Reimbursement under cost-sharing arrangement held outside Business Support Service; prospective amendment and penalty also failed.

Reimbursement of common expenses under a cost-sharing arrangement with a wholly owned subsidiary was treated as a pass-through of actual third-party costs, with no identifiable service rendered to the subsidiary; it was therefore not taxable as Business Support Service for the relevant period. The broadened post-2011 definition of support services was held prospective and inapplicable to the pre-amendment period. On that basis, the receipts were characterised as reimbursement rather than consideration for service, and the demand was also viewed as revenue neutral. Penalty could not survive where no service tax was payable.

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Issues: Whether reimbursement of common expenses by a wholly owned subsidiary under a cost sharing arrangement was taxable as Business Support Service, and whether penalty could survive if no service tax was payable.

Analysis: The common facilities and expenses were procured from third parties and only the actual costs were recovered from the subsidiary through debit notes. On the facts, the arrangement did not involve rendition of any identifiable service by the appellant to the subsidiary; it was a pass-through of expenses. The broadened definition of support services by the 2011 amendment was prospective, and the activities for the relevant period did not fall within the pre-amendment scope of Business Support Service. The receipts were therefore treated as reimbursement in a cost sharing arrangement, and the tax demand was also found to be revenue neutral.

Conclusion: The reimbursement was not chargeable to service tax under Business Support Service, and the penalty could not survive.

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