2014 (9) TMI 344 - AT - Service Tax

Common service agreement with associate / subsidiary companies - no profit motive - Support Services of business or commerce - Section 65(104c) - Held that - Prima facie, the arguments of the appellant that these services are not taxable, are not acceptable, mainly for two reasons. Firstly, an apparent analysis of the conditions of the Agreement and the list of services annexed thereto, vis-a-vis the definition of Support Services of Business or Commerce as was in force during the relevant period, it would be difficult to accept that these services have been rendered by the Applicant and availed by their associate/subsidiary not in relation to their business or commerce activity but for some other purpose. Secondly, it is not in dispute that the Applicant have been continuing to render the same set of services before and after they got themselves voluntarily registered with the Department w.e.f. 10th May, 2008 under the category of Support Services of Business or Commerce and since then discharging their service tax liability on the said services without any protest or dispute. Hence, it sounds illogical to assume that for the period from 1-5-2006 to 9-5-2008 under similar circumstances the services would fall outside the scope of Support Services of Business or Commerce when there has been no change in the definition prescribed at Section 65(104c) of the Finance Act, 1994. The argument of the applicant that the services rendered by them to their associate/subsidiary companies on cost sharing basis, prima facie, appears to be not convincing. The issue of revenue neutrality cannot ipso facto be considered as a ground for total waiver of pre-deposit of duty and penalty invariably in all cases without considering other attendant circumstances while disposing an application under Section 35F of the Central Excise Act, 1944. - stay granted partly.

Issues Involved:
1. Classification of services under "Support Services of Business or Commerce."
2. Taxability of services rendered on a cost-sharing basis.
3. Applicability of extended period of limitation.
4. Revenue neutrality.
5. Financial hardship and pre-deposit requirement.

Issue-wise Detailed Analysis:

1. Classification of Services under "Support Services of Business or Commerce":
The primary issue was whether the services rendered by the applicant to their associate/subsidiary companies fell under the definition of "Support Services of Business or Commerce" as per Section 65(104c) and taxable under Section 65(105)(zzzq) of the Finance Act, 1994. The applicant had entered into a "common service agreement" with their associate/subsidiary companies for various services. The Revenue argued that these services fit the definition of "Support Services of Business or Commerce" and thus were taxable. The Tribunal found that the services rendered were indeed in relation to the business activities of the associate/subsidiary companies and fell within the definition of "Support Services of Business or Commerce."

2. Taxability of Services Rendered on a Cost-sharing Basis:
The applicant contended that the services were rendered on a cost-sharing basis and thus did not constitute taxable services. They referred to the Board's Circular No. 120(a)/2/2010-S.T., dated 16-4-2010, which clarified that services provided on a cost-sharing basis do not result in taxable services. However, the Tribunal noted that the services were rendered under formal agreements, and service charges were received through cheques, not merely on a cost-sharing basis. Therefore, the argument that the services were non-taxable due to cost-sharing was not convincing.

3. Applicability of Extended Period of Limitation:
The applicant argued that the extended period of limitation should not apply as the Department was aware of the facts since 2007. However, the Tribunal found that the applicant had not informed the jurisdictional Service Tax Authorities about the services rendered, and there was an element of suppression. The adjudicating authority had observed discrepancies in the applicant's statements regarding the receipt of service charges, which justified invoking the extended period of limitation.

4. Revenue Neutrality:
The applicant claimed that the entire exercise was revenue-neutral as any service tax paid would be available as CENVAT Credit to their associate/subsidiary companies. The Tribunal, however, held that revenue neutrality alone could not be a ground for total waiver of pre-deposit. The judgments cited by the applicant were found to be inapplicable as they pertained to different circumstances.

5. Financial Hardship and Pre-deposit Requirement:
No financial hardship was pleaded by the applicant. The Tribunal directed the applicant to deposit 25% of the service tax amount within eight weeks. Upon compliance, the balance amount of service tax and penalties would be waived, and recovery stayed during the appeal's pendency. Failure to comply would result in the dismissal of the appeal.

Conclusion:
The Tribunal concluded that the services rendered by the applicant to their associate/subsidiary companies were taxable under "Support Services of Business or Commerce." The arguments regarding cost-sharing and revenue neutrality were not sufficient to waive the pre-deposit requirement. The applicant was directed to deposit 25% of the service tax amount to stay the recovery of the balance during the appeal.

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