2017 (9) TMI 1066 - AT - Service Tax

Tribunal rules appellant not liable for service tax on shared expenses

M/s Historic Resort Hotels (Pvt.) Ltd. Versus CCE, Jaipur – II

The Tribunal overturned the decision of the Original Authority, ruling that the appellant was not liable to pay service tax under Business Auxiliary ... Sharing of expenses - Business Auxiliary Service - promotion of business of group companies - expenses relating to sales, marketing and general business promotion of all the group companies and the said expense was shared in proportion to the turnover, with the said group companies - Held that: - The appellant is not per-se engaged in promoting sales or business of group companies. No evidence to that effect has been brought out. In fact, the arrangement is all group companies will benefit from a sales promotion and other related activities of third parties, for which expenses are to be borne by the appellant and thereafter to be shared with other group companies. In such arrangement, there is no scope for tax liability on the part of the appellant under the category of BAS. The Hon’ble Supreme Court in Gujarat State Fertilizers and Chemicals Ltd. and Anr. Vs. CCE [2016 (12) TMI 103 - SUPREME COURT], examining a similar set of facts, held that sharing of expenditure for common facilities cannot be treated as service by one to another in such arrangement. There is no taxable service in the arrangement as discussed in the present appeal - appeal allowed - decided in favor of appellant. Issues:Whether the appellant is liable to pay service tax under Business Auxiliary Service for incurring expenses related to sales, marketing, and business promotion shared with group companies.Analysis:The appeal challenged an order by the Commissioner of Central Excise, Jaipur - II, holding the appellants liable for service tax under Business Auxiliary Service (BAS) for incurring expenses shared with group companies. The dispute arose from a Memorandum of Arrangement dated 14/04/1999 among group companies, where the appellants incurred expenses for sales, marketing, and business promotion, shared with group companies based on turnover. The Revenue contended that this arrangement constituted the appellants providing BAS to the group companies. The Original Authority confirmed a service tax liability of Rs. 1,08,12,298/-, along with penalties under Sections 78, 76, and 77 of the Finance Act, 1994.The appellant argued that they acted as a nodal person under the Memorandum of Arrangement to incur expenses for services provided by third parties, which were availed by group companies. They contended that no service was directly provided to the group companies, and the shared expenditure without profit markup should not attract service tax liability under BAS. The appellant cited previous cases to support their argument.The Revenue argued that the appellant's agreement with service providers, receiving services for group companies, fell under BAS as they procured services for the group. They maintained that consideration received from group companies should be subject to service tax under BAS.Upon review, the Tribunal found that the appellant, along with group companies, had a written arrangement to procure services for sales, marketing, and business promotion from third parties. The Original Authority considered the appellants to have provided services to the group companies, leading to a taxable consideration. However, the Tribunal disagreed, stating that the appellant did not directly engage in promoting sales or business for the group companies. The Tribunal noted that the original order did not specify the sub-clause of BAS under which service tax was confirmed.Citing relevant legal precedents, including Gujarat State Fertilizers and Chemicals Ltd. and Anr. Vs. CCE, the Tribunal emphasized that sharing expenditure for common facilities does not constitute a taxable service. The Tribunal also referenced cases like Old World Hospitality Limited Vs. CST, Reliance Ada Group Pvt. Ltd. Vs. CST, and Ruchi Strips & Alloys Ltd. vs. CCE to support their decision. Based on the Memorandum of Arrangement and legal analysis, the Tribunal concluded that no taxable service existed in the arrangement, setting aside the impugned order and allowing the appeal.