TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 808
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany. The said investment fees were credited/paid to the account of respondent not later than the last day of the respective months. The respondent had shown the amount as received in the following month. In the show cause notice, it was alleged by the Revenue that though these were 'Associate Enterprises' transactions the respondent had not accounted for the fees in the respective months itself in their S.T.3 Returns as per provisions of Section 67 of the Act and Rule 6(2)(a) of Service Tax Rules as amended w.e.f. 10.5.2008. Consequently, there was a delay in payment of service tax by one month from May 2008 onwards on which interest was payable by them. The show cause notice was adjudicated and the adjudicating authority confirmed the demand of interest and imposed the penalties under Section 76 and 77 of the Act. Aggrieved by the adjudication, order the respondents filed appeal before the Commissioner (Appeals), who allowed the appeal on the ground that though the provisional entry was made in the same was not reflected the final amount to be paid. The final entry passed in the subsequent month was the amount for which invoice was raised and the payment was the amount for w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he month are provisional and only for the purpose of management information system. The final entries are made in the next month and according to which the invoices were raised. In same transaction, even the amount of final entry and amount of the invoices are varying with the provisional entries. Therefore, there is no significance of provisional entries. The same cannot be considered for point of taxation. 5. I have carefully considered the submissions made by both the sides. The issue to be decided are - (i) Whether the respondent are associate enterprises in terms of Section 92A of the Income Tax Act, 1961. (ii) Whether the point of taxation should be decided on the date of provisional entries of the transaction in the books of account or on the date of final entry and invoice made by the respondent. The definition of associate enterprises is provided in Section 92A of the Income Tax Act which is reproduced below: 92. (1) Any income arising from an international transaction shall be computed having regard to the arm's length price. Explanation.- For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an internation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,- (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; or (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty-one per cent of the book value of the total assets of the other enterprise; or (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise; or (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise; or (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are appointed by the same person or persons; or (g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....' not given any finding. Therefore I am of the considered view that the respondent is an 'associate enterprises' of M/s. Deutsche Mutual Fund as the ultimate holding company. On the issue of point of taxation the relevant Section 67 of the Finance Act 1994 is reproduced below: Section 67 "Valuation of taxable services for charging service tax.- (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall - (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xplanation to give different treatment to the provisional entries or final entry. On the identical issue the Division Bench of this Tribunal in the case of General Motors(I) Pvt. Ltd. vs. Commissioner of C. Ex. Pune 2015 (40) STR 962 (Tri-Mumbai) categorically held that there is no difference between the provisional entry or final entry. The relevant paras of the order of the judgment are reproduced below: 9. From the above, as applied to the circumstances of the service utilized by the appellant, it would appear that the intellectual property is destined to each unit of production which occurs on a daily basis. For each vehicle that rolls off the assembly line, the owner of the "intellectual property" needs to be recompensed. However, Rule 6 of Service Tax Rules lays down generally that tax shall be discharged every month and hence the occurrence of the taxable event is aggregated in periods of not less than a month. It is not the claim of the appellant that that service is not utilized every month. Instead they drawn sustenance from the agreement which prescribes each quarter to be the frequency of discharging the royalty dues to the owner of "intellectual property" and hence po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rides the relevance of actual payment. That the management reporting system placed emphasis on monthly booking of royalty accruing is also indicative of the importance of such monthly entries from the stake-holders perception even if the contracted moment of compensation was later. 11. The learned Counsel for appellant contends that the scope of the Explanation is not extendable to such deemed payment because it needs to be read in the context of the phrase "any payment to be received" and since the payment is to be received at quarterly intervals by the service provider, such deemed payment cannot be added for the months where actual payments have not been made. That argument will not suffice in view of the circumstances that led to insertion of the said Explanation as pointed out in circular of Central Board of Excise & Customs (334/1/2008-TRU dated 29 th February 2008) attention to which has been drawn by the learned Counsel himself. Between associated enterprises, the certainty of receipts is not tested against the enhancement of cash or bank balance; mere book entries have the effect that it may not have between two independent entities. Such book adjustments often serve to d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reference to debit after that date concerns itself exclusively with "reverse charge" taxability of "associated enterprises", that is how it should be read in its former avatar in Rule 6 of Service Tax Rules, 1994. We find ourselves unable to subscribe to this view as the alteration made in 2012 has not been officially attributed to any error in the Rules as it stood on 1 st April 2011. It would be consistent with the proposition made supra that the use of "debit", "credit" or both is not critical to the valuation mechanism as either of these does not exist in isolation while making an entry in the books of accounts. A debit entry will have a corresponding credit entry and the existence of such entry with respect to royalty on vehicles manufactured by the appellant during a particular month, without an entry in the supplier's ledger, suffices for it to be included in the value of taxable service and liable to be taxed by the fifth of the following month. 14. This is not a dispute about taxability. Tax liability has been discharged by the appellant, albeit in a schedule of their own choosing, relying on the principle of "receipt" of consideration by the service provider. As thi....