2016 (3) TMI 808 - AT - Service Tax

Related party transactions - Whether the respondents are associated enterprises in terms of Section 92A of the Income Tax Act, 1961 or not - Held that - on the basis of the definition of associated enterprises as per Section 92A ibid, the respondent is an associate enterprises of the service recipient. The respondent is managing and controlling the mutual fund. Therefore, it is clearly covered under the definition of associate enterprises. On the issue of point of taxation the relevant Section 67 of the Finance Act 1994 is reproduced below Point of taxation - Whether to be decided on the date of provisional entries of the transaction in the books of account or on the date of final entry and invoice made by the respondent - Held that - the provisional entries were made with a specific description of transaction. The explanation does not make any distinction between the provisional entries and the final entries made subsequently. As per the explanation, the moment first time any entry is made irrespective whether it is provisional or final entry the same will be covered under the debit entries as specified under the explanation. Therefore there is no scope in the said explanation to give different treatment to the provisional entries or final entry. So, once debit entries were made even though provisional basis and subsequently final entries are made, it is only the adjustment in the books of account and for this reason the entries made at the first time cannot be said to be irrelevant for deciding the point of taxation. Demand of interest and penalties under Section 76 & 77 of the Customs Act, 1962 - Held that - the service tax became due in accordance with the date of provisional entries made first time by the respondent in their books of account. Therefore, there is a delay in payment of service tax which attracts interest. With regard to imposition of penalties, the show cause notice was issued for demand of interest and there is no dispute regarding the payment of service tax. As the issue involved is in the nature of interpretation of valuation section and the penal provisions are invoked only for non-payment or short payment of service tax. Therefore, it is only for demand of interest and the penalties under Section 76 & 77 are not imposable. - Decided partly in favour of the Revenue

Summary

Issues Involved:
1. Whether the respondent is an associate enterprise in terms of Section 92A of the Income Tax Act, 1961.
2. Whether the point of taxation should be decided on the date of provisional entries of the transaction in the books of account or on the date of final entry and invoice made by the respondent.

Issue-wise Detailed Analysis:

1. Status of Associate Enterprise:

The primary issue was whether the respondent qualifies as an "associate enterprise" under Section 92A of the Income Tax Act, 1961. The Commissioner (Appeals) had previously ruled that the respondent did not meet the criteria for being an associate enterprise. However, the Tribunal observed that the respondent is indeed an associate enterprise of the service recipient, M/s. Deutsche Mutual Fund, as they manage and control the mutual fund. The Tribunal noted that the definition of "associate enterprise" under Section 92A includes any enterprise that participates in the management, control, or capital of the other enterprise either directly or indirectly. Since the respondent did not raise any objection regarding their status as an associate enterprise during the initial adjudication, the Tribunal concluded that the respondent is an associate enterprise of M/s. Deutsche Mutual Fund.

2. Point of Taxation:

The second issue was whether the point of taxation should be determined based on the date of provisional entries or the date of final entries and invoices. The Tribunal referred to Section 67 of the Finance Act, 1994, which defines the "gross amount charged" and includes any amount credited or debited to any account in the books of account of a person liable to pay service tax, especially in transactions with associate enterprises. The Tribunal emphasized that the explanation to Section 67 does not differentiate between provisional and final entries.

The Tribunal cited the case of General Motors (I) Pvt. Ltd. vs. Commissioner of C. Ex. Pune, which held that there is no distinction between provisional and final entries for determining the point of taxation. The Tribunal concluded that the service tax becomes due on the date of the first entry, whether provisional or final. Therefore, the delay in payment of service tax by the respondent, based on provisional entries, attracts interest.

Conclusion:

The Tribunal held that the respondent is an associate enterprise of M/s. Deutsche Mutual Fund and that the point of taxation is determined by the date of the first entry in the books of account, irrespective of whether it is provisional or final. Consequently, the demand for interest on delayed payment of service tax was upheld. However, the penalties under Sections 76 and 77 of the Finance Act were not imposed, as the issue involved was related to the interpretation of the valuation section, and there was no dispute regarding the payment of service tax itself. The impugned order was modified accordingly, and the Revenue's appeal was partly allowed.