TaxTMI 
TaxTMI 
2024 (7) TMI 312
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....ount of penalty for the period June 2005 to March 2007. In addition, the services provided by an overseas service provider in terms of the Selling Agreement and Master Agreement was classified under the category of 'Business Auxiliary Service' (BAS) under Section 65 of the Finance Act, 1994 for the period from July 2003 to March 2007; an amount of Rs.4,69,45,582/- was demanded and confirmed under the category of Business Auxiliary Service along with interest and equivalent amount of penalty. Aggrieved by this order, the appellant has filed the present appeal. 3. The Learned Counsel on behalf of the appellant, made the following submissions. a) The Appellant is a 100% Export Oriented Unit-Software Technology Park (EOU-STP) unit engaged in the development of embedded software and other software related services and mainly exports their services. During the period of dispute, the Appellant had provided embedded software development and other Information Technology (IT) related services to the customers in India by entering into "software outsourcing contracts" with its customers. The Department on the basis of Master Services Agreement dated 07.12.2005 entered with M/s. Philips Ele....
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....ose and demand service tax in respect of "information technology service" prior to 16.05.2008. Hence, the impugned order is not tenable in re-classifying the services as "manpower supply". d) There is no difference and distinction between (a) Fixed Price Projects and (b) Time & Material Projects rendered under MSA with M/s. Philips Electronics India Ltd., Both the projects were executed and performed under various terms and conditions as per MSA with M/s. Philips Electronics India Ltd. and both are in relation to "information technology service projects". Hence, the Appellant has not rendered mere "manpower supply" services as held in the impugned order. It is well settled that the contract/agreement has to be read and interpreted in whole and not in bits and pieces. Reliance is placed on the judgment of the Honorable Supreme Court in the case of State of Gujarat v. Variety Body Builders: AIR 1976 SC 2108, 2110 wherein it was held that - "It is well settled that when there is a written contract it will be necessary for the Court to find out there from the intention of the parties executing the particular contract. That intention has to be primarily gathered from the terms and con....
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....ition of BAS specifically excludes "information technology service" from the inception i.e., 01.07.2003 till 16.05.2008. Hence, the demand of tax under RCM under BAS for the period from 18.04.2006 to 31.03.2007 cannot be sustained in law. In this regard, the Appellant place relied on the decision in Suntec Business Solutions Pvt Ltd v. CCE: 2017 (51) STR 446 (Tri-Bang.); CST v. IBM India Pvt Ltd, 2021 (47) STR 7 (Kar.) and Kasturi & Sons Ltd v. UOI, 2011 (22) STR 129 (Mad.). Hence, the demand under both the above agreements dated 01.04.2001 prior to 18.04.2006 and for the period post 18.04.2006 cannot be sustained under the category of BAS. g) With regard to extended period of limitation, the Appellant further submits that the demands confirmed are also barred by limitation in as much as there was no willful suppression of facts or contravention of the provisions of the Act with intend to evade payment of Service Tax since the appellants were under a bona fide belief that the services in dispute are classifiable under "information technology service" in relation to computer software which was either exempted from payment of service tax or was excluded from the definition of taxab....
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....fying the skills and number of personnel required for such projects are received from the Project Manager of M/s. Philips Electronics India Ltd. and accordingly, the purchase orders for the supply of personnel with required skill were placed on the suppliers i.e., the Appellant. In Time and materials project, the personnel provided by the suppliers will be working under the Project Manager of M/s. Philips Electronics India Ltd. and will be engaged in the development of software / testing along with other professionals of M/s. Philips Electronics India Ltd. The projects are fully controlled by Project Manager of M/s. Philips and the personnel provided by the suppliers will be only working under him and as per the directions given by him. In some projects, the suppliers supplement the personnel provided with the knowledge or the updation of the skill required for that project. In all such projects, the supplier's responsibility is limited to supply of personnel with required skill. In case of each requirement, the supplier will give the list of personnel with their skill, qualification and experience, based on which they interact with those personnel and only after they are satisfied....
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....oviding services of Manpower Supply." 4.4. In addition, the Revenue relies on the following decisions where similar services of supply of personnel were held to be classifiable under the category of 'Manpower Recruitment and Supply Agency Service'. (i) M/s. Future Focus Infotech Pvt Ltd Vs Commissioner of C.Ex (ST), Chennai-IV [2018(18)GSTL 441(Tri-Chennai)], (ii) M/s. Future Focus Infotech Pvt Ltd Vs Commissioner of C.Ex (ST), Chennai-IV [2010(18) STR 308 (Tri-Chennai)], (iii) M/s. Talking Technology (P) Ltd Vs the Commissioner of Service Tax, Chennai [2020 (3) TMI 315 - CESTAT Chennai] 4.5. With regard to Business Auxiliary Service, it is submitted that during the DGCEI Investigation, it was also noticed that the Appellant Company had been paying certain amounts as commission in foreign exchange to M/s. Aztec Software Inc., USA (overseas service provider having no office in India) who were engaged as overseas agent of the Appellant for promotion / marketing of goods / services of the Appellant in USA. The said activities / services received were in the category of taxable service and leviable to service tax w.e.f. 01.07.2003 under the category of 'Business Auxiliary Servi....
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.... event that the contention of Revenue on taxability of services as alleged in the show-cause notice is upheld, the tax paid for the entire period needs to be paid. The returns filed do not show the full description of the nature of the activities of the appellant and hence, the department came to know about the exact details only on the initiation of the enquiry. In the case of M/s. Six Sigma Soft Solutions (P) Ltd. Versus Commissioner of Service Tax, Chennai: [2018 (4) TMI 1504 - CESTAT Chennai], where similar issue of taxability of supply of personnel to the IT companies was decided, it was held at para 6.6 that the department was justified in invoking extended period of limitation of five years where the facts came to light only when the department conducted scrutiny of annual reports. 5. Heard both sides. 5.1 The issues to be decided is whether the appellant is liable to pay Service Tax under the category of 'Manpower Recruitment or Supply Agency Service' and 'Business Auxiliary Service'. 6. Let us examine the definition of "Manpower Recruitment or Supply Agency Service", which is reproduced below: Section 68: "Manpower Recruitment or Supply Agency' means any [person] enga....
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....are specified in the Statement of Work (SOW) while in the case of 'Time and Materials Projects' the appellant only provides personnel where the project is controlled by their client M/s. Philips Electronics India Limited and there are no deliverables specified in the Statements of Work. In view of the above, the appellants claim that both the projects are one and same cannot be accepted. 6.3. From Clause 2(h) of the same agreement under 'Testing and Acceptance', it is seen that in the case of 'Fixed Price Projects' the payments are based on acceptance of the deliverables after testing and subject to payment terms in the Statement of Work (SOW). While the payments in 'Time and Material Projects' billing will be proportionate for resources employed for less than a month and it will commence only after commencement of staff. Under clause 3(b), it is seen that in the case of 'Fixed Price Project's along with the personnel the day-to-day activities are clearly specified in the purchase orders; while in the case of 'Time and Materials Project', the appellant has to only verify the technical and work history of the personnel. And as seen from clause 3(b)(iii), the appellant is to furnish....
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....' clearly proved that it is only a 'man power supply' and the decisions relied upon by the Revenue in the case of M/s. Coromandel Infotech India Ltd. Vs Commissioner of GST & CE, Chennai South (supra) and M/s. Future Focus Infotech Pvt Ltd Vs Commissioner of C.Ex (ST), Chennai-IV (supra) clearly proves that the activities under taken by the appellant fall under the man power supply and the Tribunal has observed as follows: "12. We find that the arguments advanced on behalf of the appellants are mainly based on the various clauses in the agreements executed between them and their clients namely TCS and Infosys. We are of the view that not only the wordings of these clauses are to be considered but also how different clauses of the contracts actually operate have to be seen. We find that the appellants are supplying various skilled personnel to TCS and Infosys to work on software projects undertaken by TCS and Infosys from their respective clients. The personnel deputed by the appellants appear to be working at the site of the clients of TCS and Infosys or in the premises of TCS and Infosys. There is no evidence produced before us to indicate that any of the software projects under....
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.... Agreement' placed on record, the company is engaged in the business of providing software and technology related services to entities within and outside India. As per the payment terms, it is stated that for the selling services the company shall pay the agent the actual cost/expenses incurred by the agent in providing he services plus a service commission/fee which shall be computed at 10% of the aggregate actual cost/expenses incurred by the agent, in providing the services. The Commissioner in the impugned order referring to the definition of 'Business Auxiliary Service' states that the overseas service provider has provided the services from abroad to the appellant and the appellant who is in India has received the services is liable to pay service tax as per Section 66A of the Finance Act, 1994. The Commissioner has confirmed the demand in terms of Rule 2(1)(d)(iv) of the Service Tax Rules, which has been disputed by the appellant on the ground that prior to insertion of Section 66A of the Finance Act, 1994, there can be no levy of service tax for the period 01.04.2001 to 17.04.2006 as is held by the Hon'ble High Court of Bombay in the case of Indian National Shipowners Assoc....
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....sions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. The above provision authorises the Central Government to notify the taxable service, in relation to which the rules can be framed, in relation to such service. By the notification dated 31-12-2004, any taxable service provided by a person who is a non-resident or is from outside India is notified. If Rule 2(d)(iv) is taken to be rule framed pursuant to this provision, then a person who receives taxable service in India from a person who is non-resident or is from outside India becomes taxable and not service rendered outside India by a person who is non-resident or is from outside India. Therefore, levy of service tax from the members of the Petitioners-association from 1-2-2005 (sic) 1-1-2005 cannot be justified. 19. Then reliance is placed on explanation which is added below Section 65(105). That explanation was added by Finance Act, 2005 with effect from 16-6-2005. That explanation reads as under :- Explanation - For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has establish....
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.... by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India. In that case till Section 66A was enacted a person liable was the one who rendered the services. In other words, it is only after enactment of Section 66A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66A, there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association." The Supreme Court Bench comprising Hon'ble Mr. Justice S.H. Kapadia and Hon'ble Mr. Justice Aftab Alam on 14-12-2009 dismissed the Petition for Special Leave to Appeal (Civil) No. 18932 of 2009 filed by Union of India against Bombay High Court Judgment dated 11-12-2008 in Writ Petition No. 1449 of 2006 in the case of Indian National Shipowners Association v. Union of India and reported in 2009 (13) S.T.R. 235 (Bom.). While dismissing the SLP, the Supreme Court passed following order: "Heard learned couns....