2018 (7) TMI 1120 - AT - Service Tax

Reverse Charge Mechanism - Business Auxiliary Services - Share of profit in the joint ownership of business - Revenue claims that the amounts paid by the appellant to SSLC were on account of Business Auxiliary Services - Held that - Revenue has not produced any invoices raised by SSLC on the appellant for providing Business Auxiliary Service to establish that the amounts of ₹ 16,77,30,366/- paid by appellant to SSLC was not in terms of para 6.1 of the agreement, but it was for providing Business Auxiliary Service by SSLC to the appellant - the said SCN is not sustainable for demand of Service Tax of ₹ 1,84,88,270/- under Reverse Charge Mechanism from the appellant - appeal allowed - decided in favor of appellant.

Issues:
1. Challenge to Order-in-Original dated 31.03.2013 regarding Service Tax demand under Reverse Charge Mechanism for Business Auxiliary Service.
2. Interpretation of agreement between the appellant and a foreign entity regarding revenue sharing and service provision.
3. Assessment of whether the payments made were for Business Auxiliary Service or revenue sharing as per the agreement.
4. Validity of the show cause notice and establishment of the nature of services provided by the foreign entity.
5. Decision on the sustainability of the demand for Service Tax under Reverse Charge Mechanism.

Analysis:
1. The appeal challenged an Order-in-Original dated 31.03.2013, which demanded Service Tax under Reverse Charge Mechanism from the appellant for Business Auxiliary Service provided by a foreign entity. The appellant, a unit in a Software Technology Park, was engaged in providing services taxable under section 65(105)(zh) of Finance Act, 1994 to clients in the USA.

2. The key issue revolved around the interpretation of the agreement between the appellant and the foreign entity. The appellant argued that the relationship was not that of a service provider and receiver but rather a joint business. The agreement detailed a compensation fee based on revenue sharing and client relationships, indicating a different nature of the transaction.

3. The tribunal examined the agreement and the show cause notice, emphasizing that the Revenue failed to establish that the payments made were solely for Business Auxiliary Service. The absence of invoices from the foreign entity for such services led to the conclusion that the demand for Service Tax was not justified under the Reverse Charge Mechanism.

4. The tribunal found that the Revenue did not consider the agreement comprehensively and wrongly presumed the nature of the services provided. Despite the Revenue's contentions, the tribunal ruled in favor of the appellant, highlighting the lack of concrete evidence to support the demand for Service Tax under Reverse Charge Mechanism.

5. Ultimately, the tribunal set aside the Order-in-Original, allowing the appeal and granting the appellant consequential relief. The decision emphasized the importance of substantiating claims with proper documentation and the need for a thorough assessment of agreements in such tax matters to avoid erroneous demands.

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