pune west study circle recent controversies under service...

Important Issues _ Case Laws

CA Sagar Shah

10 April 2016

PUNE WEST STUDY CIRCLE

Recent Controversies Under Service Tax

Service for Personal Use of

Employees

What is the Scope of Personal Use or Consumption

• Definition of the term ‘Input Service’ contains certain exclusions

• Amongst other exclusions, there is one exclusion wherein services like

outdoor catering, club membership, etc. when used primarily for personal

use on consumption of any employee

• Issue:

What is the scope of this exclusion, whether all the services used by the

employees of the company are excluded from the definition of the term input

service?

Eg- Accommodation Services when on business travel

Temporary Accommodation Services provided when change in location

Health Insurance and Group Insurance policies taken by the company

Fly back home policy, for long term projects

Recent Decision on interpreting the scope of this clause

Hindustan Coca Cola Beverages Private Limited TS-565-Tribunal-2014-

ST, Hon’ble SMB held that when the services of outdoor catering used by

the employees in general, it cannot be considered to be for their personal

use. Further, the cost of such services never formed part of the CTC of the

particular employee and hence it cannot be considered to be for the

personal use of the employee.

Bajaj Motors vs. CCE 2015-TIOL-2636-CESTAT-Del, the above decision

was also followed by the Hon’ble SMB.

Applied Micro Circuits India Pvt Ltd. 2016-TIOL-403-CESTAT-MUM,

Hon’ble SMB disagreed with the above decision in case of Hindustan Coca

Cola and held that the CENVAT credit on canteen services and insurance

services is inadmissible.

CENVAT Credit: Telecom

Towers and Structures

The Telecom Towers fixed to the earth_ Whether

Inputs/Capital Goods?

Relevant legal provision:

• Definition of capital goods under CENVAT Credit Rules, 2004 defines the

goods falling under specified chapters of the schedule to Central Excise

Tariff Act. Further the accessories of these goods are also covered.

• Definition of input under CENVAT Credit Rules, 2004 defines the goods used

for provision of the output service. Further for the period Upto 31 March

2011, as per the explanation 2, Input include goods used in the manufacture

of capital goods which are further used in the factory of the manufacturer

but shall not include cement, angles, channels, Centrally Twisted Deform

bar(CTD) or Thermo Mechanically Treated bar(TMT) and other items used

for construction of factory shed, building or laying of foundation or making

of structures for support of capital goods.

• The above definition has been amended several times and as of now any

goods used for construction or execution of works contract of building or

civil structure or a part thereof is excluded from the inputs



• Issue: Whether the CENVAT credit is eligible on the telecom towers fixed

to earth?

• Recent Court Rulings:

Bharti Airtel Ltd. 2014 (35) S.T.R. 865 (Bom.), it held that

Towers/prefabricated buildings (PFB) with antenna, Base Trans-receiver

Station (BTS) and parts thereof for providing cell phone service are

Fastened/fixed to earth, and after their erection became immovable.

Hence such towers cannot be said to be goods. They are immovable

structures, non-marketable and non-excisable. They could not be capital

goods also as they were neither components, spares and accessories of

goods falling under any of Chapters or Headings of Central Excise Tariff

as specified in sub-clause (i) of definition of capital Goods.

Continued……….



• Further antenna could function irrespective of PFB hence towers and PFB

cannot be considered as accessories of antenna to be qualified as capital

goods.

• Towers were not directly used for output services viz. telecommunication

services; they were immovable, fixed to earth and not excisable; and they

could not be regarded as essential inputs as antenna could be installed

irrespective of tower or one tower could install number of antennas for

different service providers and hence could not be regarded as integral part

of output services.

Vodafone (India) Ltd. 2015-TIOL-2098-HC-MUM-ST, similar view was

upheld.



Essar Telecom Infrastructure Ltd. 2015 (40) S.T.R. 591 (Tri.-Mumbai),

GTL Infrastructure Ltd. 2015 (37) S.T.R. 577 (Tri. – Mumbai), the

Appellant was passive telecom service provider and it twas held that the

CENVAT Credit on the Duty and tax paid on inputs, capital goods and input

services used in construction/erection of telecomm towers eligible for

credit.

Whether different yardstick could be followed while allowing credit to

the telecom infra companies and denying the credit to the telecom

companies?

Recently the Larger Bench of the CESTAT in the case of Tower Vision

India Private Limited TS-66-CESTAT-2016-ST disallowed the CENVAT

Credit of tower and structures even to the telecom infrastructure

companies. It held that same logic would apply for allowing CENVAT

Credit as held in the case of Bharti Airtel in the case of telecom

companies.

Service Tax paid by Mistake

Issues in Refund

Service Tax paid under by mistake- Refund issues?

• Relevant Legal provision:

The refunds under Central Excise and Service Tax are governed by Section

11B of Central Excise Act, which prescribes two main conditions

1. Refund claim should be filed within 1 year from relevant date;

2. The burden of tax should not be passed on to any other person.

Service Tax paid under by mistake- Refund issues

• Service Tax paid by mistake, whether limitation applied?

KVR Constructions 2010-TIOL-68-HC-KAR-ST, it was held by Hon’ble

one member bench that provisions of section 11B are applicable to the

refund of the duties and taxes paid. An amount paid under mistake of

law is deposit and not duty. Hence 11B would not be applicable.

2012 (26) S.T.R. 195 (Kar.), the above ratio laid down by Hon’ble Single

Member Bench of the Hon’ble High Court was upheld by the division

bench.


Alar Infrastructures Pvt. Ltd. 2015-TIOL-2549-HC-DEL-ST, the Hon’ble HC

remanded the matter to the Hon’ble CESTAT to decide that whether the

services rendered were liable to service tax? If yes then 11B would be

applicable and if not then 11B would not be applicable.

• Similar view was also expressed in following cases:

Natraj And Venkat Associates 2010 (17) S.T.R. 3 (Mad.)

CCE Vs. Motorola India Pvt. Ltd. 2008(11) STR 552(Kar)

Geojit BNP Paribas Financial Services Ltd 2015-TIOL-1602-HC-KERALA-ST

Contradictory view -Andrew Telecom (I) Ltd. 2014 (34) S.T.R. 562 (Bom.),

Hon’ble High Court of Bombay held that the when the amount was paid as

service tax on export of services and the refund claim was filed under the

provisions of central excise the provisions of section 11B are to be followed.


• Issue of Unjust Enrichment, in case of part collection

Saralee Household & Body care India (P) Ltd. 2007 (216) E.L.T. 685

(Mad.), wherein Hon’ble high court upheld that unjust enrichment would

not be applicable to the extent the amount was not recovered by the

claimant.

• Whether service tax claimed should be shown as

receivable?

ISPAT Industries 2015-TIOL-614-CESTAT-MUM, the Hon’ble CESTAT vide

its Majority Order i.e. 2:1 has held that if the duty incidence had not

been passed on then said amount claimed as refund should have been

recorded and shown as amounts due from the department in Balance

Sheet. If the amount claimed as refund has been written off to the profit

and loss account, it would mean that the incidence of the duty has been

passed on.

Continued……….


Raymond Ltd 2014-TIOL-617-CESTAT-MUM, it was held by the division

bench of Hon’ble Mumbai Tribunal that if the amount claimed as refund is

not shown as 'receivables' in the books of account and the same were

expensed out in the P & L account, it signifies that the said amount has

been adjusted in income while arriving at the net profits thereby implying

that the incidence of duty has been passed on to third parties.

Business Overseas Corporation 2013-TIOL-1825-CESTAT-DEL, on the

similar issue, the matter has been referred to the Hon’ble President for

appointing the Third Member due to difference of opinion between the

two members of the Bench. However, as on date, it is not known whether

the Third Member, if any appointed, has delivered its Order in the matter

which would constitute the decision of the majority.

Continued……….


CCE v/s Asian Hotels Limited 2014-TIOL-2012-CESTAT-MUM it has

been held that there is no provision in the law wherein it is

required that the amount claimed as refund should be shown as

receivable in the balance sheet. However the said decision is of

Hon’ble Single Member Bench.

Whether excess Service Tax paid under VCES can be claimed as

refund??

What is the scope of ‘tax dues’ which are to be declared under

VCES??

Due Date for claiming

Rule 5 Refund

Export of Service

Relevant date for claim filing for Rule 5 Refund

• One Year time limit to be computed from date of receipt

• Hyundia Motor India Engineering (P) Ltd. [2015(040) STR 0692 Tri-

Bang]

The CESTAT relied on the decision of the Bombay Bench of the

tribunal in the case of CCE, Pune I vs Eaton Industries P. Ltd. 2011

to hold that the relevant date for calculating the time limit for grant

of refund would be the receipt of consideration and not the date

when the services were provided.

• One year time limit to be computed from date of invoice:

Affinity Express (I) Private Limited 2014-TIOL-1035-CESTAT-MUM

Date of invoice is the date of export of service. Date of receipt of

consideration not relevant to determine the time of export

RELEVANT DATE FOR FILING THE REFUND CLAIM

UNDER RULE 5 OF CENVAT CREDIT RULES• 1 Year time limit to be computed from the end of the quarter for

which refund claim is to be filed

CCE vs Aam services India Private Limited 2016-TIOL-725-CESTAT

In this case it has been held that the refund claim can be filed within

one year from the end of the quarter during which the services were

exported.

.

Due Date for fling refund claim… (To be effective from 01

March, 2016)

Due Date for filing refund claim u/r 5 of CCR

Manufacturer

Sec 11B

1 Year from the relevant date

Service Provider

If no advance is received

Within 1 year from the date of receipt of payment in

convertible foreign exchange

If any advance is received against service to be

provided

Within 1 year from the date of issue of invoice

Intercompany Deputation

of Employees

WHETHER INTERCOMPANY EMPLOYEE SHARING AMOUNTS

TO MANPOWER SUPPLY?• On account of globalization there are lot of employees which are

send on deputation between the group companies

• This happens under international secondment and also domestically

• There is generally a tripartiate deputation agreement

• In such cases the foreign makes payment of the social

security/retirement benefits in their home country

• Expats continue to be on the payroll of Foreign Company and

receive salary in their home country

• Same would be scenario in case of secondment between domestic

group companies

WHETHER INTERCOMPANY EMPLOYEE SHARING ASMOUNTS

TO MANPOWER SUPPLY?• Issue:

Whether appointment of expat under secondment agreement would

classify as manpower supply service and consequently attract service tax?

Prior to Negative List i.e. July 2012

Levy of service tax was based on a positive list of services which

included 119 specific categories of ‘taxable services’ under Finance

Act, 1994.

Though the term ‘Service’ was not defined specifically, each of the

taxable category of service is defined.

Provision of services from any person engaged in providing recruitment

to any other person was brought under ambit of service tax under

‘Supply of Manpower Service’


TO MANPOWER SUPPLY?Post Negative List i.e. July 2012 – Comprehensive service tax regime

Sec 65B (44) – Definition of Service

"Service" means any activity carried out by a person for another for

consideration, and includes a declared service, but shall not include—

A. XXX

B. A provision of service by an employee to the employer in the course

of or in relation to his employment;

C. XXX


TO MANPOWER SUPPLY?• Recent Court Rulings:

In case of M/s. Volkswagen India Private Ltd. [2013-TIOL-1640-

CESTAT-MUM] the Tribunal (CESTAT, Mumbai bench) held that mere

supply of employees is not liable service tax where there exists

employer- employee relationship between the recipient company and

the employee.

The Gujarat High Court (‘HC’) in the case of Commissioner of Service

Tax v. Arvind Mills Ltd [2014-TIOL-441-HC-AHM-ST] held that the

subsidiary companies can’t said to be the ‘client’ of parent company.

The HC also emphasized that fundamentally the supplier must be a

commercial concern ‘engaged in providing manpower supply services’ to

a client. Therefore services rendered by the Arvind Mills Ltd is not a

taxable activity attracting service tax.


TO MANPOWER SUPPLY? In case of M/S Computer Sciences Corporation India Pvt Ltd [2014-TIOL-

1896-HC-ALL-ST], Allahabad High Court held that in order to be a

taxable service within the category of ‘Manpower Supply Service’, a

service must meet the following requirements

There has to be a service provided or to be provided to any person;

The service has to be provided by a manpower recruitment or supply

agency; and

The service must be provided in relation to the recruitment or

supply of manpower, temporarily or otherwise, in any manner.

WHETHER INTERCOMPANY EMPLOYEE SHARING AMOUNTS

TO MANPOWER SUPPLY?• Can there be dual employment: Legal Employer v/s Legal

Employer

Income Tax Decision in case M/s Centrica India Offshore Pvt Ltd. , Delhi

High Court held that employees seconded by the overseas Group entities to

Indian entity continue to remain employees of the Global entities during

secondment period. Furthermore, payments from the taxpayer to the group

entities for such services would be regarded as fees for technical services.

The conditions laid down for satisfying dual employment is difficult to

satisfy and needs to be examined on case to case basis

It may be noted that the SLP filed against the above High Court decision has

also been dismissed by the Hon’ble Apex Court.

Bundling/Un-bundling of

Services

WHETHER SERVICE IS BUNDLED OR UNBUNDLED?

• Relevant Legal Provisions:

“SECTION 66F. - Principles of interpretation of specified descriptions of

services or bundled services.“(1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not

include reference to a service which is used for providing main service.

(2) Where a service is capable of differential treatment for any purpose based on its description,

the most specific description shall be preferred over a more general description.

(3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be

determined in the following manner, namely:-

(a) if various elements of such service are naturally bundled in the ordinary course of business, it

shall be treated as provision of the single service which gives such bundle its essential character;

(b) if various elements of such service are not naturally bundled in the ordinary course of business,

it shall be treated as provision of the single service which results in highest liability of service tax.

Explanation.- For the purposes of sub-section (3), the expression "bundled service" means a bundle

of provision of various services wherein an element of provision of one service is combined with an

element or elements of provision of any other service or services.”


• Para 9.2.4 of the CBEC Education Guide dated 20 June 2012:

• “9.2.4 Manner of determining if the services are bundled in the ordinary

course of business

“Whether services are bundled in the ordinary course of business would depend upon the normal or

frequent practices followed in the area of business to which services relate. Such normal and

frequent practices adopted in a business can be ascertained from several indicators some of which

are listed below –

•The perception of the consumer or the service receiver. If large number of service receivers of

such bundle of services reasonably expect such services to be provided as a package then such a

package could be treated as naturally bundled in the ordinary course of business.

•Majority of service providers in a particular area of business provide similar bundle of services.

For example, bundle of catering on board and transport by air is a bundle offered by a majority

of airlines.

•The nature of the various services in a bundle of services will also help in determining whether

the services are bundled in the ordinary course of business. If the nature of services is such that

one of the services is the main service and the other services combined with such service are in

the nature of incidental or ancillary services which help in better enjoyment of a main service.

For example service of stay in a hotel is often combined with a service or laundering of 3-4 Items

of clothing free of cost per day. Such service is an ancillary service to the provision of hotel

accommodation and the resultant package would be treated as services naturally bundled in the

ordinary course of business.


• Para 9.2.4 of the CBEC Education Guide dated 20 June 2012:

• “9.2.4 Manner of determining if the services are bundled in the ordinary

course of business

• Other illustrative Indicators, not determinative but indicative of bundling of services in ordinary

course of business are –

-There is a single price or the customer pays the same amount, no matter how much of the

package they actually receive or use.

-The elements are normally advertised as a package.

-The different elements are not available separately.

-The different elements are Integral to one overall supply - if one or more is removed, the

nature of the supply would be affected.

No straight jacket formula can be laid down to determine whether a service is naturally

bundled in the ordinary course of business. Each case has to be individually examined in the

backdrop of several factors some of which are outlined above.”


• Issues:

1. What is the test to determine whether the services are bundled or not?

2. In case of composite services/contracts where consideration is charged

separately in the invoice, whether still the services will be treated as

bundled?


• Relevant Case Laws:

Card Protection Plan Limited ECJ case C-349/96, [1999] STC 270

The European Court of Justice (‘ECJ’) in the aforesaid case held that the

following tests could be applied to determine whether the transaction

involves bundle of supplies (i.e. composite supply) or separate supplies:

• Whether the customers can choose to have the sub services amongst the

various activities involved in a particular activity.

• Whether all the services have their own price and this known to the

customer. Further the customer would be liable to pay lesser amount if the

customer chooses not avail certain services falling into the basket of

services.

• The customers are fully aware that they are receiving more than one supply

as evidenced by the invoicing and contractual arrangements


• Relevant Case Laws:

Dukes Retreat Limited vs. CCE, Pune-I [2015-TIOL-2415-HC-MUM-ST]

History: The Appellant provided rooms on rent to the service receiver who

booked conference/banquet hall. It paid tax under the service category of

mandap keeper. The Hon’ble Mumbai CESTAT upheld the demand against

Dukes Retreat by adding the room rent in the value of service provided as

mandap keeper on the ground that since no evidence was provided as to

whether the same was on complimentary basis or whether rent was collected

on it. Aggrieved by the said decision the Assessee filed an appeal before the

Hon’ble Bombay HC.

• The HC allowed the appeal. It was held that CESTAT disallowed the appeal

on a technical ground of non-production of requisite certificate of proof of

room rent being charged and bills raised in that behalf. The HC restored the

file to the extent that the assessee is eligible to produce further evidence,

material etc. in the larger interest of justice. However, opinion on the

demand of service tax and interest on the impugned issue was kept open.


• Similar Issues would arise in other sectors also:

• Builder charging separate consideration for MSEB, Extra Work, Preferential

location

• In case of renting services, separate rent allocated for office rent and office

furniture

• Coaching classes charging separate consideration for books and tuition fees

• Hotelier charging separate consideration for room rent and food

• Airline charging separately for airfare and extra luggage charges

Long Term Leasing

WHETHER PERPETUAL/LONG TERM LEASE AMOUNTS TO

SALE OR RENTING OF IMMOVABLE PROPERTY ?• Relevant Legal Provisions:

• The term ‘Immovable Property’ is not defined under Service Tax.

• The CBEC Education Guide Dated 20 June 2012 issued at the time of

introduction of Negative List of Services at Para 2.6 has clarified that for

service tax the term Immovable Property would be understood in the manner

it is understood under the General Clauses Act,1897.

• The definition of ‘immovable property’ defined under the Clause (26) of the

General Clauses Act, 1897 reads as follows:

“Immovable property" shall include land, benefits to arise out of land, and

things attached to the earth, or permanently fastened to anything attached

to the earth.

WHETHER PERPETUAL LEASE AMOUNTS TO SALE OR

RENTING OF IMMOVABLE PROPERTY ?• Relevant Legal Provisions:

Definition of lease as per the Transfer of Property Act, 1882 (Section 105)

A lease of immovable property is a transfer of a right to enjoy such

property, made for a certain time, express or implied, or in perpetuity, in

consideration of a price paid or promised, or of money, a share of crops,

service or any other thing of value, to be rendered periodically or on

specified occasions to the transferor by the transferee, who accepts the

transfer on such terms.

Definition of ‘sale’ as per the Transfer of Property Act, 1882 (Section 54)

"Sale" is a transfer of ownership in exchange for a price paid or promised or

part-paid and part-promised.


RENTING OF IMMOVABLE PROPERTY ?• Issues:

1. Whether ‘Right to lease’ amounts to immovable property? i.e. is it a

benefit arising out of land ? Whether the salami or premium is liable

under renting of immovable property?

2. Whether Perpetual Lease/lease for 999 years would amount to ‘sale of

immovable property’?


RENTING OF IMMOVABLE PROPERTY ?

Century Hotels (P.) Ltd. Vs. Income Tax Officer[1983] 3 ITD 185 (Bang)]

In this case the Hon’ble Income Tax Tribunal has concluded that ‘permanent

lease amounts to sale’. While concluding this, the Tribunal held as under:

“Where there is an agreement to acquire a property on permanent lease and

there is simultaneous leasing thereof on permanent basis to other parties,

deposits received apart from monthly rent payable as it accrued, are actually

sale proceeds, particularly since the lease is permanent and the lessees have

been given proprietary rights over the property.”


RENTING OF IMMOVABLE PROPERTY ?Consolidated Coffee Limited vs. The District Registrar and Anr [AIR 2003

KANT 525]

In the aforesaid case, the Hon’ble Karnataka High Court held that,

assignment of lease hold right for the unexpired period of perpetual lease

amounts to conveyance on the sale in terms of Section 2(d) of the Karnataka

Stamp Act, 1957. Further, it was also held that, it is not a form, but the

substance of the transaction that matters.

The nomenclature used may not be conclusive or decisive as there may be

circumstances, where the parties may camouflage the real nature of transfer

by using clever phraseology.


RENTING OF IMMOVABLE PROPERTY ?Municipal Corporation of Delhi vs. Hotu Ram [2002 (64) DRJ 844]

Delhi High Court drew a distinction between ‘sale’ and ‘lease’ as defined

under the Transfer of Property Act, 1882. It was held that the basic

difference between 'sale' and 'lease' is that in a 'sale', there is an absolute

transfer of all rights in the property sold and no right is left in the transferor;

whereas in a lease there is a partial transfer or demise and the rights are left

with the transferor.

Greater Noida Industrial Development Authority vs. Commissioner of

Customs and Ors [2015-TIOL-1008-HC-ALL-ST]

In the said case the High Court held that, the activity of renting includes

leasing of property and the same will be taxable under the category of

‘Renting of Immovable Property’ service. It was further observed by the

Hon’ble High Court that the term lease would cover a lease for any period

including a lease in perpetuity. The Finance Act, 1994 does not carve a

distinction between a long term lease or lease for short duration.


RENTING OF IMMOVABLE PROPERTY ?

New Okhla Industrial Development Authority [2014-TIOL-67-CESTAT-DEL]

The Delhi Tribunal in the aforesaid case held that renting of vacant land by

way of lease or licence (irrespective of the duration or tenure), for

construction of a building or a temporary structure for use at a later stage in

furtherance of business or commerce is a taxable service only from 1.7.2010,

and not so, earlier to this date.

DOUBLE TAXATION

DOUBLE TAXATION- Customs Duty v/s

Service TaxWhether Service Tax is payable on Value of Services which are included in the

value of goods for the purpose of payment of Customs Duty ?

United Shippers Ltd. [2015-TIOL-172-SC],

Relying on SC ruling in Garden Silk Mills Ltd., CESTAT stated that when the goods are being

transported by the barges from mother vessel to the jetty onshore, the activity is part of

import transaction of bringing the goods into India from a place outside.

It noted that question of rendering service would take place only after customs transaction is

completed. Moreover, CESTAT observed that Sec 14 of Customs Act and Customs Valuation

Rules were specifically amended to include barge and handling charges in the imported goods

value.

It noted that these amended provisions came into force w.e.f. October 10, 2007 and CBEC vide

its Circular dated November 30, 2009 also clarified that includibility of barge charges in value

of imported goods would be governed by Sec 14 of Customs Act.

Therefore, service tax on barge charges and handling charges together would not arise.

DOUBLE TAXATION- Customs Duty v/s

Service Tax• Whether the in terms of recent budget amendment, vessel freight for transport

of goods from outside India upto Customs Station in India, would be liable to

Service Tax??

DOUBLE TAXATION- VAT v/s Service Tax

Whether Service Tax is payable on Value of Goods which is liable to State

VAT/CST

CCE v/s Larsen and Toubro Limited 2015 (39) STR 913 (SC).

In this recent decision the Hon’ble Supreme Court has reiterated the legal principle that VAT and

Service Tax are mutually exclusive. The relevant extract of the above said decision read as under:

“16. At this stage, it is important to note the scheme of taxation under our Constitution. In the

lists contained in the 7th Schedule to the Constitution, taxation entries are to be found only in

lists I and II. This is for the reason that in our Constitutional scheme, taxation powers of the

Centre and the States are mutually exclusive. There is no concurrent power of taxation. This

being the case, the moment the levy contained in a taxing statute transgresses into a prohibited

exclusive field, it is liable to be struck down. In the present case, the dichotomy is between

sales tax leviable by the States and service tax leviable by the Centre. When it comes to

composite indivisible works contracts, such contracts can be taxed by Parliament as well as State

legislatures. Parliament can only tax the service element contained in these contracts, and the

States can only tax the transfer of property in goods element contained in these contracts. Thus,

it becomes very important to segregate the two elements completely for if some element of

transfer of property in goods remains when a service tax is levied, the said levy would be found

to be constitutionally infirm.

DOUBLE TAXATION- VAT v/s Service Tax

Similar other cases:

• Bharat Sanchar Nigam Limited v. UOI 2006 (2) STR 161 (S.C.)

• Imagic Creative Private Limited v/s CCT 2009 (9) STR 337 (SC.)

Inter company cross

charge of Expenses

REIMBURSEMENT OF EXPENSES WHETHER

LIABLE TO SERVICE TAX

Relevant case law:

• Intercontinental Consultants and Technocrats Pvt Ltd [2013 (29) S.T.R. 9

(Del]:

HC,held that Rule 5 (1) of the Rules purports to tax not what is due from the

service provider under the charging Section, but it seeks to extract

something more from him by including in the valuation of the taxable service

the other expenditure and costs which are incurred by the service provider

“in the course of providing taxable service”.

Therefore, Rule 5(1) is repugnant to Sections 66 and 67 of the Act and to that

extent it is ultra vires.

Hence only actual consideration is chargeable and nothing more than that

REIMBURSEMENT OF EXPENSES WHETHER LIABLE

TO SERVICE TAX

• Reliance ADA Group Ltd. [2016-TIOL-603-CESTAT-MUM] – Pure Agent

incurring costs on behalf of Principle

CESTAT rules in favour of Reliance ADA Group (assessee), activity of procuring

services on behalf of Participating Group Cos. under ‘cost sharing arrangement’

not taxable as Business Support Services (BSS) u/s 65(104c) r/w 65(105)(zzzq)

of Finance Act;

Noted that the assessee carried out only agency functions by acting as Manager

/ Trustee for procuring various services, whereby cost / expenses incurred

thereof were reimbursed by said Group Cos.; Such activities of assessee

enabled Participating Group Cos. to share common services, and no taxable

service was rendered by assesse per se.

Further, CESTAT held that assessee is ‘Pure Agent’ in terms of Rule 5(2) of

Valuation Rules and entire matter is revenue neutral in view of availability of

CENVAT credit thereon to Group Cos : CESTAT

REIMBURSEMENT OF EXPENSES WHETHER

LIABLE TO SERVICE TAXIssues:

What is the impact of amendment made by Finance Act, 2015?

Prospective or Retrospective effect?

Inter continental whether could be said to be good law?

Inter Group Re-imbursement in case of cross border transactions?

• Who is the service provider, foreign parent or third party service

provider?

• If transaction between Indian Subsidiary and Foreign Parent is

considered to be reimbursement, whether still Service Tax liability

could arise under RCM?

• Inter Group Re-imbursement in case of domestic transactions?

Thank You!!!

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