TaxTMI 
TaxTMI 
2024 (2) TMI 197
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....ed service tax registration for receiving the subject services nor paid service tax on reverse charge basis in terms of Rule 2(1)(d)(iv) of Service Tax Rules, 1994, the Directorate General of Central Excise Intelligence (DGCEI), Chennai Zonal Unit's investigated the matter culminating in issuance of Show Cause Notice's for the period from 2003 - 04 to September 2011 as detailed in the annexure to the impugned order, under the relevant provisions of the Finance Act, 1994 (FA, 1994). After due process of law, the adjudicating authority revised and confirmed the demand for service tax of Rs.7,31,87,545/- with equal penalty under section 78 of FA 1994 for the extended period and Rs 55,40,497/- along with penalty under section 76 of FA 1994 for the normal period. A penalty was also imposed for non-filing of ST3 Returns. Aggrieved by the said order, the appellant is now before the Tribunal assailing the findings and the demand confirmed. 3. No cross-objection has been filed by Revenue. 4. We have heard learned Counsel Smt. Radhika Chandrasekar for the appellant and Shri Harendra Singh Pal, learned AC (AR) for Revenue. 4.1 The learned Counsel for the appellant made a preliminary ....
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....nts given in the impugned order on behalf of Revenue and prayed that the appeal may be rejected. 4.3 Having gone through the appeal papers and having heard the rival parties, we proceed to examine the dispute relating to the classification of various services. The issues examined in this order are given in the table below: S. No. Subject Para No. Page No. 1. Jurisdiction of ADG DGCEI to issue SCN 5 4 1(a) Complexities of Administration and Shared Jurisdiction 5.7 10 2. Contracts / Agreements and the Best Evidence Rule 6 13 3. Consulting Engineering Services Vs. Manpower Recruitment Service 7 15 3 (a). The Test Of Employer and Employee or Master and Servant relation 7.8 20 4. Management Consultancy Services Vs. Intellectual Property Service 8 22 4(a) Additional Evidence - The Legal Issues Involved 8.7 29 5. Banking and Financial Services 9 31 5(a) The Entire Activity Takes Place Outside India, Hence Not Taxable 9.3 32 5(b) Reimbursables Cannot Form a Part of the Value. 9.9 36 6. Technical Inspection 10 38 7. Legal Consultancy Servic....
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....aintainable and liable to be quashed. C) The words 'Assistant Commissioner of Central Excise' or 'Deputy Commissioner of Central Excise' was substituted with the word 'Central Excise Officer' only with effect from 13.05.2005 vide Finance Act, 2005, hence a DGCEI officer who has vested with the powers that are exercisable by the Central Excise Officer from that day only and could not have issued the SCN earlier. When the laws specifically provides that SCN has to be issued only by the Commissioner of Central Excise the notice issued by the Assistant Commissioner is not valid. D) It is submitted that even post 13.05.2005 the officers appointed by the Board cannot be considered as Central Excise Officer for the purpose of Section 73 in the absence of specific power vested on the DGCEI through Section 73 and therefore the Show Cause Notice issued is not legally maintainable. 5.4 We find that these issues have been addressed comprehensively by the Original Authority in the impugned order. Para's 6.0 to 6.2. of which is reproduced below, with approval. "6.0 The assessee contended that the issuance of SCN by the ADG, DGCEI is without jurisdiction and hence not maintainab....
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....ot sustainable and hold that the ADG, DGCEI is competent to issue Show Cause Notice and the Commissioner of Service Tax is empowered to adjudicate the same." Further the Board vide Circular No. 80/1/2005-ST, dated 10.08.2005 has clarified that with the objective of enabling expeditious adjudication of service tax cases, section 73 of the said Act was amended vide Finance Act, 2005, whereby the words ― 'Assistant/ Deputy Commissioner of Central Excise' were substituted by the words ― 'Central Excise Officer'. Section 83A was also inserted in the said Act for the purpose of conferring powers on the Central Excise Officer for adjudging a penalty under the provisions of the said Act or the rules made thereunder. The above provisions came into force with the enactment of Finance Bill, 2005 on 13/05/2005. Since the earliest SCN in this case was issued on 26/03/2009 we do not find any infirmity in this regard. 5.5 It may further be added that over the years State activities have become multifarious and the role of the State's Administrative machinery has grown to at times co-exist with the powers of one another. Considering the wide ramifications of sovereign functions, ....
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....tain types of works to certain Officers or classes of Officers. These administrative directions cannot take away jurisdiction vested in a Central Excise Officer under the Act. At the highest all that can be said is Central Excise Officers, as a matter of propriety, must follow the directions and only deal with the work which has been allotted to them by virtue of these Circulars. But if an Officer still issues a notice or adjudicates contrary to the Circulars it would not be a ground for holding that he had no jurisdiction to issue the show cause notice or to set aside the adjudication. Complexities of Administration and Shared Jurisdiction 5.7 Hence statutes that parcel out authority or jurisdiction to multiple agencies are perhaps the norm, rather than an exception. Hon'ble Justice Krishna Iyer of the Supreme Court in the case of Avinder Singh Etc vs State Of Punjab & Anr. Etc, [1979 AIR 321 / 1979 SCR (1) 845 / 1979 SCC (1) 137] had stated that, 'this is a trite proposition but the complexities of modern administration are so bafflingly intricate and bristle with details, urgencies, difficulties and need for flexibility . .' There are many variants of shared jurisdiction r....
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....e). At least some portion of each agency's authority is also shared with the other agency. What differentiates regime (4) from regime (3) is that there is also some subset of the policy space not clearly given to either agency, such that X1 U X2 ⊂ X. Regime (4) carves out a portion of potential authority that is not given to either government entity, although of course the scope and existence of this pocket will usually be ambiguous. Jurisdiction in this scheme is both overlapping and underlapping. [Jacob Gersen, "Overlapping and Underlapping Jurisdiction in Administrative Law" (University of Chicago Public Law & Legal Theory Working Paper No. 161, 2007)]." (emphasis added) This illustration using set theory showing the many potential schemes for allocation of jurisdiction available to a foreign democratic government is not the last word on the subject and is only to show the complex area of shared jurisdiction that Government across the world grapple with. Hence grant of jurisdiction to administrative functionaries is a matter of individual State policy. The Appellants view, that this would result in an anarchical and unruly operation of a statute which is not contemplated ....
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....ed a notice, as discussed above, it cannot be insisted that the same officer should also adjudicate the matter. There is no such legal necessity as seen from the Pahwa Chemicals judgment (supra). There can be a segregation between the preventive and assessment functions among officers who share concurrent jurisdiction on a tax collection matter. Adjudication can be done by the other officer who enjoys concurrent jurisdiction in the matter, more so if he happens to be the jurisdictional officer looking after assessment work relating to the Appellant in the normal course. 5.9 Whether DGCEI officers are "Central Excise Officers" or not was examined by the Hon'ble Madras High Court in M/S. Redington (India) Limited vs Principal Additional Director, Directorate General of Goods and Services Tax, Chennai [2022 (62) GSTL 406 (Mad)] dated 17/06/2022. It was held that without doubt, the officers from the Directorate are "Central Excise Officers" as they have been vested with the powers Central Excise officers. 5.10 As per the discussions, the averments of the Appellant fails to convince us of any jurisdictional error in the maintainability of the SCN. Having found no merit in the prel....
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.... joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation. The above principles shall be a guide for the discussions below. 7. Consulting Engineering Services Vs. Manpower Recruitment Service 7.1 As regards the first classification dispute, traditionally under manpower supply, employees whose services are supplied on a temporary basis or otherwise are hired under a contract of service, and the hirer, i.e., the employer, has complete control over the work and manner in which it is done (apart from other tests of an employer-employee relationship which will be discussed later). Consultants on the other hand are hired under a contract for service to advice on specific tasks with minimal supervision. 7.2 It is the Appellants contention that they have entered into an agreement with M/s. International Offshore Management Inc., USA (IOMI) Noble Denton Agency, OCS Services Ltd. and Transworld International, for temporary supply of manpower falling under MRSAS. The Appellant has registered under the category and has reportedly discharged service tax which is taxable with effect from 16.06.2005. It's the Dep....
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....all include Consultants for Drilling Technology, Electrical and Mechanical maintenance and Rig move operations. 3. As compensation ABAN shall pay IOM USD 1750 per Rig per day and the amount shall be remitted to IOM's Bank Account within 30 days of presentation of monthly invoices. In the event of any change in the number of consultants deployed, the amount payable by ABAN shall be adjusted upwards for additions and downwards for reductions as mutually agreed from time to time. [Per day for each position USD] Drilling Consultant 400.00 On 28 days on Mechanical, Electrical, Barge, maintenance Consultants 400.00 28 days off basis 4. In order to render Drilling Services as required under Clause - I IOM shall provide sufficient experienced technical manpower teams as per mutual requirements from time to time. 5. ABAN shall give IOM 28 days written notice of intent to change the team complement or any individual consultant team members. 6. IOM shall be responsible for all payments to the consultants except otherwise expressly provided in the agreement. 7. ABAN shall pay all transportation costs and air fare as provid....
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....amber of Commerce, London. (emphasis added) (*) - Now known as Aban Offshore Ltd. i.e. the Appellant 7.5 The Agreement may now be examined in terms of FA 1994. With rapid changes in the work environment and the highly specialized and sophisticated nature of work it is doubtful whether the search for a formula in the nature of a single test to identify a Consultant is possible. However, in the impugned context it may be profitable to look at some of the definitions of the term 'consultant'. In CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139 / [2008] 175 Taxman 573 (Delhi), the Hon'ble High Court of Delhi has observed that the word "consultant" is a derivative of the word "consult" which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. The Appellant has also drawn attention to the judgment of the Tribunal in the case of Basti Sugar Mills Co. Ltd. vs. CCE Allahabad [2007 (7) STR 431 (Tri-Del)] wherein it was held that the activity of a mediator Service cannot fall in to the category of business consultant service. That what is envisaged from a consultant is primarily an advisory service and not the actual performance....
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....on. The Test Of Employer and Employee or Master and Servant 7.8 Looked at from another angle the department in the SCN has submitted evidence in the form of the Agreement which was interpreted to allege that the Appellant was in receipt of the services of consultants at its rigs, and thus discharged its primary onus which was sufficient to raise a presumption in its favour with regard to the existence of facts sought to be proved. [See; Collector of Customs, Madras & Ors. v. D. Bhoormul [1974] 3 S.C.R. 833]. Once an allegation, which is based on a written Agreement, has been raised by Revenue regarding the nature of services received by the appellant,adverse inference could be drawn against the Appellant if they are not able to provide a satisfactory reply. The initial burden of rebuttal is on the Appellant, because the basic facts are within their special knowledge. The appellant has thus not been able to explain their contention that the engagement of the persons was only in the nature of supply of manpower. The Appellant could have rebutted the Departments allegation by showing that: i) the Appellants level of control over the persons engaged was very high and the....
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.... pleading fails to disturb the findings in the impugned order. 8. Management Consultancy Services Vs. Intellectual Property Service 8.1 The Appellant and M/s India Offshore Inc (IOI) have entered into a collaboration agreement. The name of the Company was "ABAN LOYD CHILES OFFSHORE LTD", (ALCOL) a limited company incorporated under the Indian, Companies Act of 1956. The object of the Collaboration was to locate customers who need oil exploration, production and transportation services; participate in bids and secure orders; execute them by using the technical capability of IOI and infrastructure facilities of ALCO (and its promoters) and deliver them to the customers. The impugned order has examined the host of services provided to the Appellant by the service provider as being pre-dominantly one of consultation service. Para 11.1 and 11.2 of the impugned order is reproduced below: "11.1 It is evident from the various clauses of the agreement including the clauses reproduced above that India offshore has undertaken to provide a host of services to the assessee. The services provided by India Offshore are not only limited to merely providing 'know-how' but they assist....
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....coverage of 'consultant' and 'consultancy' has been discussed elaborately above.As per Boards Circular No. 80/10/2004-S.T., dated 17-9-2004, intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. The definition of taxable service includes only such Intellectual Property Rights (IPRs) except copyright that are prescribed under law for the time being in force. As the phrase "law for the time being in force" implies such laws as are applicable in India. The taxable Service has been defined under Section 65(105)(zzr) to mean any service provided or to be provided to any person, by the holder of intellectual property right, in relation to intellectual property service. The requirements of Section 65 (105) (zzr) read with the definition of IPR in section 65 (55 a) should meet the following conditions - (a) service should be provided to any person (b) service should be provided by the holder of IPR (c) service should be any service in relation to IPS. (d) IPR should be transferred temporarily or permitted to use without transfer. (e) IPR should not pertain to copyright.....
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....a) Negotiate with the equipment suppliers and to use its best efforts to obtain the best possible price and terms of payment based on existing market conditions. b) Use its best efforts to provide necessary documentation and certification required by statutory authorities for clearing the import of such equipment as are required to execute the project. c) Coordinate between the supplier and other governmental agencies of the exporting country for due certification and arrangement for shipping of the equipment. d) Select and employ as necessary the agreed expatriate manpower required for operating, maintaining and managing the equipment. e) Provide material procurement services including preparation of purchase specifications and assistance in world-wide procurement of operating and maintenance spares and other equipment required for the performance of the project. iv) All necessary technical documentation and "Know How" for the efficient operation of the rigs and the "services". v) Recommend the organizational structure and procedures and sound systems of planning, administration and financial control and project management. ....
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....he collaboration were issued by the Secretariat of Industrial Approval, (Foreign Collaboration Section of Department of Industrial Approval, Development) and Reserve Bank of India. Without the rigs being within designated areas in the Indian Territory the above laws could not have been made applicable to them. The Appellant is having its registered office in Chennai, Tamil Nadu. Having discharged the primary burden of proof to show that the services were taxable in India, it was for the Appellant to rebut the same. Information that was in the special knowledge of the Appellant, if any, should have been disclosed to the Department. Hence it was correctly pointed out in para 11.7 of the impugned order, that all activities were centered around India and the beneficiary was also the Appellant in India. Further we find that Section 66A imposes two conditions which need to be satisfied for the levy of service tax on import of Services i.e. (i) Service must be received by a person (recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxa....
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....ppeal and would aid the appellant to establish a new case in an appeal, which seeks to take away a vested right of limitation or any other valuable right accrued to the other party. This could then lead to unending legal disputes. 3. no compelling reason or substantial cause has been shown to permit the additional evidence 4. the additional evidence seeks to fill in gaps or restore weak areas in the case. 5. the rival party has not been given an opportunity to rebut it. 6. the additional evidence is not of an unimpeachable character. Thus, it is clear, the admission of additional evidence is not intended to be done routinely and merely for the asking. In the present case there has not even been a formal application to admit additional evidence. This is quite surprising as the appeals have been filed with legal advice. Hence the question of examining any additional evidence at this stage for which there is no formal request does not arise. 8.8 As regards the appellants pleading that they have not made the payments and has only made the provisions in the books and the same is shown as 'trade payables'. That it was a commercial call taken by t....
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....401 (SC)], decided on 7 March, 2018, reimbursable expenses cannot form part of the assessable value. 9.2 Two issues have been raised by the appellant: (i) the entire activity takes place outside India hence the service is not taxable under FA 1994. (ii) Reimbursables cannot form a part of the value. The Entire Activity Takes Place Outside India, Hence Not Taxable 9.3 Para 8 of the SCN covers the allegations for classifying the activity under the 'Merchant Banking Services' head as per section 65(12)(a)(iii) of FA 1994 with effect from 16.07.2001. However, Service Tax liability on any taxable service provided by a nonresident or a person located outside India, to a recipient in India, would arise w.e.f 18/04/2006, i.e, the date of enactment of Section 66A of the Finance Act, 1994. The impugned order at para 15 states that the demand of service tax on services imported prior to 18/04/2006 has been dropped ispo facto. 9.4 As stated in the Show Cause Notice, the service provider is Barclays Capital PLC, UK (herein after referred to as 'Barclays UK') who do not have an office in India. Based on an application made by the Appellant through Barclays UK, the Reserve Bank ....
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.... telecommunication parlance as 'International outbound roaming'. The FTO's charge the appellant (Home Network Operator - HNO) for the said connectivity provided by the FTO to the appellant's/ HNO's subscribers. The appellant in turn charges their customers for the said services. Therefore, it appeared to the department that the appellant had received services from their FTO's for international outbound roaming services. The Tribunal taking into consideration the majority view in M/s Vodafone Idea Limited Vs Commissioner of Central Excise and Service Tax, Coimbatore [2023 990 TMI 68 - CESTAT Chennai], held that during international outbound roaming the HNO was the service recipient of the services provided by the FTO, although it (FTO) provided seamless connectivity to the appellant's subscribers on foreign soil. 9.7 The providing of advice and assistance to the Appellant, who is a juristic person based in India and the only one who entered into a contract / agreement to receive the service from Barclays UK as per the terms of the Agreement, constitutes the taxable event. The liability to pay Service Tax under FA 1994 arises whenever a taxable event occurs. Taxable events in fulf....
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....e of the FCCB from the Appellant. Hence the services provided from outside India by Barclays UK is received by the Appellant in India with a reverse flow of consideration for the said activity and the service is exigible to tax under the Reverse Charge Mechanism as per section 66A(1) of FA 1994. The appellants averments on this count thus fails. Reimbursables Cannot Form a Part of the Value. 9.9 The Appellant has further stated that in view of the decision of the Supreme Court in the case of Intercontinental Consultants (supra), reimbursable expenses cannot form part of the value. We find that in Intercontinental Consultants (supra) the Hon'ble Supreme Court held that the expression 'such' occurring in Section 67 of the Act assumes importance. That for valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such 'taxable service'. Hence the value of taxable service shall be the gross amount charged by the se....
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....by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined" (emphasis added) As stated by the Apex Court in the Bhayana Judgment (supra), the words "gross amount" refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. Thus reading both the judgments harmoniously it is clear that the authorities are to find what is the gross amount charged for providing 'such' taxable services and any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. Hence the agreement needs to be examined to see the intention of parties as to what the nature of reimbursable expenses are. It ....
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....t in the case of Municipal Committee, Amritsar v. Hazara Singh (1975 (1) SCC 794) has been pleased to record that on facts, no two cases could be similar and the decision of the court which were essentially on question of facts could not be relied upon as precedent, for decision of the other cases. We now examine the judgments cited by the Appellant. 12.2 Consulting Engineer Service 1. Future Focus Infotech India (P) Ltd. Vs. CST - 2010 (18) STR 308 2. Dinesh Kumar & Co. Vs. CCE - 2008 (9) STR 472 3. CCE & ST Vs. Molex (India) Ltd. - 2007 (7) STR 592 4. Commissioner Vs. Molex (India) Ltd. - 2011 (24) STR J50 (Kar.) In Future Focus (supra) the issue was whether the services rendered fell under the category of 'Consulting Engineers Service' or "business Auxiliary Service' or under 'IT Service'. The decision was based on the various clauses in the agreement between the contracting parties. There is nothing to show that the agreements are in pari materia and is hence distinguished. The judgment in Dinesh Kumar & Co (supra) is interim in nature and is hence not decisive of the issue. In Molex (india) Ltd the Tribunal and the Hon'ble High Court examined an issue rela....
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.... had cautioned that it is not safe to pronounce on the provisions of one Act with reference to decisions dealing with other Acts which may not be in pari materia. In Stone & Webster (supra) the Tribunal examined the issue regarding the transfer of technical know-how design and drawing which took place in USA to an Indian Company, wherein it was held that no service was involved. None of these which appear to be in the nature of goods are related to Legal Consultancy, Banking and Financial Services and Technical Inspection and is hence distinguished. In Enso Secutrack (supra) the entire loan was raised and used outside India only the amounts figured in the Appellants books of account in India was held to be not taxable under FA 1994. However, in the present case, no Contract / Agreement has been produced to examine whether they are identical to the case cited. Further, the issue is not of raising loan and consuming it, the services of Barclays UK is a consultancy service rendered to the Appellant based in India, to advice and assist in raising funds through the issue of FCCB bonds abroad, which is also for the appellant's benefit. The matter has been discussed elaborately above....
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....he Act is a blameworthy conduct by the assessee. Generally, mens rea is not required to be proved for a statutory offence. However, Section 78 of FA 1994, includes mens rea by incorporating intent to evade service tax. Once the section is found to be satisfied and is applicable in the case, the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty involved. The belief, knowledge and intention of the parties involved are essentially to be ascertained so as to decide whether it formed the foundation of the blame worthy act. What needs to be examined is whether the default was committed with a view to evade tax by concealing the transaction whereby the breach was deliberate or whether it was a bonafide dispute, without any fraudulent / reckless intentional or that the circumstances were special of which he had no knowledge to have taken sufficient safeguard against the same. Care must however be taken to ensure that excuses are not passed off as special circumstances. 13.3 As per Blacks Law Dictionary 'tax evasion' means, 'the willful attempt to defeat or circumvent the tax law in order to illegally reduce one's tax lia....
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....ublic interest and only help private gain by retaining tax money in private hands, while at the same time the operation of limitation reduces the tax burden on them. This adversely affects the steady inflow of revenues and thereby affects the financial stability of the State while benefitting the assessee. These delays are hence to be viewed very strictly. It is a matter of common knowledge that every businessman will arrange his affairs to his best advantage. Hence there is a legitimate rebuttable presumption that the unexplained delay is deliberate. The Appellant has not put forward any special circumstance beyond their control in submitting information. Hence the appellants actions has to be viewed as being intentional or deliberate with conscious disregard of their obligations to law and points to an intention to evade payment of duty. The SCN alleges that the Appellant chose to misclassify the service of Management or Business Consultants as IPR and Consulting Engineer as Manpower Supply only to evade duty and reduce their tax liability. This has been denied by the Appellant. However, we find from the discussions above that the alternative classification was done by the Appell....
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....imited (supra), the Apex Court held that the instructions issued by the Board have to be within the four corners of the Act. If, therefore, the Act vests in the Central Excise Officers jurisdiction to issue show-cause-notices and to adjudicate, the Board has no power to cut down that jurisdiction. F. A Constitution Bench of the Apex Court in Hari Khemu Gawali (supra), stated that it is not safe to pronounce on the provisions of one Act with reference to decisions dealing with other Acts which may not be in pari materia. Hence it would be improper to examine the issue of jurisdiction of DGCEI officers based on the Canon India Judgment rendered in a case under the Customs Act 1962. G. Section 91 of the Indian Evidence Act, 1972 gives immense importance to documentary evidence over oral ones. Hence when written agreements and documents are available they are the best evidence to demonstrate a fact or to understand it. Further, as per section 106 of the Evidence Act, the fact within the knowledge of a person must be proved as the burden is cast upon him. The Apex Court in its judgment in Mohan Lal Sharma (supra) observed that the cardinal rule in the law of evidence is that only ....