TaxTMI 
TaxTMI 
2024 (3) TMI 855
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....and Service Tax Authorities at Vapi. In respect of certain services availed by them as a recipient of service, for which payment of service tax is required, they had taken centralized registration with the jurisdictional Service Tax Commissionerate. During the course of audit of the records maintained by the appellants, conducted for the period March, 2014 to September, 2015, the Department had identified that in respect of certain sales promotion and marketing services received by the appellants from M/s Hoshizaki Europe BV, as a recipient of service they have not paid the service tax under Reverse Charge Mechanism. Further in respect of certain Works Contract Services, the Department had observed that the value of bought out materials supplied to the service provider was not included in assessable value for the purpose of calculating the service tax liability. On the basis of above objections, the Department had initiated show cause proceedings by issue of Show Cause Notice (SCN) dated 25.07.2016 demanding service tax of Rs.20,28,322/- for the period from October, 2012 to August, 2015 by invoking extended period on the ground of suppression of facts, under Section 73(1) of the Fi....
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....uch intermediary services at Dubai, and hence there is no levy of service tax in this case. 3.2 Learned Advocate submitted that in respect of the demand of service tax on value of free issue materials in works contract services, the issue has been already decided by the Larger bench of the Tribunal in the case of Bhayana Builders (P) Ltd. Vs. Commissioner of Service Tax - 2013 (32) S.T.R. 49 (Tri.-LB) which was upheld by the Hon'ble Supreme Court in Civil Appeal Nos. 1335-1358 of 2015, reported in 2018 (10) G.S.T.L. 118 (S.C.). He further stated that by applying the ratio in the above case, the cost of free supplies can be included in the value determined as per Rule 2A of Service Tax (Determination of Value) Rules, 2006, only when the value of free supplies is included in the value of service as per Section 67 ibid; in other words, the cost of free supplies can be included in the assessable value, only if the value of service forms part of the consideration flowing from the service recipient to the service provider and such consideration accrues to the benefit of the service provider. He further stated that in their case, the free goods supplied by the appellants do not accrue ....
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....ied upon the following decisions of the Tribunal and the judgements of the Hon'ble Supreme Court, in the respective cases mentioned below: (i) Bhayana Builders (P) Ltd. Vs. Commissioner of Service Tax - 2013 (32) S.T.R. 49 (Tri.-LB) (ii) Reliance Industries Ltd. Vs. Commissioner of C. Ex. & S.T., LTU, Mumbai- 2016 (44) S.T.R. 82 (Tri.-Mumbai) (iii) Commissioner of Service Tax Vs. Bhayana Builders (P) Ltd. - 2018 (10) G.S.T.L. 118 (S.C.). (iv) Nirlon Limited Vs. CCE, Mumbai - 2015 (320) E.L.T. 22 (S.C.) 4. Learned Authorised Representative (AR) reiterated the findings made by the Commissioner (Appeals), in the impugned order dated 14.02.2018 and submitted that the appeal filed by the appellants is liable to be dismissed as the nature of services received by appellants is marketing and sales promotion of impugned products manufactured by them, which is covered by the definition of BAS service, and is not intermediary services. Further it is not exempt during post negative list period. Hence, he submitted that the impugned order is sustainable. 5. We have heard both sides and perused the case records and the written paper books submitted....
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....) "taxable service" means any service on which service tax is leviable under section 66B; 65. (54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property; 65. (55) words and expressions used but not defined in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise. 66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. 66C. Determina....
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....uch goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; (b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944(1 of 1944); (c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944(1 of 1944) 65. (105) "taxable service" means any service provided or to be provided,- xx xx xx xx xx (zzb) to a client, by any person in relation to business auxiliary service;" 6.4 The following are the legal provisions of the Rules framed under the Finance Act, 1994, relevant for the present case and the specific provisions of these Rules are extracted and given below: "Place of Provision of Services Rules, 2012 (Notification No. 28/2012 - Service Tax dated 20.06.2012 as amended) 2. Definitions - In these rules, unless the context otherwise requires,- (a) "Act" means the Finance Act, 1994 (32 of 1994); (f) "....
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....d to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:- (i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. Explanation.- For the purposes of this clause,- (a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, - (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect's fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (v) cost of consumables such as water, electricity, fuel used in the execution of the works contract; (vi) cost of establishment of the contractor relatable to supply ....
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....ervice' under Section 65(105) ibid, which enumerated each of the specified services. For the period postnegative list regime, the category of services hitherto defined under the erstwhile regime were merged under a common phrase i.e., 'service' as defined under Section 65B(44) ibid, which was brought into effect from 01.07.2012. In the present case, the disputed transactions have been undertaken during April, 2014 to September, 2015. Hence, there is no legal basis on which the services rendered in marketing and sales promotion could be examined with respect to definition of 'Business Auxiliary Services' that existed in the past i.e., prior to 01.07.2012. Since such a definition does not exist in terms of the legal provisions of the Finance Act, 1994 during the disputed period, and hence the conclusion arrived at by the Commissioner (Appeals) at para 8 of the impugned order on the finding that 'marketing and sales promotion activities are specifically covered under the Business Auxiliary Services as defined under Section 65 (19) of the Finance Act, 1994' is not legally sustainable. Further, 65B(55) ibid does not provide for the words and expressions used prior to 01.07.2012 to be ma....
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.... In order to provide the aforesaid services to Western, Hoshizaki Europe we find dedicated personnel of managerial cadre and its Dubai Office to support and enhance Western's export business. Hoshizaki Europe undertakes to provide the services to Western and further undertakes that any of its personnel used to render the services shall be competent to do so. The identified personnel appointed by Hoshizaki Europe to render the services to Western, will be an employee of Hoshizaki Europe in the bill work from Hoshizaki Europe's Dubai office to facilitate an increase Western's export business. 6. Service fee: Hoshizaki Europe shall charge Western the service fee for the supply of services. The service fee shall consist of the actual costs incurred in supplying the services ("service costs") without any mark-up. The service costs shall cover all direct and indirect operating costs incurred by Hoshizaki Europe to provide the services, including: (a) Personnel cost agreed to be paid by Hoshizaki Europe to its personnel as per the employment agreement (b) Out-of-expenses incurred for the purpose of rendering the above services....
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....ices' provided in Rule 2 ibid. Inasmuch as, the Dubai office of Hoshizaki Europe BV i.e., the service provider, had arranged for marketing and sales promotion service to the appellants, for supply of goods from their manufacturing facility in India to customers situated abroad, it is clearly proved that these services are covered under the definition 'intermediary services'. 8.3 At the time of introduction of negative list regime of service tax, the Ministry of Finance had issued an Education Guide on 'Taxation of Services". The relevant paragraph dealing with 'intermediary services' the clarification providing on the scope of levy are extracted as follows: "5.9.6 What are "Intermediary Services"? Generally, an "intermediary" is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at any one time: (i) the supply between the principal and the third party; and (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. ....
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....teria laid down by the CBIC's clarification is fulfilled in the present case to categorize the disputed services, as 'intermediary services'. 8.5 Further, we also find that Ministry of Finance vide its notification dated 11.07.2014 had also amended the definition of 'intermediary' in order to include specifically the 'supply of goods', as follows: "[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance (Department of Revenue) Notification No. 14/2014-Service Tax New Delhi, the 11thJuly, 2014 G.S.R.....(E).- In exercise of the powers conferred by sub-section (1) of section 66C and clause (hhh) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules to amend the Place of Provision of Services Rules, 2012, namely:-(1) (1) These rules may be called the Place of Provision of Services (Amendment) Rules, 2014. (2) They shall come into force on the 1st day of October, 2014. (1) In the Place of Provision of Services Rules, 2012,- (a)....
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....: (a) The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994; and (b) Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-S.T., including the Explanation thereto as introduced by Notification No. 4/2005-S.T." 9.2 We further find that Hon'ble Supreme Court in the Civil Appeal filed by the department in the above case of Bhayana Builders Pvt. Ltd. (supra) had also upheld the Order of the Tribunal by dismissing the Civil Appeal filed by the department. The relevant paragraphs in the above order of the Hon'ble Apex Court is extracted below: "15. It was argued that payment received in 'any form' and 'any amount credited or debited, as the case may be...' is to be included for the purposes of arriving at gross amount charges and is lev....
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....recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. 17. Faced with the aforesaid situation, the argument of the Learned Counsel for the Revenue was that in case the assessees did not want to include the value of goods/materials supplied free of cost by the service recipient, they were not entitled to the benefit of notification dated September 10, 2004 read with notification dated March 1, 2005. It was argued that since building construction contract is a composite contract of providing services as well as supply of goods, the said notifications were issued for the convenience of the assessees. According to the Revenue, the purpose was to bifurcate the component of goods and services into 67% : 33% and to provide a ready formula for payment of service tax on 33% of the gross amount. It was submitted that this percent....
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....harged, it did not deal with any eventuality whereby value of goods and material supplied or provided by the service recipient were also to be included in arriving at gross amount 'gross amount charged'. 19. Matter can be looked into from another angle as well. In the case of Commissioner, Central Excise and Customs, Kerala v. M/s. Larsen & Toubro Ltd. - (2016) 1 SCC 170 = 2015 (39) S.T.R. 913 (S.C.). This Court was concerned with exemption notifications which were issued in respect of 'taxable services' covered by sub-clause (zzq) of clause (105) read with clause (25b) and sub-clause (zzzh) of clause (105) read with clause (30a) and (91a) of Section 65 of Chapter V of the Act. This Court in the aforesaid judgment in respect of five 'taxable services' [viz. Section 65(105)(g), (zzd), (zzh), (zzq) and (zzzh)] has held as under : "23. A close look at the Finance Act, 1994 would show that the fixed taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines 'taxable service' as 'any service provided". ....