2016 (4) TMI 496 - AT - Service Tax

Activity of deputation of employees to group companies - Manufacturer of pharmaceutical products and having their own marketing network - Whether marketing network services provided by appellant to its group companies comes under Business auxiliary Services - Recovery of expenses in return - Held that - as per the contract, the appellant is only deputing the employees to the group companies and said employees are called back after the job is completed and utilized in the activity of the appellant or deputed to any other group company.So the claim of revenue that such activity would fall under the Business Auxiliary Services , has no lows-standing as agreement does not indicate that the appellant is rendering services of promotion or marketing of the goods manufactured by the group companies. Therefore, the impugned order is set aside. - Decided in favour of appellant with consequential relief

Summary

Issues Involved:
1. Taxability of services rendered by the appellant under the category of "Business Auxiliary Services."
2. Classification of services as either "Business Auxiliary Services" or "Business Support Services."
3. Limitation and non-disclosure of services to the department.

Issue-wise Detailed Analysis:

1. Taxability of Services Rendered by the Appellant:
The appellant, a manufacturer of pharmaceutical products, used its marketing network to sell products for three related companies, recovering expenses as a percentage of sales. The revenue contended that these activities fell under "Business Auxiliary Services" (promotion, marketing, or sale of goods produced or belonging to the client). The appellant argued that the services involved merely sharing marketing infrastructure and recovering costs, not promoting or marketing the products of the group companies. The tribunal found that the agreement between the appellant and the group companies did not indicate the rendering of promotional or marketing services, thus not falling under "Business Auxiliary Services."

2. Classification of Services:
The tribunal scrutinized the agreement and found that the employees were deputed to group companies and governed by the group companies' rules. The tribunal referred to the definition of "Business Auxiliary Services" under Section 65, Sub Clause 19 of the Finance Act, 1994, and concluded that the appellant's activities did not fit this category. The tribunal also considered previous judgments, such as K. Raheja Real Estate Services Pvt. Ltd. and Mahindra & Mahindra Contech Ltd., which supported the appellant's position that such services could not be taxed under "Management Consultancy Services" or "Business Auxiliary Services."

3. Limitation and Non-disclosure:
The departmental representative argued that the appellant did not inform the department about the services rendered and the receipt of consideration, making the claim of limitation inconsequential. However, the tribunal did not find this argument sufficient to classify the services under "Business Auxiliary Services."

Conclusion:
The tribunal concluded that the impugned order was unsustainable and set it aside. The appeal was allowed with consequential relief. The tribunal also highlighted that services rendered in the course of employment are outside the purview of service tax levy, even under the new Negative List Regime of taxation post-2002. The tribunal remanded the matter to the Commissioner to decide the issue of classification and valuation, ensuring a reasonable opportunity for a personal hearing for the appellant.