2024 (3) TMI 855 - AT - Service Tax

Marketing services from overseas entity held non-taxable under intermediary services with Dubai provision place

CESTAT Mumbai allowed the appeal, setting aside service tax demands for April 2014-September 2015. The tribunal held that marketing and sales promotion ... Taxable service or not - services received by appellants from M/s Hoshizaki Europe BV - post negative list regime, with effect from 01.07.2012 - services can be treated as “Business Auxiliary Service” as per the definition given in Section 65(19) of the Finance Act, 1994 during pre-negative list period or not - ‘intermediary services’ for the purposes of Place of Provision of Services Rules, 2012 (POPS) - supply of bought out material as “free supplies” by the appellants to the service provider of construction of their factory building - extended period of limitation - penalty under Section 78 of the Finance Act, 1994 - period commencing from April, 2014 to September, 2015. HELD THAT:- It transpires that for the period relating to the pre-negative list regime i.e., prior to 01.07.2012, the taxability was determined in terms of coverage of an activity under the service tax net to be defined as ‘taxable service’ under Section 65(105) ibid, which enumerated each of the specified services. For the period postnegative list regime, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., ‘service’ as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. In the present case, the disputed transactions have been undertaken during April, 2014 to September, 2015. Hence, there is no legal basis on which the services rendered in marketing and sales promotion could be examined with respect to definition of ‘Business Auxiliary Services’ that existed in the past i.e., prior to 01.07.2012 - Further, 65B(55) ibid does not provide for the words and expressions used prior to 01.07.2012 to be made applicable in respect of Chapter V of the Finance Act, 1994 for the purpose of service tax. Hence, the findings at para 8 of the impugned order does not have any legal basis, and thus on this basis itself the demand of service tax on marketing and sales promotion service received by the appellants on RCM basis, is liable to be set aside. The nature and value of the services provided are known to both parties i.e., the service provider and a service receiver. We also find that the consideration charged by Hoshizaki Europe is independent of the consideration received by the appellants in respect of the goods supplied by them to overseas customers. Thus the principle of separation of value, is also fulfilled in the present case. The main transaction between the appellants and the customers situated abroad, is the sale of goods manufactured by the appellants; and this is distinct and is completely different from the services provided by Hoshizaki Europe BV. Thus, all the three criteria laid down by the CBIC’s clarification is fulfilled in the present case to categorize the disputed services, as ‘intermediary services’. Thus, in terms of specific Rule of the POPS which would more appropriately apply in this case, it is found that Rule 9 of POPS is applicable to the ‘intermediary service’ as it is the more appropriate rule for determination of place of provision of the service - the place of provision of service in the present case would be the location of the service provider i.e., Dubai. Hence, in respect of ‘intermediary services’ provided by the service provider from Dubai to the appellants in India, would not be exigible to service tax under Section 66B ibid. Service tax levy on free supplies under the works contracts transaction - HELD THAT:- The Larger Bench of this Tribunal in case of COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [2018 (2) TMI 1325 - SUPREME COURT] having similar set of facts of the case, had concluded that the value of goods and materials supplied free of cost by a service recipient to the provider of taxable construction service, would be outside the taxable value or the gross amount charged in terms of Section 67 ibid. Extended period of limitation - HELD THAT:- This Tribunal in the case of RELIANCE INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, LTU, MUMBAI [2016 (6) TMI 1108 - CESTAT MUMBAI] had decided the issue on the basis various judgements where it was held that In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute being revenue neutral. This being the case the invocation of extended period of limitation is clearly not justified - the issue of invoking extended period of time for demand of service is answered in favour of the appellants. There are no strong grounds to hold that the services received by the appellants from Hoshizaki Europe BV from its Dubai office for marketing and sales promotion services are liable for payment of service tax. Further, the value of goods and materials supplied free of cost by the appellants to the service provider of taxable construction service, would be outside the taxable value or the gross amount charged in terms of Section 67 ibid. Consequently the demands of service tax and imposition of penalties confirmed in the impugned order is not legally sustainable. The adjudged demands confirmed on the appellants in the impugned order dated 14.02.2018 is liable to be set aside - Appeal allowed. Issues Involved:1. Taxability of services received from M/s Hoshizaki Europe BV.2. Inclusion of free supplies in the value of works contract services.3. Invocation of extended period of limitation for service tax demand.4. Imposition of penalty under Section 78 of the Finance Act, 1994.Summary:1. Taxability of Services Received from M/s Hoshizaki Europe BV:The Tribunal examined whether the services received by the appellants from M/s Hoshizaki Europe BV could be considered taxable under the definition of 'taxable service' post-negative list regime effective from 01.07.2012. The services were deemed to be 'intermediary services' under Rule 9 of the Place of Provision of Services Rules, 2012 (POPS). The Tribunal concluded that the place of provision of such services would be Dubai, and hence, not subject to service tax in India.2. Inclusion of Free Supplies in the Value of Works Contract Services:The Tribunal referred to the Larger Bench decision in Bhayana Builders (P) Ltd. and the Hon'ble Supreme Court's affirmation that the value of goods and materials supplied free of cost by the service recipient to the provider of taxable construction service would be outside the taxable value or the gross amount charged under Section 67 of the Finance Act, 1994. The Tribunal held that the value of free supplies should not be included in the assessable value for calculating service tax liability.3. Invocation of Extended Period of Limitation:The Tribunal found that the entire exercise of demanding service tax was revenue neutral, as the service tax paid under the Reverse Charge Mechanism (RCM) would be available as input credit to the appellants. Citing relevant judgments, the Tribunal concluded that there was no intention to evade payment of service tax, and thus, the invocation of the extended period of limitation was not justified.4. Imposition of Penalty Under Section 78:Given the findings that the demands of service tax were not legally sustainable and the transactions were recorded in specified records, the Tribunal held that the imposition of penalty under Section 78 of the Finance Act, 1994, was not warranted.Conclusion:The Tribunal set aside the impugned order dated 14.02.2018, allowing the appeal in favor of the appellants. The adjudged demands of service tax and the imposition of penalties were found to be legally unsustainable.