2018 (11) TMI 27 - AT - Service Tax

Classification of services - providing services to ICICI Bank - Whether classified as Business Auxiliary Service or under the head Manpower services? - Held that - The contract entered with the appellant by ICICI Bank was for identifying eligible consumers for the retail products of ICICI including credit gross commercial/ product gross/ emergence and other retail finance products. The appellant was also required to provide certain services related to issuance of credit across as described in the said contract - It is apparent that the contract entered into by the appellant in the year 2009 was not a contract for supplying the manpower services but was a contract for promotion of the services provided to the service recipient - The argument of the appellant that no conclusion regarding nature of services provided can be reached on the basis of scope of the agreement of 2009 is misplaced. A perusal of the agreement of 2009, clearly indicates that it is a continuation of earlier arrangement. Valuation - includibility - rent - cost of manpower - whether reimbursable expenses or cost of service? - Held that - A free supply changes the nature of contract. For example a contract for painting of building would became a labour contract if paint and painting equipment is supplied free. However, a painting contract will remain a painting contract even if the agreement has clause where actual cost of paint and equipment is reimbursed - the appellants are not entitled to exclude the rent and salaries from the assessable value. The demand on this count in respect of services provided to ICICI is upheld on merit. Contract entered into by the appellant with Tata Teleservices Ltd. - Held that - The service provided is in the nature of supply of manpower. In these circumstances the demand of service tax under the head of BAS cannot survive. Time Limitation - Held that - The service provided is in the nature of supply of manpower. In these circumstances the demand of service tax under the head of BAS cannot survive - The ST-3 form prescribes disclosure of all amounts received in respect of service even if not part of Assessable value. Failure to disclose the same amounts to misdeclaration. Thus, the appellant s argument on limitation is dismissed. Simultaneous penalty under section 76 78 - Held that - The penalty under section 76 is set aside. Penalty under section 78 is revised to the amount of revised demand of duty. Appeal allowed in part.

Issues Involved:
1. Classification of services provided by the appellant.
2. Inclusion of reimbursements in the assessable value.
3. Applicability of extended period of limitation.
4. Imposition of penalties under Sections 76 and 78 of the Finance Act.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant argued that the services provided to ICICI Bank and Tata Teleservices do not fall under Business Auxiliary Services (BAS) but rather constitute manpower supply services. The appellant contended that the 2009 agreement with ICICI Bank, which the Revenue relied upon, was not relevant, and the services provided were only for the supply of manpower. However, the Revenue argued that the appellant had registered under BAS and paid taxes accordingly from April 2008 onwards, indicating acknowledgment of the services as BAS.

Upon examining the agreements, the Tribunal found that the 2004 agreement with ICICI Bank did not specify the nature of services, whereas the 2009 agreement clearly described the services as promoting ICICI Bank's retail finance products, indicating the services were indeed BAS. For Tata Teleservices, the scope of services was identified as the supply of manpower, and thus, the demand under BAS for services provided to Tata Teleservices was not upheld.

2. Inclusion of Reimbursements in the Assessable Value:
The appellant argued that reimbursements for salaries, rent, and incentives should not be included in the assessable value, relying on the Apex Court's decision in Intercontinental Consultant and Technocrats Pvt. Ltd. and Tribunal decisions in Malabar Management Services Pvt. Ltd. The Revenue countered that the appellant's agreements did not specify these reimbursements and that the expenses were integral to the services provided, thus should be included in the assessable value.

The Tribunal referred to the larger bench decision in Bhagawathy Traders, which clarified that reimbursements could only be excluded if the service recipient had a legal or contractual obligation to pay those amounts. Since the rent and salaries were costs of services and not reimbursable expenses, the Tribunal upheld the demand for including these amounts in the assessable value for services provided to ICICI Bank.

3. Applicability of Extended Period of Limitation:
The Revenue invoked the extended period of limitation, arguing that the appellant had not disclosed the gross amounts received in their ST-3 returns, constituting suppression of facts. The appellant contended that they had a bona fide belief based on the Tribunal's decision in Bhagawathy Traders.

The Tribunal found that the appellant failed to disclose the gross amounts received in the ST-3 returns, amounting to misdeclaration. The argument of bona fide belief was dismissed, and the extended period of limitation was upheld.

4. Imposition of Penalties under Sections 76 and 78 of the Finance Act:
The Tribunal noted that simultaneous penalties under Sections 76 and 78 cannot be imposed, relying on the Gujarat High Court's decision in M/s. Raval Trading Company. Consequently, the penalty under Section 76 was set aside, and the penalty under Section 78 was revised to the amount of the revised demand of duty.

Conclusion:
The appeal was partly allowed. The demand for including reimbursements in the assessable value for services provided to ICICI Bank was upheld, while the demand under BAS for services provided to Tata Teleservices was not upheld. The extended period of limitation was applicable, and the penalty under Section 76 was set aside, with the penalty under Section 78 revised accordingly.

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