2019 (2) TMI 955 - AT - Service Tax

Valuation - Supply of Manpower services - inclusion of extra advantages/ benefits availed by the Personnel - clause (b) of Service Tax (Determination of Value) Rules, 2006 - Jurisdiction - extended period - penalty - Held that - The argument about appellant, undisputedly, being a foreign company is apparently false. The fact rather is that a company irrespective incorporated under laws of a foreign country, is supplying manpower to Indian companies through its India office which is duly registered in the territory of India. However, the another apparently admitted fact is the appellant is the service provider and three of the companies in India (as mentioned above) are the service recipients. The SCN has been issued invoking Section 66A of the Act read with Rule 2(1)(d)(iv) of the Service Tax Value Determination Rules is therefore apparently wrong. Both these provisions are not applicable to the given set of circumstances Section 66A is applicable for charge of service on services received from outside India. In the present case, as discussed above, services of manpower though have been provided by Telenor AS, a Company incorporated under laws of Norway but through its India office registered with India Service Tax Commissionerate. Appellant admittedly being the provider of service, Rule 2(1)(d)(iv) is not applicable to the given circumstances as under this rule, the person liable to pay service tax is recipient of service - SCN has been issued invoking the wrong provisions of the Act and thus is nonest. Even the order under challenge has confirmed demand under these wrongly invoked provisions. Thus, irrespective that the service provider generally is liable to discharge the service tax liability the demand against him cannot be invoked/ confirmed under the provisions making the recipient thereof as liable to pay service tax. Invocation of Rule 5 of Service Tax (Determination Value) Rules, 2006 - Held that - Rule 5 of Service Tax (Determination Value) Rules, 2006 which talks about the expenses to be included in the cost is therefore absolutely contrary to the intention of legislature as under the charging provisions of Section 66 and 67 of the Finance Act. Hon ble Apex Court in the case of Union of India Vs. Inter Continental Consultants (supra) while confirming the view of High Court of Delhi has declared the said Rule 5 as ultra vires as being beyond the mandate of Section 67 of the act of 1994. The Apex Court has also clarified therein that Rules cannot override or overrule the provisions of the main enactment. Admittedly, the appellant have been discharging their tax liability qua the said amount regularly and have also been regularly filing their ST-3 Returns. The amount as paid by the Indian companies directly as benefits been given to the personnels provided by the appellant as mentioned in Clause 6.3 of these agreements are nothing but the expenditure or cost incurred by the service recipient irrespective it being reimbursed or not. The same cannot be considered as the part of the gross value subject to taxability. Jurisdiction - Held that - It becomes clear that once the SCN was issued by audit and was confirmed by MCM it should have been adjudicated only and only by Executive Commissioner. The Audit Commissioner has no competent jurisdiction to adjudicate rather as per above circular, he is held to have become functus officio after issuing the SCN and the audit objections if any are confirmed. Thus, the order as passed by the Commissioner(Audit) is otherwise not sustainable as being beyond jurisdiction. Extended period of limitation - penalties - Held that - It is an admitted case of the Department that appellant was regularly filing the ST-3 Returns qua the consideration it has received in furtherance of Clause 6.2 of The Agreement. The discussion above has clarified that appellant is not liable to discharge any tax liability qua the benefits being received directly by the personnels (provided by the appellant) from the service recipients in terms of Clause 6.3 of the Agreement. As such no question of tax evasion is apparent on part of the appellant. Once it is not the case of tax evasion question of any malafide intent/mensrea has no sustainability. In absence thereof, the Department was not liable to invoke proviso to Section 73(3) of the Finance Act. In the given circumstances no question even of imposition of penalty at all arises - extended period also not invocable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of benefits in taxable value.
2. Alleged non-filing of ST-3 returns.
3. Jurisdiction of the Commissioner (Audit).
4. Calculation errors in the proposed demand.
5. Invocation of Rule 5 of Service Tax (Determination of Value) Rules, 2006.
6. Application of Section 66A and Rule 2(1)(d)(iv) of Service Tax Rules.
7. Invocation of extended period of limitation and imposition of penalties.

Issue-wise Detailed Analysis:

1. Inclusion of Benefits in Taxable Value:
The Department argued that benefits paid directly to personnel under Clause 6.3 of the Expatriate Secondment Agreements should be included in the taxable value. The appellant contended that these benefits are not part of the gross amount charged by the service provider. The Tribunal held that the value of taxable service should be the gross amount charged by the service provider, and expenditures incurred by the service recipient cannot be included in the value of taxable service. The Tribunal referenced the Supreme Court's decision in Union of India vs. Inter Continental Consultants and Technocrats Pvt. Ltd., which declared Rule 5 of Service Tax (Determination of Value) Rules, 2006 as ultra vires.

2. Alleged Non-filing of ST-3 Returns:
The Show Cause Notice (SCN) alleged that the appellant did not file ST-3 returns. However, the Order-in-Original admitted that the appellant had been regularly filing returns and paying service tax. The Tribunal found a contradiction in the SCN and the Order-in-Original, holding that the SCN was based on wrong presumptions of fact.

3. Jurisdiction of the Commissioner (Audit):
The appellant challenged the jurisdiction of the Commissioner (Audit) to pass the impugned order. The Tribunal cited the Department's own Circular No. 985/9/2014-CX, which states that the Audit Commissionerate should only issue the SCN, and the adjudication should be done by the Executive Commissioner. The Tribunal held that the Commissioner (Audit) acted beyond his jurisdiction.

4. Calculation Errors in the Proposed Demand:
The appellant argued that the SCN included amounts on which service tax had already been paid. The Tribunal noted that the adjudication based on such a SCN is not sustainable.

5. Invocation of Rule 5 of Service Tax (Determination of Value) Rules, 2006:
The appellant contended that Rule 5 had been held ultra vires by the Supreme Court. The Tribunal agreed, stating that the reliance on Rule 5 for confirming the demand was erroneous and an act of judicial indiscipline.

6. Application of Section 66A and Rule 2(1)(d)(iv) of Service Tax Rules:
The SCN invoked Section 66A and Rule 2(1)(d)(iv), which apply to services received from outside India. The Tribunal found these provisions inapplicable as the appellant was providing services through its registered office in India. The Tribunal held that the SCN was issued under the wrong provisions, making it nonest.

7. Invocation of Extended Period of Limitation and Imposition of Penalties:
The Department invoked the extended period of limitation, alleging tax evasion. The Tribunal found no evidence of tax evasion or mens rea, as the appellant had been regularly filing returns and paying tax on the amounts received. The Tribunal held that the extended period of limitation could not be invoked, and no penalties could be imposed.

Conclusion:
The Tribunal set aside the Order-in-Original, holding that the SCN was issued under wrong provisions, based on incorrect facts, and beyond the jurisdiction of the Commissioner (Audit). The appeal was allowed, and the demand and penalties were quashed.