2019 (11) TMI 386 - AT - Service Tax

Classification of services - Business Support services or not - Amounts received from the subsidiary companies for providing expert manpower to them for discharging certain functions - Establishment Expenses - Administrative Expenses - sharing of expenses - Department entertained a view that the reimbursement of the Administrative and other expenses received by the Appellant from the subsidiary companies is covered under the category of Business Support Services . HELD THAT - It is a matter of record that the appellant had been deputing certain employees to the subsidiary companies namely, M/s. REC Power Distribution Co.Ltd. and M/s. REC Transmission Power Co. Ltd. It is found from the record of the appeal that there has been reimbursement of the expenses incurred by the Appellant towards its employees been working with the two subsidiary companies of the appellant on a deputation basis. The recovery of administrative and establishment expenditures has been recorded under books of accounts under the head of Establishment Expenses and Administrative Expenses . It can be seen from the above definition that Business Support Service covers certain specific activities in its inclusive definition. Only if such specific activities are carried out by a Service provider, it would be classifiable under Business Support Service . From a perusal of the activity undertaken by the Appellant, it is seen that the Appellant had only sent certain number of employees to its subsidiary companies on cost recovery basis. It would not be covered by any activity contemplated in the definition of Business Support Service . Payment of certain amount towards establishment and administrative expenditure for providing certain employees to the subsidiary companies is in the nature of sharing of expenses between two companies and would not fall under any category of taxable service. The logic given by the adjudicating authority in the above mentioned paragraphs justifying the classification of the activity under the Business Support Service is not legally tenable as providing expert man power on cost recovery basis does not fall under any of the inclusive category of Business Support Service . Since the Show cause notice issued has demanded Service Tax under the category of Business Support Service and the CBEC has already clarified that such an activity is classifiable under Manpower Recruitment or Supply Agency service as provided under Section 65(105)(k) of the Act, the demand of Service Tax, is not sustainable and, deserves to be set aside. Time limitation - HELD THAT - Since the demand itself is not sustainable on merits, we refrain from discussing the other aspects like demand being time barred. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on the reimbursement of expenses.
3. Invocation of extended period of limitation.
4. Imposition of penalties and interest.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The core issue was whether the reimbursement of expenses for providing manpower to subsidiary companies falls under 'Business Support Services' as per Section 65(105)(zzzq) of the Finance Act, 1994. The Department argued that the appellant should have discharged the service tax under this category. However, the Tribunal analyzed the definition of 'Business Support Services' and concluded that the appellant's activity of deputing employees on a cost recovery basis does not fit within this definition. The Tribunal emphasized that the activity undertaken by the appellant is more akin to 'Manpower Recruitment or Supply Agency Service' as clarified by the Central Board of Excise and Customs (CBEC) in its circular dated 13 July 2011.

2. Applicability of Service Tax on the Reimbursement of Expenses:
The appellant contended that the reimbursement of expenses for deputed employees does not constitute a taxable service. They argued that the activity was merely a sharing of expenses and did not provide any economic benefit or service to the subsidiaries. The Tribunal agreed with this contention, referencing the Gujarat High Court decision in Commissioner of Service Tax vs. Arivind Mills Ltd., which held that reimbursement of actual costs without profit does not attract service tax.

3. Invocation of Extended Period of Limitation:
The Department invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, alleging suppression of facts. The appellant argued that they had a bona fide belief that no service tax was payable and had disclosed all relevant information in their financial statements. The Tribunal did not delve deeply into this issue since it found the demand itself unsustainable on merits.

4. Imposition of Penalties and Interest:
The adjudicating authority had imposed penalties under Section 73(4A) and Section 77(2) of the Finance Act, 1994, along with interest under Section 75. The appellant contested these penalties, arguing that they had no intention of evading tax and had complied with service tax laws. The Tribunal, having set aside the demand on merits, did not find it necessary to discuss the penalties and interest in detail.

Conclusion:
The Tribunal concluded that the activity of deputing employees to subsidiary companies on a cost recovery basis does not fall under 'Business Support Services' but rather under 'Manpower Recruitment or Supply Agency Service.' As the show cause notice demanded service tax under the wrong category, the demand was not sustainable. Consequently, the impugned order was set aside, and the appeal was allowed. The Tribunal refrained from discussing the extended period of limitation and penalties due to the unsustainability of the demand itself.

Order Pronounced:
The order was pronounced in the open Court on 07/11/2019.