2018 (1) TMI 1174 - AT - Service Tax

Classification of services - respondent had paid IPLC Charges to its parent company M/s CMG - the assessee classified under Lease Circuit Service whereas, the department was classifying the same under the Business Auxiliary Service - reverse charge mechanism - Section 66(A) of the Finance Act, 1994 - Held that - the issue of taxability of IPLC service has been already decided by this Tribunal in the case of Infosys Ltd. 2014 (3) TMI 695 - CESTAT BANGALORE , where it was held that If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or the benefit of service rendered abroad has been received in India, the tax, in our opinion, would not be payable - such services do not fall under the category of Business Auxiliary Services but falls under Telecommunication Service. Difference of Revenue between balance sheet and ST-3 - Held that - the SCN has simply taken the difference between ST-3 Return and balance sheet and prepared a table without offering any explanation or basis as to how the demand had arisen for different periods and services. Demands appears to have been calculated the service tax in the SCN without doing any investigation or analysis of relevant documents or co-relation with the refunds taken by the respondent. Admittedly, the respondent are eligible for refund of the service tax on quarterly basis and turnover is certified by statutory auditors as has observed by the Ld. Commissioner - demand set aside. Management Consultancy Service - other expenses - includibility - Held that - no findings have been given in respect of dropping of demand of ₹ 13,81,818/-, which was raised as part of total demand in show cause notice dated 29.03.2011. In the absence of clear findings on other expenses, the matters required to be remanded back to the adjudicating authority for passing a fresh order, after re-examining the demand of other expenses and management consultancy raised in show cause notices dated 19.10.2011 and 17.11.2011 - matter on remand. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Taxability of IPLC Charges under Business Auxiliary Service or Telecommunication Service.
2. Difference in Revenue between Balance Sheet and ST-3 Returns.
3. Service Tax on Other Expenses and Management Consultancy Services.

Detailed Analysis:

1. Taxability of IPLC Charges:
The primary issue was whether the IPLC (International Private Leased Circuit) charges paid by the appellant to its parent company should be classified under Business Auxiliary Service or Telecommunication Service. The Revenue contended that the reimbursement of communication costs should fall under Business Auxiliary Services as per clause (iv) of Section 65(19) of the Finance Act, 1994, which pertains to procurement of goods or services for clients. However, the Tribunal found that the services provided by the parent company did not meet the criteria for Business Auxiliary Services. The Tribunal cited the case of Infosys Ltd. Vs. Commissioner of Service Tax, Bangalore and concluded that IPLC services should be classified under Telecommunication Services. Since the foreign supplier did not hold a license under the Indian Telegraph Act, 1985, the demand for service tax was deemed unsustainable.

2. Difference in Revenue between Balance Sheet and ST-3 Returns:
The second issue involved the alleged suppression of taxable value based on discrepancies between the balance sheet and ST-3 returns. The Revenue had calculated the service tax demand without proper investigation or correlation with the refunds claimed by the respondent. The Tribunal agreed with the Commissioner’s findings that the turnover in the balance sheet is on an accrual basis, while the turnover in ST-3 is on a cash basis, leading to inevitable differences. Furthermore, the Tribunal noted that the turnover in ST-3 was certified by statutory auditors as per Circular No. 120 dated 19.10.2010. The Tribunal found no merit in the Revenue's claims and upheld the Commissioner’s decision to drop the proceedings.

3. Service Tax on Other Expenses and Management Consultancy Services:
The third issue concerned the service tax demand on other expenses and management consultancy services. The Tribunal found that the Commissioner had not adequately addressed this issue in the impugned order, with findings being vague and incomplete. Specifically, no findings were given regarding the management consultancy service demand in the show cause notice dated 19.10.2010. The Tribunal agreed with the Revenue that the lack of clear findings necessitated a remand. The matter was sent back to the adjudicating authority for a fresh order, with instructions to re-examine the demands and provide clear findings in accordance with the law.

Conclusion:
The Tribunal dismissed the Revenue’s appeal regarding IPLC charges and the difference in revenue between the balance sheet and ST-3 returns. However, the issue of service tax on other expenses and management consultancy services was remanded back to the adjudicating authority for a fresh order. The respondent was to be given a fair opportunity to present their case. The appeal was disposed of accordingly.