2019 (5) TMI 375 - AT - Service Tax

Appellant not liable for service tax on activities; refund granted. Department's applications dismissed.

The Tribunal determined that the appellant's activities were not classified under 'Business Auxiliary Services,' therefore not liable for service tax. The ... Valuation - Maintenance or Repair Services - inclusion of after-sales warranty expenses in assessable value - whether the activity carried out by the appellants herein will be in the nature of a service transaction which would be exigible to service tax under the Finance Act, 1994 or otherwise? - HELD THAT:- It is definitely not the case that the appellants are facilitating procurement of inputs for enabling the assembly of desktop PCs by M/s. HP India. So also, the appellant is not providing any after-sale service for repair or maintenance of HP products. That responsibility has been given to Redington India as per the agreement between HP and Redington. M/s. Foxteq (appellants herein) will invoice HP by the first week of every month for the services performed (and accepted by HP) during the previous month unless a different schedule is expressly stated in Exhibit-B. Thus, it is clear that the appellant is raising invoices each time only when goods are supplied to Redington on behalf of HP. It is also mandated that if VAT is payable by HP, then such amount payable shall clearly be indicated in Foxteq’s invoice to HP and further, that the appellant must not invoice HP for any other taxes. The payment by HP to appellant is also made on receipt of the invoices. The decision of the adjudicating authorities holding that the impugned activities of the appellant would fall within the mischief of Section 65(19)(iv) of the Finance Act, 1994 and that they would be required to discharge service tax liability under that category on the value of the amounts received thereon, cannot be sustained. Appeal disposed off. Issues Involved:1. Classification of the appellant's activities under 'Business Auxiliary Services' and liability for service tax.2. Validity of the demand for service tax under extended period of limitation.3. Entitlement to refund claim of service tax paid for the period from August 2005 to February 2006.Issue-wise Detailed Analysis:1. Classification of Activities under 'Business Auxiliary Services':The primary issue was whether the activities performed by the appellants, involving the supply of parts and accessories to HP for warranty services, should be classified under 'Business Auxiliary Services' as defined in Section 65(19) of the Finance Act, 1994. The Department argued that the appellant's activities fell under the sub-category of 'procurement of goods or services' on behalf of the client, making them liable for service tax.The Tribunal analyzed the Master Purchase Agreement between HP and the appellant, noting that the appellant's role was limited to selling parts and accessories to HP and delivering them to Redington India for warranty services. The Tribunal emphasized that the appellant was involved in a sale transaction rather than a service transaction. The invoices issued by the appellant to HP included VAT, indicating a sale of goods rather than a provision of services. Consequently, the Tribunal concluded that the appellant's activities did not fall under the 'Business Auxiliary Services' category and thus were not liable for service tax under Section 65(19)(iv).2. Validity of the Demand for Service Tax under Extended Period of Limitation:The Tribunal also addressed the issue of the demand for service tax under the extended period of limitation. The appellant argued that they had been in regular communication with the Department, disclosing the nature of their activities, and therefore, there was no suppression of facts to justify the extended period.The Tribunal found merit in the appellant's argument, noting that the Department had been aware of the appellant's business model and activities through various correspondences. Therefore, the extended period of limitation could not be invoked. The demand for service tax for the period from March 2006 to January 2008 and October 2008 to July 2009 was found to be partially time-barred.3. Entitlement to Refund Claim:The appellant had filed a refund claim for Rs. 12,01,946/- for service tax paid during the period from August 2005 to February 2006. The Department had denied the refund on the grounds that the appellant's activities were classified as 'Business Auxiliary Services.'Given the Tribunal's conclusion that the appellant's activities did not fall under 'Business Auxiliary Services,' the denial of the refund claim was found to be unjustified. The Tribunal set aside the order rejecting the refund claim and allowed the refund with consequential benefits as per law.Conclusion:The Tribunal concluded that the appellant's activities were not liable for service tax under 'Business Auxiliary Services' and allowed the appeals in toto with consequential benefits. The Tribunal also allowed the refund claim with consequential benefits and dismissed the Department's applications for change of cause title. The order was pronounced in open court on 29.04.2019.