TaxTMI 
TaxTMI 
2024 (2) TMI 197
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....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 technical objection that Show Cause Notice No.23....
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....ue 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 Service 11 39 8. Judgments 12 39 9. Limitation and Penalty 13 43 10. Summary 14 47 5. Jurisdiction of ADG DGCEI to issue Sh....
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....se 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 maintainable in law. They further argued that the Commissioner of Service Tax is not empowered to adjudicate the notice issued by ADG, DGCEI. I have examined the contentions made by the assessee. I find t....
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.... 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, it would not be wrong to say that we live in an age of overlapping and concurring regulatory jurisdiction. This is reflected in the very definition of 'Central Excise Officer' as per section 2 of the Central Exci....
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....priety, 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 regimes, and all need not be treated identically by the law. The University of Chicago Public Law & Legal Theory Working Paper No. 161, 2007, has examined the matter academically and stated that: "Combining the dimensions of exclusivity and completeness yields ....
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....al 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 by any canon of construction of statute, is not an universally accepted view. 5.8 The appellant has stressed on the article 'the' before the words 'Assistant Commissioner or Deputy Commissioner of Central Excise'. In English usage "the" is termed as the "definite article" while indefinite articles....
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....llection 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 preliminary technical objection, we now examine the other issues raised by the Appellant. 6. Contracts / Agreements and the Best Evidence Rule 6.1 The dispute between the contesting parties is based on the Agreement entered into by the Appellant with various service providers located outside India. Every agreement that is enforceable i....
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....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 Departments case that as per the agreement IOMI has to provide the Appellant, Drilling Services Consultancy with experienced Consultants for the safe and sound operation of its Offshore Drilling Units and the activity come under the taxable service of "consulting engineer". The Agreement with IOMI has been examined in the impugned order. 7.3 It would be ....
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....or 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 provided below, food and lodging costs while in India (including catering while on the Rigs of European / US Standards), safety equipment and all other costs in India, such as local reception, stopover, meals, additional travel etc. IOM shall bear the cost of insurance of their team of Technical Consultants provided by them. 8. IOM will ensure that the Technical Consultant provided vide Clause - I above are professionally competent, experienced and qualified....
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....ular 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 of the management function. This case was upheld by Supreme Court [2012 (25) STR 3154 (SC)]. 7.6 In the context of the discussions above two points emerge. Firstly, a contract is to be interpreted according to its purpose [see Great Eastern Shipping Company (supra)]. Secondly "consultant" is a derivative of the word "consult" which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. However highly skilled operations may require the hired consultant to be present at site, temporarily o....
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....h 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 persons could be directed about not only what work to do, but also how to do it. (Control and Supervision Test) [See Shivnandan Sharma v. Punjab National Bank Ltd.[955 AIR 404 / 1955 SCR (1)1427] ii) the persons were integrated within the employer's business during the course of their engagement. This test (organisation test) looks at the degree of integration in work committed in the Appellants primary business with the understanding that the higher the level of integration, the more likely the worker is to be an employee. (Organisation In....
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.... 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 the assessee to locate customers who are in need of oil exploration, production, transportation services, participate in the bids and secure orders and execute them by using technical capability of India offshore, provide pre bid services viz. locating suitable rigs and other equpments against enquiries floated by operators and supply of all technical and commercial documentation comprising of equipment specifications, copies of necessary certificates, data on the number, categories and cost of expatriate manpower required and any other data required for submission of bids. It is seen that India offshore is further re....
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....y 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. (f) Such IPR should be recognised under Indian laws. 8.3 The Appellant has raised the following grounds for challenge of the impugned order: a) Scope of services is not merely providing technical know-how but also to assist the Appellant hence the service is liable to be taxed under the category of IPS. b) Rigs are located in non-designated area and that the services pertaining to these rigs are not received in India. c) IOI is not an associated enterprise. Shareholding pattern given by M/s.Cameo who is the Registrar and Share Transfer Agent of the Appellant to prove that IOI held 19.15% of shares which is less than 26% prescribed ....
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....pecifications 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. vi) Provide training for ALCO's personnel in various aspects of operating, managing and maintaining the equipment, planning and coordination etc. both on job as well as in arrangement with specialist institutions if any. vii) Advise and arrange, as needed, maintenance, repair tests and certification of the rigs and equipment. viii) Advise and assist in 'emergency' situations of operation of the rig. Hence the main activities provided by IOI to ALCO involve pre-bid and post-bid activities as detailed above. All these activities satisfy the essential character of consultancy and relate principally to activities performed by management or business consultants. We find from the Agreement that the services provided IOI is a composite service and is classifia....
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....t 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 taxable service shall be treated as if the recipient had himself provided the service in India (ii) Service is provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India. The service provided by the service provider satisfy both the conditions and hence are exigible to tax as per the reverse charge mechanism. Hence this argument of the Appellant does not succeed. 8.7 'Associated enterprise' has been defined as per section 65B(13) as having the meaning assigned to it in section 92A of the Income-tax Act, 1961. Additional Evidence - The Legal Issues Involved The appellant has drawn attention to the shareholding pattern statedly g....
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....h 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 the them and the amended provisions for demanding service tax in respect of transactions between associated enterprises has been introduced only in May 2008. They however did not substantiate their plea with factual data. The matter has been addressed at para 11.9 of the impugned order. The learned Adjudicating Authority has admitted that demand made on accrued expenses as on 16/05/2008, if any, is not sustainable and is liable to be dropped in line with the judgment of the Tribunal in Sify Technologies (supra). However, he has lamented the lack of duty paid details for the period to tally the payments made. This should have been provided by the Appellant as it was in their knowledge and interest but was surprisingly not responded to nor sought to be placed before us. The doctrine of 'laches' is commonly construed as the equitable doctrine by w....
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.... 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 of India issued a Loan Registration Number (LRN) for the Appellant's Foreign Currency Convertible Bond (FCCB) to be subscribed by investors abroad. As per RBI's permission cited in the SCN the borrower (Appellant) is required to give the details of the drawls, utilization, repayment, conversion, redemption etc on a monthly basis to the RBI. Barclays UK is paid a consideration by the appellant for advice and assistance to the Appellant in raising funds through issue of FCCB and in the process receive a fee of 2% of the gross proceeds received in respect of the issue of the FCCB bonds. It is seen that the activity is not linked to an identifiable immovable property, the benefits of these services are received in India and are provided for the benefit of the Indian Company. Although the appellant states that service tax cannot be levied on this activity as the e....
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....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 fulfillment of an agreement / contract may arise at several stages across a period of time. Collection of tax is normally at a subsequent stage depending on administrative convenience and as per Rules made in this regard. The consideration that Barclays UK receive is only for the contractual obligations of Banking and Financial Services rendered to the Appellant Company based in India. No contractual obligation exists between Barclays UK and the investors or any third party abroad in relation to the Appellant issuing FCCB, even if the investor / third party's participation may have been caused based on consultancy and advice received from Barclays UK and implemented by the Appellant. To what use the Appellant puts the contractual services and where, post the taxable event, is not the subject matter of the levy. The amount received as consideration by Barclays UK i....
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....ed 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 service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 9.10 The Apex Court in Commissioner of Service Tax Etc. Vs. M/s. Bhayana Builders Pvt. Ltd. [Dated 19/02/2018 / 2018 (10) GSTL 118 (SC)] has examined the phrase 'the gross amount charged by the service provider for such service provided or to be provided by him', as per Section 67 of FA 1994. The relevant portion is reproduced below: "12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged:- the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. Th....
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....s 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 is noticed from the impugned order at para 11.8, 11.9, 13.2, 16.0 etc. that the Appellant has not been forthcoming with information even before the learned Adjudicating Authority although it is in their exclusive knowledge. The impugned order notes that details called for by DGCEI was submitted in a piece meal manner stretching over a period of two years. Even now we have not been able to discern what the reimbursable expenses sought to be claimed and due to a lack of descriptive information about the same. As stated by the Hon'ble Supreme Court in AC Arulappan Vs. Smt. Ahalya Naik [Appeal (Civil) 5233 of 2001 dated 13.8.2001] law courts never tolerate an indolent litigant since delay defeats equity. We hence find no reason to differ with the impugned order on this matter. 10. Technical Inspection 10.1 The Appellants pleadings are that technical inspection and certification services were rendere....
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....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 relating to the receipt of Royalty for technical know-how received from foreign collaborator and not regarding consultancy and is hence distinguished. 12.3 Management Consultancy Service 1. BST Ltd. Vs. CCE - 2006 (4) STR 40 2. Day International Inc. Vs. CCE - 2009 (14) STR 333 3. Sify Technologies Ltd. Vs. LTU - 2011 (24) STR 449 4. Enmas Engineering Pvt. Ltd. Vs. CCE - 2013-TIOL-695 In BST Limited (supra) the Tribunal examined an issue relating to technical know-how received from foreign collaborator and not regarding consultancy and is hence distinguished. In Day International (supra) a Single Member Bench of the Tribunal examined to an issue relating to the receipt of Royalty for technical know-how received from foreign collaborator to modify the existing machinery and is distinguished. The Tribunal judgment in Sify Technologies and Enmas Engineering (supra) is pertaining to pre-deposit and is interim in nature an....
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....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. Hence the consultancy service is consumed in India and the facts are distinguished. In Jubilant Life Sciences (supra) the Tribunal held the issue was regarding tax to be paid on Underwriter Service when the appellant was paying tax as Lead Manager and the two services were distinct in nature with separate renumeration fixed for the two services and the dominant service was not that of Lead Manager Services. In Genom Biotech (supra) the Tribunal the primary contention was that no service was rendered in India and hence tax liability will not arise as it is in relation to the export of goods by a HEOU. The issues are distinguished on facts. The Hon'ble Supreme Courts judgment in Northern Operating Systems (P) Ltd. has been cited by the appellant to state that the overseas employer of the engineers are under the appellants control and hence are liable to be classified under Manpower Recruitment Service and not under Consulting Engineering Services. Thi....
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....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 liability'. When the department comes across such an instance it is expected to issue to the assessee a show cause notice detailing the charges including the provision of law involved and the material on which the case is sought to be made. Particulars of the actions proposed to be taken should also be included. The department need not prove its case at this stage. It has to give the person charged a reasonable opportunity to defend himself. An adverse inference could be drawn against the appellant-assessee if they fail to rebut the allegations with material and documents very much in their possession as per the best evidence rule. Hence while the onus of establishing that the conditions of taxability are fulfilled lies on Revenue, this is done through a process described in law of evidence as shifting of the onus in the course of the proceedings from one person to the other. The Apex Court in Commissioner of Income Tax Vs. Best and Co. Pvt. Ltd. [AIR 1966 SC 1325] state....
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....ower 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 Appellant after investigation were started against them and these classifications were not found to be correct. Further the Appellants action cannot be said to be caused by a bonafide dispute, on technical grounds because the sections are clear and the appellant is also one who has been availing of legal and consultative advice in various matters and have not shown that they were in receipt of valid and cogent contrary advice not to pay tax. They have also not sought any clarification from the department for any of the impugned service. Hence the benefit of Section 80 of the Finance Act as amended is also not available to them as there is no reasonable cause for the failure to pay tax. We do not find any demerit in the impugned order covering the extended period of demand and imposition of penalty. 14. Summary 14.1 For the sake of brevity, we have summarized the position in relation to the issues raised in the appeal: A. Over the years State activities have become multifarious a....
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.... 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 the best available evidence should be brought before the court of law to prove a fact or the point in issue. H. We find that the Appellant who seeks to classify the service rendered by IOMI under MRSAS has not demonstrated having been in compliance with any set of 'Tests', like 'control and supervision test', 'organisation integration test', 'mutual obligation test' or the 'multiple sets of factors' test, now preferred by courts etc to show the prevalence of a master-servant or employer-employee relationship between them and the persons on contract. The dominant element running through the Agreement is that of engaging consultants ruling out a linguistic mistake. I. The Appellant has questioned the classification of the services as Management Consultancy Services rendered by IOI and are of the view that it is liable to be taxed under the category of Intellectual Property Service. They have however not been able to show that the service is provided by the holder of intellectual property right....