TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 810
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.... behalf so as to share the cost among the Participating Group Companies. This arrangement is a mere cost sharing arrangement, and the role of the appellant is limited to monitoring and coordinating the arrangement for all participants. Such procurement inter alia includes provision of Aircraft Hiring Services, Branding Services, Professional Services, Custodian Services etc. The expenses / cost incurred by the Appellant in procuring the specified services on behalf of the Participating Group Companies would be separately charged to and reimbursed by the Participating Group Companies. The allocation of cost is based on the estimated uses of such procured services by each member of the Participating Group Companies. 3.1 An EA 2000 Service tax audit was conducted by the Department on the books of accounts of the Appellant for the period from 2006-07 to 2009-10. During the course of audit, it was observed that the Appellant has provided certain Business Support Services to its various Participating Group companies by way of accounting and processing of certain transaction and certain operational assistance as required by these Group of companies under an agreement between the appellan....
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....enditure incurred on behalf of the Participating Group Company shall be excluded for the purpose of chargeability of Service Tax; (iv) The Appellant does not hold any title to the goods or services procured on behalf of the Participating Group Company; (v) The fixed remuneration of Rs One Crore as stipulated by one of the clauses in the Agreements has never been received by the Appellant from the Participating Group Companies. Such remuneration, even if charged and/or received would alone be liable to service tax being the fee accruing to the Appellant. The arrangement has been accepted as such by the Income Tax Authorities who have not considered the recoveries from Participating Group Companies as income of the Appellant nor considered the amounts paid to the various services providers as expenditure of the Appellant. 3.3 Pursuant to its reply to the Audit Objections dated 23.08.2011, the Appellant vide an e-mail dated 06.09.2011 communicated to the Department the details of the reimbursement received from the Participating Group Companies during the impugned period under the Agreements. 3.4 A Show Cause notice No. ST/MUM/DIV-III/Gr.VIII/Reliance ADAG/2011/2791 dated 20.10.20....
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.... and submitted that - (i) The Appellant is a Guarantee Company, without any share capital and has entered into cost sharing arrangement with the Group Companies and they have incurred the expenditure and subsequently allocated the cost to its Participating Group Companies. (ii) The Appellant is acting in the capacity of a pure agent as the appellant does not use such services or goods purchased and receives only the actual amount incurred to procure such goods or services from the third party vendors/service providers. (iii) A new service category 'Supply of Tangible goods services' was introduced w.e.f. May 2008. As the majority (90%) of the Appellant's expenses pertaining to the reimbursement of Aircraft Expenses, the Appellant under an abundant caution applied for Service tax registration and started discharging Service tax from 2008 onwards. (iv) The cost sharing arrangement cannot be covered under the broader category of Business Support Services as the definition of Business Support Services has limited application to the word and phrases used therein and cannot be simply extended to all the services; (v) The Circular No. 120 (A)/2/2010-ST dated 16.04.2010 clarif....
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....invoking the extended period under proviso to Section 73(1) of the Act; while imposing a Penalty of Rs. 15,14,14,192/- under Section 78 of the Act. 3.10 Being aggrieved, the instant appeal was preferred by the Appellant. 3.11 The learned Senior Counsel has taken us through the elaborate grounds of appeal. He vehemently argued that the impugned Order-in-Original was erroneous on several grounds as urged in the appeal. HE relied upon several decision in support of the appeal. 4.1 The Learned Departmental Representative strongly opposed grant of any relief to the appellant and submitted that the findings recorded in the impugned Order are detailed, legal and proper. He took us through the findings recorded in the impugned Order-in-Original and with the help of several case laws made efforts to persuade us to dismiss the appeal and uphold the findings of the Respondent Commissioner. 5. After hearing both sides at considerable length, considering their submissions and perusing the illustrative contracts and various case laws relied upon by both the sides, we are of considered opinion that- 5.1 The main issue is whether the activities of the appellant, at the relevant time i.e. in 2....
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.... The Appellant has agreed to act as such Manager on the basis that the cost of obtaining and employing the Resources would be distributed to and borne by the Participating Group Companies by sharing of costs of arrangement. 5.4 The adjudicating authority has relied upon the 'Notes' to the accounts in the balance sheet for the period ending 31.3.2008 in para 4.2 of the impugned Order. On the basis of these 'Notes' it is also the finding of the adjudicating authority that- "4.3 From the above Note, it is clear that the company procure lot of common services because of the cost advantage and share the services with the group companies and expenditure are allowed based upon agreed methodology. The nature of common services procured by the assessee includes Aircraft hiring, Branding expenses, Professional Charges, Employees expenses, Travelling expenses, Custodian expenses (for shares and securities). The above expenses have been detailed in Schedule 6 of the Balance Sheet. The Input Service Invoice on which they have paid Service Tax to the service provider also shows that most of the payments have been made for Aircraft hiring, professional charges, branding expenses, Audito....
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....es' under Section 65(104c) read with Section 65(105)(zzzq). We find that these observations and findings of the adjudicating authority emanate from the confusion that the Appellant provides the services in question, whereas the Appellant at best acts as an agency to procure services and allocate cost to various Participating Group Companies for which it can claim an amount of Rs. One Crore jointly from all participating group companies as its fees in addition to the reimbursement of the total costs incurred towards such common services. 5.9 No direct statutory provision or any binding precedent could be shown to us by the Revenue, which for the relevant time, covers the activity of incurring costs and seeking reimbursements as Pure Agent under the purview of the " Business Support Services" under clause (105) of section 65 of the Finance Act, 1994 as amended by Finance Act, 2006. There is no dispute on the fact that no additional fees or profits or consideration for Pure Agent services is received by the appellant, who has merely recovered actual costs incurred from the Participating Group Companies. 5.10 We find that the definition of 'Business Support Services' covers o....
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.... is not providing a taxable service, and observed that- "It is very clear that the appellant only acts as agent for SAP India. They enable the group companies of Tata group to procure the SAP software and its maintenance. In the circumstances, we cannot come to the conclusion that the appellant provides management consultancy service to the affiliates." In Kumar Beheray Rathi vs. Commissioner of Central Excise, Pune 2014 (34) STR 139, the Tribunal held that the assessee was acting merely as a trustee or a pure agent as it was not engaged in providing any service but only paying on behalf of various flat buyers to various service providers. 5.12 The Hon'ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. vs. Unionof India, 2012-TIOL-966-HC-DEL-ST held that reimbursement of expenses at actual is not includible in the value of taxable service. Moreover, before that various Circulars issued by the Central Board of Excise & Customs also clarified the position regarding chargeability of Service Tax on reimbursement of expenses. For eg.- (i) In CBEC Circular under F.No. B 43/1/97 dt 6.6.97 it was clarified in respect of customs house agent&#....
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.... or nexus between the amount and the taxable activity can be established, the amount cannot be subjected to Service tax. ...." 5.15 The adjudicating authority erred in refusing to treat the Appellant as 'Pure Agent' under Rule 5(2) of the Valuation Rules merely because the service procured by the Appellant are not attributable to any one particular Group Company. The Rule 5(2) of the Valuation Rules does not stipulate any condition as to one on one identification of service recipient and service provider in order to fall within the ambit of 'Pure Agent". The pre-requisite is that the expenses should have been incurred by the person on behalf of the service recipient and the expenses so incurred should be reimbursed to him on actual basis. Rule 5(2) of the Valuation Rules prescribes certain expenses that can be excluded from the value of taxable services, if incurred by the service provider as a pure agent on fulfillment of certain conditions specified therein. Relevant extract of the said Rule is as follows- "(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded ....
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....e third party vendors or Service providers. The Appellant has not recovered any amount over and above the actual expenses incurred by it in facilitating the provision of common services to its Participating Group Companies. The Appellant has made the payment to the third party vendors or service provider for procurement of specified services on behalf of the Participating Group Companies. The services so procured by the Appellant has been used or availed by the Participating Group Companies. Having used the services Participating Group Companies in law would be liable to make the payment directly for such services to third party vendors or service providers, however, for convenience such payment has been routed through the Appellant under the pass through mechanism. The Participating Group Companies have authorized the Appellant to procure the services. Such authorization has been executed in the form of contractual agreement between the Appellant and Participating Group Companies. Participating Group Companies are completely aware of the fact that the services are procured from the third party vendors or services providers and the Appellant is only facilitating the provision of su....
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....the cover of letter dated 07.05.2015, and a copy of the CA Certificate along with the details of CENVAT Credit otherwise available during the relevant period has been produced before us. 5.20 The impugned Order erroneously invokes extended period for demanding Service Tax for the Financial Year 2006-07 to 2007-08. It is seen that even if the activities carried out by the Appellant are subjected to Service tax, the Participating Group Companies who were duly registered with the Service tax authorities during the relevant period and were discharging Service tax on their activities, would be entitled to avail the CENVAT Credit thereof. Copies of the Service Tax Return (ST3) filed by the Participating Group Companies namely Reliance Communication & Infrastructure Limited, Reliance Energy Limited, Reliance Capital Limited, Reliance Communications Limited and Reliance Telecom Limited for the Financial year 2006-07 and 2007-08 were submitted by the appellant in the adjudication proceedings. The adjudicating authority has also categorically accepted the position of revenue neutrality and recorded the relevant findings at Para 4.26 of the impugned Order as under:- "4.26 .......I find that....