2019 (6) TMI 109 - AT - Service Tax

Demand of Service tax - Management Consultancy Services - Franchisee Services - Commercial Training and Coaching Services - CENVAT Credit - denial of credit on the ground of non-production of documents - Rule 9 of CENVAT Credit Rules, 2004. Franchisee Service - grant of representational right - Services in relation to digital signature certificates (DSC) - Sub Certifying authorities - HELD THAT - As regards Franchisee Service, the findings recorded by the Commissioner clearly show that he has not been able to appreciate as to what is meant by grant of representational right . Grant of representational right would imply that the person to whom such rights have been granted under takes the entire activity as if it had been undertaken by the person granting such right. In this case the so called Sub Certifying authorities and Sub CA Administrators (Sub CAA), Registering Authorities and RA-Administration appointed by appellants have any authority to issue DSC certificates, representing them to be issued by appellant. Such transfer of right granted to appellant, by the certifying authority in terms of IT Act, 2000, is also not permissible - It is only the Appellants who could have issued the Digital Signature Certificate and this could not have been done by any other person or agency appointed by appellant. Hence mere act of collecting the applications and verification of the same for onward submission to the appellant cannot be termed as grant of representational rights . - Demand set aside. Management Consultancy Service - HELD THAT - From the scope of work as indicated above, Honeywell has contracted appellants to provide technical support and consultancy for developing a system of smart card for access control. Access Control is part of management system of any organization and is also covered by the term logistic management . Since these services have been provided for logistic management or access control system of the organization the services provided will qualify under the category of Management Consultancy Services - the present case will fall within the category of Management Consultancy Services. Commercial Coaching and Training Services - HELD THAT - The issue is not whether the training activity is primary activity of the appellant or not is immaterial in terms of the definition. If the training of any type is provided which is not falling within the exclusion category specified by the definition then definitely it is to be classified as taxable under that category - in view of the specific finding that training in the software developed has been provided by the appellant for a commercial consideration the same is covered by the definition of Commercial Training and Coaching Services and is taxable accordingly - Demand upheld. Management Maintenance Repair Service - HELD THAT - Revenue has sought to brush aside the letter stating that the same was in respect of Chennai Unit and not in respect of Hyderabad Unit, against whom this demand is made. The fig leaf distinction sought to be made do not help the cause of revenue. When a clarification whether write or wrong has been issued by the Board it should apply to all similarly placed units till it is withdrawn. However this letter is enough to give rise to bonafide doubt in the mind of a rationale person/ taxpayer. Issuance of this letter by the Board clearly shows one thing that appellants whether at Chennai or Hyderabad has brought the fact of their undertaking such activities to knowledge of Board - In case the revenue intended to change the opinion or demand the tax in respect of the same they should have done under normal period of limitation. The doubt and confusion in respect of taxation of these services under the category of Management Maintenance and Repair services is enough to uphold the order of Commissioner dropping the demand on ground of limitation. Manpower Recruitment or Supply Services - HELD THAT - It is not disputed by the appellants that they have in course of their business billed their clients on the basis of time spent by their employees - the Service tax demanded under the category of Manpower Recruitment or Supply Services is maintainable on merits. However the matter needs to be reconsidered by the original authority for determining the issues of limitation and penalty. CENVAT Credit - duty paying documents - denial on the ground of non production of documents - HELD THAT - Appellants claim that they are in possession of the documents and can produce the same before the adjudicating authority. The end of justice will be met if the matter is remanded back to the adjudicating authority for affording the opportunity to appellants to produce the documents as prescribed by Rule 9 of CENVAT Credit Rules, 2004 for purpose of availment of credit. Commissioner should consider the documents produced by the appellants before him and then decide with regards the admissibility of CENVAT Credit against those documents - matter on remand. Appeal allowed by way of remand.

Summary

Issues Involved:

1. Demand of Service Tax on services provided by the appellants in the categories of Franchisee Service, Management Consultancy Services, Commercial Coaching and Training Services, Management Maintenance & Repair Service, and Manpower Recruitment or Supply Services.
2. Demand of CENVAT Credit disallowed for non-production of documents.

Detailed Analysis:

I. Demand of Service Tax on Services Provided by the Appellants:

1. Franchisee Service:
The Commissioner confirmed the demand under Franchisee Service for the period from 04/2005 to 12/2006. The definition of "franchise" as per Section 65 (47) w.e.f 16/06/2005 was considered. The Commissioner found that the agreement did not meet the terms of the second clause of the definition, thus dropping the demand for the period up to 15.06.2005. For the period from 16/06/2005 onwards, the agreement was considered to meet the requirement of the first clause. However, the Tribunal found that the Commissioner misinterpreted the "grant of representational right," as the sub-certifying authorities could not issue DSC certificates representing them as issued by the appellant. The Tribunal relied on the Delhi High Court’s decision in Delhi International Airport P Ltd and the Tribunal’s decision in Global Transgene Ltd, concluding that the demand under Franchisee Service was not maintainable on merits.

2. Management Consultancy Service:
The definition of "Management Consultant" under the Finance Act, 1994 was considered. The scope of work assigned to the appellant included technical support and consultancy for developing a smart card-based access control solution, which falls under logistic management, a part of the management system of any organization. The Tribunal found that these services qualify under Management Consultancy Services. The decisions in Hewlett Packard India Sales P Ltd, Basti Sugar Mills Co Ltd, and Valia Consultancy were distinguished as not supporting the appellant’s case. Thus, the demand under Management Consultancy Services was upheld.

3. Commercial Coaching and Training Services:
The definition of "Commercial Training or Coaching" as per Section 65(26) and (27) of the Finance Act, 1994 was considered. The Tribunal found that training in the software developed by the appellant for a commercial consideration falls within the definition and is taxable. The decisions in Punjab Communication and Bentley Systems (I) Pvt Ltd were distinguished as they did not examine the definitions in the Finance Act, 1994. Thus, the demand under Commercial Coaching and Training Services was upheld.

4. Management Maintenance & Repair Service:
The Commissioner dropped the demand on the ground of limitation, relying on a letter dated 14.06.2005 stating that the services provided by the appellant were not taxable under this category. The Tribunal upheld the Commissioner’s order, finding that the letter gave rise to a bona fide doubt in the taxpayer’s mind, and the extended period of limitation could not be invoked. The decisions relied upon by the revenue were not found to support their case. Thus, the order dropping the demand on the ground of limitation was upheld.

5. Manpower Recruitment or Supply Services:
The Tribunal found that the appellants billed their clients based on the time spent by their employees, which falls under Manpower Recruitment or Supply Services as per the definition and previous Tribunal decisions in Future Focus Infotech India (P) Ltd and Six Sigma Soft Solutions. The decisions in Shailu Traders and Cognizant Tech Solutions (I) Pvt Ltd were distinguished. The demand under Manpower Recruitment or Supply Services was found maintainable on merits but remanded for reconsideration of limitation and penalty.

II. Demand of CENVAT Credit Disallowed for Non-Production of Documents:
The Tribunal found that the appellants claimed to possess the documents required for availing CENVAT Credit and could produce them before the adjudicating authority. The matter was remanded back to the Commissioner to allow the appellants to produce the documents and determine the admissibility of CENVAT Credit.

III. Quantum of Penalty:
The Tribunal directed the Commissioner to redetermine the penalty after considering the findings in the remand proceedings and the demands upheld.

Conclusion:
The appeals were disposed of as indicated, and the matter was remanded back to the Commissioner to be decided within four months, with proper opportunity of hearing to the appellants.