TaxTMI 
TaxTMI 
2026 (5) TMI 1098
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....e Revenue is in appeal assailing the Order-in-Appeal [No. DDN/EXCUS/000/APL-DDN/14-18/2018-19 dated 01.01.2019] whereby the demand for non-payment of service tax on un-invoiced allocations made by the parent company to the respondent was dropped. 2. The facts as submitted by the Revenue is that the respondent was engaged in manufacturing of Axles and axle components for heavy vehicles falling under chapter heading 86071990 of CETA, 1985, and was also registered with service tax registration. On the basis of intelligence gathered by the officers of DGCEI, it was found that M/s. Dana Corporation, USA [Dana, USA] was providing services relating to technical know-how, engineering sales promotion for Dana brand name, product development, human resources policies, finance & accounting system etc. to the Respondent. These cost/expenses were known by the nomenclature "Selling General & Administration expenses" [(S G & A Expenses)]. The Appellant discharged their service tax liability on the above service only for the portions invoiced to them by Dana USA. However, a major portion of said SG&A expense was in the form of un-invoiced allocations, on which no service tax was paid by the Res....
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.... [ST Rules] the cost/expenditure incurred by the service provider is taxable consideration and should be included in the assessable value for the purpose of charging service tax. Though Dana USA have been reflecting the cost incurred in providing the taxable service as 'expenditure' in their HFM system maintained at Pune unit but the respondent whom Dana USA provided services have not paid service tax on full amount debited in HFM system to the Respondent. In this case, 88% of the debited amount is un-invoiced which resulted in short payment of service tax. 6. The respondent has never disclosed the facts to the Department as these facts came to the notice of the Department only at the time of Audit/investigation. The respondent is working under self-assessment system and are bound by service tax law to correctly assess their service tax liability and thereafter file their ST-3 returns properly. The respondent did not assess the correct amount of service tax and have also not shown the actual amount in the relevant ST-3 returns, thus violated the provisions of section 70 of the Act. They have willfully suppressed the facts from the Department with intent to evade the paym....
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.... of the Master Service Agreement and the Transfer Pricing Report suggests that the costs which are incurred for and on behalf of Dana group entities are being invoiced with an appropriate mark-up as per the Transfer Pricing Policy. These costs include services in relation to the areas of general and strategic administrative support, planning, human resource, finance, treasury, tax, legal, data processing, quality control, engineering, purchasing, business development and other related areas. These costs/expenses are commonly known as "invoiced allocations". Further, the services whose benefit does not accrue to Dana group entities are not invoiced, which include activities like, stewardship/shareholder activities, developing and/or maintaining investor relations, external audit compliance, etc., which generally benefit the parent company itself and/or its investors. The costs/expenses for such services are commonly known as 'un-invoiced allocations". 10. For provision of services to respondent, Dana USA raises invoices by adding appropriate markup as per the Global Transfer Pricing Policy. Respondent and its units account for such invoices and pay appropriate service tax und....
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....a. Referring to the pre- negative as well as the post-negative era, he submitted that in the absence of any contractual agreement for provision of any service in lieu of un-invoiced allocations, such allocations cannot be subjected to service tax. The main allegation for raising the demand of service tax is on the basis of un-invoiced allocations made to the respondent no.1 by the parent company and such allocations did not enter the books of account of the respondent no.1. 12. From the submissions made by the respondent, we find that the modus operandi is such that the parent company estimates the expenses incurred with respect to any of the group entities, which is then charged to them through the invoiced allocations and service tax under Reverse Charge Mechanism is duly paid by the respondent on such charges. At the same time, there are certain expenses, the benefit of which accrues only to the parent company, and therefore, the cost of such expenses is not charged to the group entities and such charges are reflected in the books of accounts of the parent company as un- invoiced allocations which are neither linked to rendition of any services nor relatable to consideration.....
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....irect taxation is that a service should be taxed in the jurisdiction of its consumption. This principle is more or less universally applied. In terms of this principle, and applying it to the present factual matrix of the case, services provided to Head office situated abroad in UK, for various activities such as advertising, auditing, entertainment, insurance, legal assistance, postage, telephone, telegraph, printing, stationery, publication, newspapers, rent & rates, subscriptions, travel expenses, machinery, furniture, computer, Microfilm etc. by third parties who fall outside the taxable territory are not charged to service tax in India, as the consumption is elsewhere. Further, services need to pay tax only on their importation into the taxable territory, in terms of the legal provisions of the Finance Act, 1994. Merely because the appellants and its head office at UK are being considered as establishment of distinct persons, there cannot be any charge of service tax. Unless it is proved that there is an element of services involved in an activity between head office abroad and branch office in India, the charge of service tax under Section 66B ibid does not arise automaticall....
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....ch rejected the submission of the Revenue holding that merely making entry in the books of accounts does not render that the appellant has provided any service and therefore, when no service has been rendered service tax cannot be levied. 16. In Gujarat State Fertilisers and Chemicals versus CCE [2016 (45) STR 489 (SC)] the Apex Court examined the arrangement between the appellant and the associated company to be in the nature of cost sharing as the handling portion and maintenance, including incineration facilities were in the nature of joint venture between two of them, and the parties have simply agreed to share the expenditure. Similar view has been expressed by the Tribunal in the case of Reliance Ada Group Pvt. Ltd versus CST [2016 (43)STR 372(T)] that cost shared by the recipient group companies by making reimbursements to the appellant cannot be regarded as consideration flowing to the appellant towards the taxable service provided by the appellant. 17. From the judicial precedents cited, it is settled that sharing of cost and expenditure and reimbursement thereof cannot be subjected to service tax as the basic element of rendering service and the element of considera....
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....rovides that point of taxation shall be the date of debit in the books of accounts of the person receiving the service. In terms of the said provisions, the respondent cannot be attributed with the liability of service tax for the simple reason that the un-invoiced allocations are not reflected in their books of account. The provisions of Explanation (c) to Section 67 and 2nd proviso to Rule 7 are quoted below:- "67. Valuation of taxable services for charging service tax. Explanation: For the purpose of this section,-- (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit s and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of accounts of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise]. 7. Determination of point of taxation in case of specified services or persons Notwithstanding anything contained in rules 3,4, or 8, the point of taxation in respect of the persons requir....