2018 (7) TMI 181 - AT - Service Tax

Tribunal Rules on Taxability of Services under Agreements

The Tribunal ruled that services provided under agreements with GDPL and WGS were not taxable as Business Auxiliary Services. However, services under the ... Business Auxiliary Services - Technical assistance and marketing services - marketing services - promoting the products of WGS in the markets in India - Held that:- The onus is upon the Department to satisfy us that the services of the appellant in three of the cases falls within the expressed ambit of the definition of Business Auxiliary Services - in the facts of present case, the GDPL is providing service to the appellant while manufacturing the product under the brand name of the appellant. While providing any technical know-how, the specifications, marketing strategies and even providing promotional services to GDPL, appellant is actually providing those services to self, the product marketed being the product of the appellant itself. GDPL is merely a Contract Bottling Unit (CBU) - The services rendered by the appellant were rendered to self. The same cannot be categorised as Business Auxiliary Service. Promotion and marketing services - the appellant has agreed for providing inter-alia promotion, marketing and even customer care services for which the appellant even has received certain consideration - Held that:- Every intention and purpose of the agreement of appellant with WMIL is centred to market the product of affiliate and sale thereof for which the promotion and marketing activities are centered essentially to be carried out without which business of WMIL could not sustain. Such activities are essentially being envisaged under Business Auxiliary Services - The impugned order has rightly considered the agreement of appellant with WMIL as an agreement for providing Business Auxiliary Services - demand upheld. Agreement with WGS for promoting the products of WGS in the markets in India - WGS is an entity based outside India - Held that:- Though the appellant were providing marketing and promotional services to them but the recipient being abroad, the appellant were receiving remuneration in convertible foreign exchange from WGS - There has been a Notification No. 6/99 dated 09.04.1999 providing exemption to taxable services where consideration was received in convertible foreign exchange. Though this exemption was withdrawn vide another Notification No. 2/2003-ST w.e.f. 01.03.2003, but subsequently vide Notification No. 21/2003 – ST dated 20.11.2003, the exemption was restored - demand set aside. Extended period of limitation - penalty - Held that:- The Department has not produced any such evidence on record which may suggest that appellant has acted with an intent to evade payment of tax. Hence, there was no justification by the Department to invoke the extended period of five years while issuing the Show Cause Notice - The only taxable service in the category of Business Auxiliary Service has been observed to have been rendered by the appellant to WMIL, but the period of demand thereof is w.e.f. July, 2003 to June, 2004. The Show Cause Notice is dated 09.02.2007. Hence, the demand is beyond the period of one year and as such is held not sustainable. Appeal disposed off. Issues Involved:1. Taxability of services under the agreement with GDPL as Business Auxiliary Services (BAS).2. Taxability of services under the agreement with WMIL as Business Auxiliary Services.3. Taxability of services under the agreement with WGS as Business Auxiliary Services.4. Justification for invoking the extended period of liability and imposing penalties.Detailed Analysis:1. Taxability of Services under the Agreement with GDPL as Business Auxiliary Services:The appellant had a Manufacturing Agreement/Contract Bottling Arrangement with GDPL for providing technical assistance and marketing services. The Department alleged that the fee received under this agreement for the period from July 2003 to March 2006 amounted to Rs. 1,71,53,164/- and was taxable as Business Auxiliary Services (BAS).The appellant contended that the arrangement was for bottling operations where GDPL acted as a bottler for the appellant's products. The appellant argued that the marketing services were for their own product and not for GDPL, thus not constituting BAS. The Tribunal agreed with the appellant, noting that GDPL was merely a Contract Bottling Unit (CBU) and the services rendered by the appellant were to themselves. The Tribunal referenced case law, including Redico Khaitan Ltd. and BDA Pvt. Ltd., to support the conclusion that the services provided did not fall under BAS. Consequently, the demand for service tax under this agreement was deemed unsustainable.2. Taxability of Services under the Agreement with WMIL as Business Auxiliary Services:The appellant had an agreement with WMIL for providing marketing services and customer care services for the sale of IMFL manufactured or procured by WMIL. The Department alleged that the services provided under this agreement for the period from July 2003 to June 2004, amounting to Rs. 33,46,259/-, were liable for service tax as BAS.The Tribunal observed that the agreement explicitly involved promotion, marketing, and customer care services for WMIL's products, which fell squarely within the definition of BAS. The Tribunal upheld the demand for service tax under this agreement, finding no infirmity in the original order regarding this issue.3. Taxability of Services under the Agreement with WGS as Business Auxiliary Services:The appellant had an agreement with WGS, a Hong Kong-based entity, for promoting WGS's products in India. The Department alleged that the services provided for the period from July 2003 to December 2003, amounting to Rs. 7,77,404/-, were taxable as BAS.The appellant argued that the services were exported, and the remuneration was received in convertible foreign exchange, making them exempt from service tax. The Tribunal noted that although the exemption under Notification No. 6/99 was withdrawn from March 2003 to November 2003, the CBEC Circular No. 56/5/2003 clarified that export services remained tax-free. The Tribunal referenced the Supreme Court's decision in WPIL vs. CCE and the Tribunal's decision in SGS India P. Ltd., concluding that the exemption had retrospective effect. Therefore, the demand for service tax under this agreement was also deemed unsustainable.4. Justification for Invoking the Extended Period of Liability and Imposing Penalties:The Tribunal found that there was no suppression of facts by the appellant, as they were registered for service tax as a recipient of goods transport services but not as a provider of BAS. The Tribunal noted the confusion and uncertainty regarding the status of Contract Bottling Units and the taxability of export services. The Department failed to provide evidence of intent to evade tax, making the invocation of the extended period unjustified. Consequently, the demand for service tax for the period from July 2003 to June 2004, raised in the Show Cause Notice dated 09.02.2007, was beyond the permissible period and thus not sustainable.Conclusion:The Tribunal set aside the original order, ruling that the services provided under the agreements with GDPL and WGS were not taxable as Business Auxiliary Services. The demand for service tax under the agreement with WMIL was upheld, but the invocation of the extended period and the imposition of penalties were deemed unjustified. The appeal was allowed in favor of the appellant.