2014 (3) TMI 695 - AT - Service Tax

Court rules in favor of appellant on Cenvat credit, service tax demand, and penalties.

M/s Infosys Ltd. (Formerly known as M/s Infosys Technologies Ltd.) Versus Commissioner of Service Tax, - BANGALORE,

The court ruled in favor of the appellant on various issues: Cenvat credit on Employee Group Health Insurance was remanded for verification of family ... Cenvat Credit - scope of input services i.e. (i) group health insurance scheme as regards employees, (ii) services utilised for construction, maintenance or repair or renovation of Global Training Centre, (iii) services used in respect of hostel, food court, gym etc - Demand of service tax in respect of information technology software services received from overseas sub-contractors to overseas branches of the appellant - reverse charge - Held that:- if the insurance policy covers persons other than employees and no contribution is required from the employees towards such coverage, the service tax paid on insurance premium to that extent on a proportionate basis will have to be reversed. It cannot be said that the insurance provided to the parents or family towards all the employees is relatable to output services provided by the appellant. - matter remanded to verify and limit the demand to the extent of service tax payable on insurance premium attributable to families of employees, if other family members are covered and expenses are borne by the appellant. - Decided partly in favor of assessee. As regards global training centre, in view of the fact that learned counsel has made vehement submission that the appellant was providing commercial training and coaching service and the premises of global training centre is often used for conducting commercial coaching service on which service tax is paid, credit would be admissible since it becomes a premises of the service provider for providing the service of commercial training or coaching centre. At this juncture, it becomes necessary to note the fact up to 1.4.2011, setting up of a premises of output service provider was also an activity for which services used were eligible for credit. As regards hostel and gym, in respect of which various services received had been claimed to be input service, it is quite clear from the definition that both of them cannot be considered as premises from where the service is provided or an office relating to the premises from where service is provided. Liability of service tax - reverse charge - information technology software services received from overseas sub-contractors to overseas branches - Held that:- If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or the benefit of service rendered abroad has been received in India, the tax, in our opinion, would not be payable. It is not the case of the appellant that money was not paid. It is the case of the appellant that whatever consideration is received for services rendered by them abroad goes into EEFC account and the appellant is entitled to spend 75% of such receipts in EEFC account for payments abroad. Therefore the fact that appellants have made payment from EEFC account and not from funds in the hands of Infosys in India would go to show that whatever payments were made were made from export earnings only. This would mean that services were paid for by the earnings abroad - Following the decision in the case of KPIT Cummins Infosystems Ltd. [2013 (12) TMI 792 - CESTAT MUMBAI], decided in favor of assessee. Levy of penalty and extended period of limitation - Held that:- In all these cases, wherever there is demand for service tax, the appellant would be eligible for the benefit of CENVAT credit also and therefore it cannot be said that there was any intention to evade payment of duty. - the demands wherever are sustainable in our opinion and where we have held so, would be only to the extent of denial of CENVAT credit within the normal period of limitation with interest but penalties are not sustained. - Decided partly in favor of assessee. Issues Involved:1. Admissibility of Cenvat credit on Employee Group Health Insurance.2. Admissibility of Cenvat credit on construction services for Hostel, Food Court, Gym, and Global Training Centre.3. Liability for service tax on International Private Leased Circuit (IPLC).4. Liability for service tax on Information Technology Software Services (ITSS) received from overseas sub-contractors by overseas branches.5. Suppression of facts and imposition of penalties under Section 78 of the Finance Act, 1994.Detailed Analysis:1. Admissibility of Cenvat Credit on Employee Group Health Insurance:The appellant's claim for Cenvat credit on service tax paid for Employee Group Health Insurance was contested. The court referenced the Karnataka High Court decisions in Commissioner of Central Excise vs. Micro Labs Ltd. and Commissioner of Central Excise vs. Stanzen Toyotetsu India (P) Ltd. The court noted the need to determine if the insurance covered only employees or also their families. If the insurance extended to family members without employee contributions, the service tax on that portion must be reversed. The matter was remanded for reconsideration to limit the demand proportionately.2. Admissibility of Cenvat Credit on Construction Services:The appellant claimed Cenvat credit for service tax paid on construction services for Hostel, Food Court, Gym, and Global Training Centre at the Mysore campus. The court distinguished between services used for the Global Training Centre, which were partly admissible, and those for Hostel and Gym, which were not. The court referenced the Andhra Pradesh High Court decision in Commissioner of Central Excise vs. Sai Samhita Storages (P) Ltd. and the Bombay High Court decision in C.C.E. vs. Ultratech Cement Ltd. The court concluded that:- Credit for the Global Training Centre was admissible up to 1.4.2011.- Post 1.4.2011, only services for repairs, renovation, or modernization of the Global Training Centre were admissible.- Credit for services related to Hostel and Gym was inadmissible.The matter was remanded for re-quantification based on these guidelines.3. Liability for Service Tax on International Private Leased Circuit (IPLC):The appellant contested the service tax demand on IPLC services. The court referenced the Board's Circular No. 137/21/2011-S.T. and a similar case involving Infosys BPO Ltd., where the demand was dropped. The court held that the service was classifiable under 'Tele Communication Services' and taxable only if provided by a licensed entity under the Indian Telegraph Act. Since the foreign service providers were not licensed under the Act, the demand was set aside.4. Liability for Service Tax on ITSS Received from Overseas Sub-Contractors:The appellant argued that services received by foreign branches and paid for from EEFC accounts should not be taxed in India. The court examined the agreements and invoices, noting that services were rendered, received, and paid for abroad. The court referenced the Tribunal decision in KPIT Cummins Infosystems Ltd. vs. CCE, Pune-I, which supported the appellant's position. The court concluded that since services were not received in India, the demand for service tax was unsustainable and set it aside.5. Suppression of Facts and Imposition of Penalties:The court found that the demands arose from interpretational issues and that the appellant would be eligible for Cenvat credit, negating any intent to evade payment. The court concluded that penalties for suppression of facts and under various sections were unwarranted and set them aside.Conclusion:- Denial of Cenvat credit on insurance premium for employees was set aside; remanded for verification of family coverage.- Cenvat credit for Global Training Centre services was admissible up to 1.4.2011; post 1.4.2011 only for repairs/renovation. Credit for Hostel and Gym services was inadmissible.- Demand for service tax on IPLC services was set aside.- Demand for service tax on ITSS received by overseas branches was set aside.- All penalties were set aside.Disposition:The appeals were disposed of in the above terms.