2017 (10) TMI 453 - AT - Service Tax

100% EOU - Reverse charge mechanism - Online information and database access to retrieval services - classification of services - cost relating to lease line charges for e-mail and internet services, software maintenance and software licence fee, maintenance of IT services, systems support, etc are managed centrally - contention of the appellant is that payment made to BC Components International BV, Netherland is not consideration but it is cost sharing - Held that - For the purpose of Finance Act, 1994, BC Components International BV, Netherland and the appellant are two different entity. Accordingly the relationship is clearly of service provider and service recipient. As per Section 65(75) of the Finance Act, online information and database access for retrieval means providing data or information retrieval or otherwise to the consumer in electric form or through computer network. As per 65(105)(zh) taxable service means any service provided or to be provided to any person by any person in relation to online information and database access or retrieval or both in electronic form through computer work in any manner - In the present case appellant have booked communication and technical fees under the head of expenditure in foreign currency, further this expenses related to payment towards IT cost charged by the BC Components International BV, Netherland. Merely because the total cost charged by the BC Components International BV, Netherland is allocated to the various companies based on the logical basis like number of users, system usages etc, it cannot be said that appellant have not received service and paid consideration thereof. The appellant emphasized that activity is not taxable only because appellant are making payment only for cost sharing does not have any force. Taking into consideration overall facts, it is clear that appellant have received the service and paid consideration to BC Components International BV, Netherland therefore they are liable to pay service tax on reverse charge mechanism. Time limitation - Held that - appellant have not disclosed the said arrangement to the department and it is only came to the notice of the department while conducting audit therefore appellant have suppressed the fact from the department - extended period invoked. CENVAT credit - Held that - except mere submission, they have not adduced any evidence such as they are eligible for Cenvat credit, whether they discharged excise duty from PLA etc. In absence of such evidence, Cenvat credit cannot be extended to the appellant. Appeal dismissed - decided against appellant.

Issues Involved:
Service tax liability on IT services provided by an associated company to the appellant under reverse charge mechanism. Applicability of service tax on cost-sharing arrangement within group companies. Invocation of extended period of limitation for demand of service tax. Eligibility of Cenvat credit to the appellant. Justification of penalty imposed on the appellant.

Analysis:

1. Service Tax Liability:
The appellant, a 100% EOU engaged in manufacturing excisable goods and providing taxable services, faced a demand for service tax on IT services provided by their associated company, BC Components International BV, Netherland. The appellant contended that the payments made were for cost-sharing and not for availing taxable services. However, the tribunal found that the arrangement constituted a service provider-recipient relationship, and the payments made were considered as consideration for the services provided. The tribunal held that the appellant was liable to pay service tax under reverse charge mechanism for the IT services received.

2. Applicability of Service Tax on Cost-Sharing:
The appellant argued that the cost-sharing arrangement within group companies did not attract service tax liability. They relied on various judgments to support their contention. However, the tribunal distinguished the present case from those judgments, emphasizing that the payments made by the appellant to their associated company were for services provided and not merely cost-sharing within the group. The tribunal upheld the demand for service tax, stating that the nature of the services received by the appellant warranted the imposition of service tax.

3. Invocation of Extended Period of Limitation:
The appellant raised the issue of the extended period of limitation invoked for demanding service tax. They argued that there was no willful suppression of facts on their part and that the department had conducted an audit in 2008, well within the limitation period. However, the tribunal found that the appellant had not disclosed the arrangement to the department, leading to the suppression of facts. The tribunal upheld the invocation of the extended period of limitation for demanding service tax.

4. Eligibility of Cenvat Credit:
The appellant claimed that if the service tax liability was sustained, they were entitled to Cenvat credit, ensuring revenue neutrality. However, the tribunal noted that the appellant failed to provide evidence to support their claim for Cenvat credit, such as discharging excise duty from PLA. Without such evidence, the tribunal held that Cenvat credit could not be extended to the appellant.

5. Justification of Penalty:
Regarding the penalty imposed on the appellant, the tribunal considered the case as a matter of statutory interpretation. The appellant argued against the imposition of the penalty, citing relevant judgments. However, the tribunal found the penalty justified based on the nature of the case and upheld the penalty imposed on the appellant.

In conclusion, the tribunal dismissed the appeal, affirming the demand for service tax on the IT services received by the appellant from their associated company and upholding the penalty imposed, considering the statutory provisions and the facts of the case.

This detailed analysis covers the key issues involved in the legal judgment, providing a comprehensive overview of the tribunal's decision on each issue raised by the parties involved.

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