2017 (12) TMI 1146 - AT - Service Tax

Taxability - deputation of staff to group companies - appellant claimed that service by deputing staff to their group companies does not amount to provision of service, therefore it is not taxable - Doctrine of Mutuality - Held that - the fact whether the so called group companies are related companies or otherwise need to be ascertained. It is necessary to ascertain the constitution of each so called group company on the basis of share holding pattern. It is observed that the adjudicating authority has not verified such facts - we remand the matter related to the above issue to the adjudicating authority to pass a fresh order. Health and fitness centre service - Held that - appellant have been paying service tax under the category of club or association since 2005. It is the submission of the appellant that since this service was considered under the club or association, the same cannot be taxed under different category for the period prior to 16-6-2005, when services of club and association was brought under the tax net - adjudicating authority also directed to reconsider this issue on submission made by the appellant in this regard. Appeal allowed by way of remand.

Issues:
1. Whether services provided by M/s. Hiranandani Developers Pvt Ltd to their group companies are liable for service tax under Business Auxiliary Service.
2. Whether the reimbursement of salary expenses and infrastructural expenses by M/s. HDPL is liable for service tax under Business Auxiliary Services.
3. Whether sharing of costs within group companies amounts to provision of service and is taxable under Business Support Services.
4. Whether the demand raised by the department under Business Auxiliary Services for expenses shared by M/s. HDPL with its group companies is legally sustainable.
5. Whether the collection of maintenance charges by the developer from flat owners is liable for service tax under Management, Maintenance, or Repair Service.

Analysis:
1. The case involved a dispute regarding the liability of service tax on services provided by M/s. Hiranandani Developers Pvt Ltd (HDPL) to their group companies. The department argued that the services provided by HDPL to the group companies fell under "Business Auxiliary Service" as defined under Section 65(105)(zzb) of the Finance Act, 1994. The tribunal held that the consideration received from the group companies was indeed liable for service tax, leading to the confirmation of a significant demand. The appellant challenged this decision, relying on various judgments to support their contention that services to group companies do not amount to provision of service under the Finance Act, 1994.

2. The appellant also contested the demand related to fitness services, arguing that since they had been paying service tax under the category of club or association since 2005, the same services could not be taxed under a different category for the period prior to June 2005. The tribunal directed the adjudicating authority to reconsider this issue along with the main demand related to services provided to group companies.

3. The tribunal considered previous judgments such as M/s. Federal Bank Limited, Malabar Management Services Pvt. Ltd., and Reliance ADA Group Pvt. Ltd. to analyze the legal principles surrounding the taxation of services provided within group companies. The tribunal emphasized the importance of establishing the relationship between the service provider and the service recipient, particularly in cases where group companies are involved. The tribunal remanded the matter back to the adjudicating authority to ascertain the shareholding pattern and constitution of each company to determine the nature of the relationship between HDPL and its group companies.

4. The tribunal highlighted the need for a detailed examination of the shareholding pattern and constitution of each company to establish whether there is a relationship of service provider and service recipient between HDPL and its group companies. The tribunal observed that the adjudicating authority had not verified these crucial facts, leading to the decision to remand the matter for a fresh adjudication order based on a thorough examination of the facts and legal points.

5. Regarding the issue of collection of maintenance charges by the developer from flat owners, the tribunal referenced previous cases involving similar issues to support the appellant's argument that they act as trustees or pure agents in such transactions. The tribunal emphasized the importance of differentiating between the role of the developer as a mere facilitator in collecting payments for maintenance and repair services and the actual provision of such services, ultimately concluding that the appellant was not liable for service tax under the category of Management, Maintenance, or Repair Service.

In conclusion, the tribunal set aside the impugned order and remanded the matter back to the adjudicating authority for a fresh decision based on a detailed examination of the facts and legal principles involved in the case.

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