2020 (10) TMI 292 - AT - Service Tax

Tribunal rules in favor of appellant, services not taxable pre-2011. Overseas networking not online info service.

M/s. Goldman Sachs Services Versus Commissioner Of Central Tax, Bengaluru East

The Tribunal ruled in favor of the appellant in both appeals, allowing them. The services from M/s. Hewitt Associates and M/s. Communication Services were ... Classification of service - Appellant has appointed M/s. Hewitt Associates for collating and uploading the details/ information, like name, educational qualification, designation, contact number etc, of the employees in the database - Appellant also claims that they are further using the global telecommunication channel set-up by its overseas group entities for making long distance international calls - whether service fall under Business Support Service, Online Information & Database Service (referred as Computer Network Service) and Manpower Recruitment & Supply Agency Services? - time limitation - penalty. Whether the services received by the Appellant from M/s. Hewitt Associates and M/s. Communication Services can be qualified as “Business Support Services”? - HELD THAT:- In view of the insertion w.e.f. 01.05.2011, of words “operational or administrative assistance in any manner”, it goes without saying that the operation is prospective only. It is not disputed that the services are in the nature of helping the routine administration as averred in the SCN - the services availed by the appellants from M/s Hewitt Associates and M/s Communication Services cannot be categorised under “Business Support Service” before 01.05.2011. Whether the networking (telecommunication related) services received by the Appellant from overseas group entities can be classified as Online Information & Database Service (referred as “Computer Network Service”)? - HELD THAT:- The global entity has created a network of computers and provided connectivity between different group entities so that information and data can be exchanged. We find that the learned AR argues that provision of information is also categorised under OIADR. In such a scenario, information flows both ways from the appellants to other global entities and vice-versa. In such a case, the appellants at times become service providers and at times service receivers. It is not coming forth either in the SCN or in the OIO that the amount paid by the appellants to the overseas entity is for the information they received, even if assuming that data retrieval is not mandatory. In view of the submission of the appellants and on perusal of the invoices for the so-called network services, we find that the same are not for provision of online information. Therefore, we are not inclined to accept the contention of the learned AR - the appellants are not exigible to Service Tax on OIADR (Computer Network Service). Whether the Appellant can be said to have received manpower recruitment and supply agency service from overseas group entities? - HELD THAT:- In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961. Extended period of limitation - penalties - revenue neutrality - HELD THAT:- The appellants submit that the issue is revenue neutral as being an STPI unit, the appellants would have been eligible to claim refund of Service Tax paid on input services in terms of Rule 5 of CCR, 2004. The contention has force - As the issue decided on merits, we are not going into further arguments on this point - Having decided the issue in favour of the appellants on merits, we don’t find any reason to discuss the merits or otherwise of imposition of penalties. Appeal allowed - decided in favor of appellant. Issues Involved:1. Classification of services received from M/s. Hewitt Associates and M/s. Communication Services as “Business Support Services”.2. Classification of networking services received from overseas group entities as “Online Information & Database Service” (referred to as “Computer Network Service”).3. Classification of payments for seconded personnel as “Manpower Recruitment & Supply Agency Service”.4. Invocation of the extended period for demand.5. Justification for the imposition of penalties.Detailed Analysis:1. Classification as “Business Support Services”:The appellant argued that services from M/s. Hewitt Associates and M/s. Communication Services were routine administrative functions, taxable under “Business Support Services” only from 01.05.2011. They cited CBEC Circular No. 334/3/2011-TRU and the Tribunal’s decision in Reliance ADA Group Pvt. Ltd. v. Commissioner of S.T., Mumbai-IV, which held that the amendment expanding the definition of “Business Support Services” was prospective. The Tribunal agreed, stating that the services availed before 01.05.2011 could not be categorized under “Business Support Services” as the operational or administrative assistance clause was added only from that date.2. Classification as “Online Information & Database Service”:The appellant contended that the global telecommunication channel set up by overseas entities was a telecom service, not an “Online Information & Database Service”. They argued that payments were for telecommunication services, not for data provision. The Tribunal noted that the Commissioner’s findings were unclear and that the payments were indeed for telecommunication services. Citing the Tribunal’s decisions in United Telecom and Philips Electronics India Ltd., it was concluded that the services did not fall under “Online Information & Database Service”.3. Classification as “Manpower Recruitment & Supply Agency Service”:The appellant maintained that an employer-employee relationship existed with the seconded personnel, with separate employment contracts and direct payment of salaries. The Tribunal referenced Volkswagen India Pvt. Ltd. v. CCE, Pune-I, which held that such arrangements did not constitute “Manpower Recruitment & Supply Agency Service”. The Tribunal agreed, affirming that the seconded personnel were employees of the appellant.4. Invocation of Extended Period:The appellant argued that the Department was aware of all facts when the first Show Cause Notice (SCN) was issued, and thus, no suppression of facts could be alleged for the subsequent SCN. The Tribunal accepted this argument, referencing the Nizam Sugar Factory case, and set aside the second SCN.5. Imposition of Penalties:Given the decisions on merits, the Tribunal found no grounds for penalties. The appellant’s argument of revenue neutrality was also noted, as they could claim a refund of Service Tax paid on input services.Conclusion:Both appeals (No. ST/25566/2013 & No. ST/21705/2016) were allowed, with the Tribunal ruling in favor of the appellant on all issues. The services from M/s. Hewitt Associates and M/s. Communication Services were not taxable as “Business Support Services” before 01.05.2011, the networking services did not fall under “Online Information & Database Service”, and the seconded personnel did not constitute “Manpower Recruitment & Supply Agency Service”. The extended period for demand was not justified, and penalties were not imposed.