152-CESTAT-Mad which denied the same; hence, the matter has been referred to a larger bench for a decision.
HELD
The decision of the CESTAT-Madras (Supra) in Ganesan Builders has been overruled by the High Court of Madras [2018-TIOL-2303-HC-Mad-ST] specifically dealing with ‘workmen compensation insurance policy’. The Madras High Court has held that the Workmen Compensation Act, 1923 is a beneficial legislation and the policy taken by the assessee in that case does not name the employees but categorised the employees based on their vocation / skill. The insured in that case is the assessee and the intention of the policy is to protect the employees who work at the site and not to drive them to various forums for availing compensation in the event of an injury or death. The service in that case was not primarily for personal use or the consumption of the employee and the insured is the assessee and not the employees. It is noted that section 3 of the Workmen Compensation Act places the liability of compensation upon the employer. Thus, since the workmen are not the beneficiaries of the policy but it is the assessee, the credit is allowable.
