2025 (8) TMI 1209 - AT - Service Tax

Leased telecom services to foreign principal are telecom services, no service-tax demand; CENVAT credit on insurance allowed, appeal allowed

M/s. Conduent Business Services India LLP (Formerly known as Affiliated Computers Services of India Pvt. Ltd.) Versus The Commissioner of Service Tax, Bangalore

CESTAT BANGALORE held that leased circuit/telecommunication services rendered to a foreign principal are classifiable as Telecommunication Services, not ... Classification of services - certain expenditures in foreign currency was received for leased circuit services/telecommunication services from abroad - Business Support Services or not - availment and utilization of cenvat credit on insurance services which was not an eligible service as it did not have any nexus with the output service - period of dispute is from May 2006 to March 2008 - time limitation. Classification of services - HELD THAT:- There is no dispute that the appellant had been rendering leased circuit services/telecommunication services to Singtel Singapore and these services are classified as Business Support Services. As per the definition of Telecommunication Services, the leased circuit services are rightly classifiable under Telecommunication Services and not under Business Support Services. This fact has been upheld by various decisions as is held in the case of Vodafone Essar Mobile vs. CST, New Delhi [2017 (9) TMI 359 - CESTAT NEW DELHI]. The same view is also endorsed by the Board vide various Circulars during the relevant period, hence, the question of demand of service tax on leased circuit services under the category of Business Support Services does not arise. Moreover, the appellant had established that this was on cost sharing basis where the expenses incurred by the appellant were reimbursed by their parent company as is held in the case of NCR Corporation India Pvt. Ltd. vs. Commissioner of C.T., Bangalore North [2021 (4) TMI 810 - CESTAT BANGALORE] and on this ground also, they are not liable to pay service tax. CENVAT credit on insurance services - HELD THAT:- This issue is no longer res integra in as much as there are several decisions which have held that the services rendered to comply with the statutory requirements such as insurance of the employees which is a welfare measure of the employees, the tax paid on such services cannot be denied - the appellant is eligible to avail cenvat credit on insurance services and the demand on this ground is also unsustainable. Time Limitation - HELD THAT:- Since the appeal succeeds on merits, the question of invocation of extended period does not arise. The impugned order is set aside and the appeal is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether payments or cost-sharing debits for leased circuit/data-link services procured through a foreign group entity, but shared with the appellant, attract service tax under the category of Business Support Services or under Telecommunication Services, and whether such cost sharing constitutes receipt of taxable service liable under reverse charge. 2. Whether cenvat credit is admissible on insurance services obtained for employees where the insurer's services are claimed as input service and whether such credit can be denied for lack of nexus with the output service. 3. Whether invocation of the extended period of limitation (provision for extended assessment/demand where suppression is alleged) is justified where the same facts were earlier within the knowledge of the Revenue via audit reports. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification and taxability of leased circuits/data-links and cost-sharing Legal framework: The relevant statutory taxonomy distinguishes Telecommunication Services from Business Support Services; service tax liability under the reverse charge mechanism applies where a taxable service is received from abroad or from an unregistered/other specified provider and the recipient is liable to discharge tax. Precedent treatment: Prior tribunal and appellate decisions have held that leased circuits/data-links fall within the definition of Telecommunication Services rather than Business Support Services; other authorities have recognized that pure cost-sharing arrangements without an element of service do not create a taxable event for the cost-sharing participant. Interpretation and reasoning: The Tribunal examined the factual matrix and contractual arrangements showing that (a) leased circuit services constitute telecommunication services by definition and Board guidance during the relevant period supported that classification, and (b) the appellant merely participated in a cost-sharing/reimbursement arrangement with its group/parent entity whereby the parent contracted with the foreign carrier and the appellant was debited for its share. The Tribunal reasoned that where there is no direct receipt of service from the foreign carrier by the appellant and where the cost-sharing agreement lacks an element of service being provided to the appellant by the foreign carrier, the debited share does not create independent taxable service receipt attracting reverse charge. The Tribunal relied on the principle that the substance of the transaction (cost sharing/reimbursement) governs taxability, and that telecommunication classification, where relevant, precludes characterization as Business Support Services for the purposes of the demand challenged. Ratio vs. Obiter: Ratio - Leased circuit/data-link charges are telecommunication services (not Business Support Services) and a pure cost-sharing/reimbursement entry, without direct receipt of service from the foreign supplier, does not attract service tax under reverse charge against the cost-sharing participant. Obiter - Not applicable beyond factual application of these principles to analogous contractual forms. Conclusions: The demand of service tax on the appellant on account of debited shares of leased circuit/data-link charges is unsustainable: (i) classification as Telecommunication Services excludes characterization under Business Support Services for the impugned period, and (ii) the cost-sharing arrangement, absent an element of service receipt from the foreign carrier to the appellant, does not create a liability under the reverse charge mechanism. Issue 2 - Admissibility of cenvat credit on insurance services for employees Legal framework: The input services definition (inclusive/illustrative) and cenvat credit provisions permit credit of tax paid on input services that have nexus with the business/production of output services, subject to statutory exclusions; services rendered to comply with statutory obligations and employee welfare measures are relevant to the nexus inquiry. Precedent treatment: Several adjudicatory and judicial authorities have recognized that services procured as part of statutory compliance and employee welfare (including employee insurance) constitute input services with entitlement to credit; earlier contrary decisions finding no nexus have been reconsidered by subsequent authorities emphasizing the broad/inclusive nature of the input services definition. Interpretation and reasoning: The Tribunal applied the inclusive definition of input services and the principle that activities relating to business and services rendered in connection therewith fall within input services. Insurance provided to employees was treated as an activity connected to business and as part of employer obligations/welfare; it forms part of employment-related costs and therefore has sufficient nexus with the output service to permit cenvat credit. The Tribunal referenced the line of authority recognizing such credit and concluded that denial based solely on alleged lack of nexus is inconsistent with this principle. Ratio vs. Obiter: Ratio - Cenvat credit is admissible on insurance services provided for employees as such services fall within the broad/inclusive definition of input services and have sufficient nexus with the business/output services. Obiter - Observations on corporate social responsibility and peripheral benefits of such services are explanatory and not determinative beyond the present facts. Conclusions: The denial of cenvat credit on insurance services is unsustainable; the appellant is entitled to avail credit on those insurance services, and the demand on this ground fails on merits. Issue 3 - Validity of extended period of limitation invocation Legal framework: Extended limitation can be invoked where suppression or fraud is established; ordinarily, if facts were in the knowledge of Revenue earlier, extended period may not be available unless suppression/mala fide is shown. Precedent treatment: Authorities require positive material to justify invocation of extended limitation and disallow extension where the issue/material was earlier available to Revenue absent evidence of suppression. Interpretation and reasoning: Having decided the substantive demands on merits in favour of the appellant (no taxable service under the challenged head and admissible cenvat credit), the Tribunal held that questions of extended limitation are rendered academic. Additionally, audit reports earlier recorded issues related to these matters; therefore, the record did not support an invocation of extended limitation based on suppression when the same facts were previously known to the Revenue. Ratio vs. Obiter: Ratio - Where the substantive demand fails on merits, invocation of extended limitation need not be sustained; further, extended period cannot be justified where the material was earlier within Revenue's knowledge absent evidence of suppression. Obiter - No detailed ruling on hypothetical sufficiency of suppression evidence was required. Conclusions: The extended period of limitation was not sustained as the substantive demands were set aside and because the issues were earlier disclosed to Revenue, undermining any assertion of suppression; consequently, extended limitation was not applied to uphold the demand. Overall Disposition Given the foregoing analyses, the impugned demands for service tax on shared/debited leased circuit charges and the denial of cenvat credit on insurance services were set aside; consequential relief to be granted in accordance with law. The Tribunal's conclusions on classification, cost-sharing, input-service nexus, and limitation are dispositive of the appeal.