2023 (1) TMI 507 - AT - Service Tax

Nature of activity - Management or Business Consultant Service or not - appellant received Management Fees and other recoverable expenses on monthly basis from M/s Gillette India Ltd., Bhiwadi - demand alongwith interest and penalty - extended period of limitation - HELD THAT - The amounts in question, were received undisputedly in terms of Annexure I to the purchase agreement between M/s Gillette India Ltd. and the appellant. The nature of the agreement makes it clear that it was an agreement for sale of goods by the appellant to M/s Gillette India Ltd. as per the specifications of the latter. To sell these goods the appellant manufactured them on which the appellant has been paying appropriate central excise duty - In any contract of job work, an agreement is entered into whereby an amount is paid to the job worker by the principal. If the job worker undertakes an activity which amounts manufacture, it has to pay appropriate central excise duty. In this case, the appellant has paid central excise duty. Thereafter, the appellant sold the goods to M/s Gillette India Ltd. in terms of the purchase agreement. Such sale or purchase is not a taxable service and no service tax can be charged on it. The entire case of the Revenue rests on the fact that in the books of account the appellant has recorded the amounts received on account of job work as per the agreement under the head Management Fees . Even if such entries are made by the appellant, it does not convert what is essentially an agreement for manufacture and sale of Razors and Blades into an agreement for rendering services. Thus, none of the elements required for levying service tax viz., a service provider, a service recipient, a taxable service and a consideration are present in the case. The impugned order is set aside and the appeal is allowed.

Issues:
- Appellant challenging order-in-original regarding service tax, interest, and penalties imposed by Commissioner of Central Excise and Goods and Service Tax, Alwar.
- Applicability of service tax on amounts received under a purchase agreement.
- Interpretation of the nature of the agreement between the parties.
- Determination of whether the amounts received are for job work or for services rendered.
- Assessment of whether the elements required for levying service tax are present in the case.

Analysis:
1. The appellant contested the order-in-original dated 16.05.2016 passed by the Commissioner of Central Excise and Goods and Service Tax, Alwar, which confirmed and demanded service tax amounting to Rs. 80,84,451/- along with interest and penalties under various sections of the Finance Act, 1994. The appellant, engaged in manufacturing razors and blades for a specific buyer, disputed the classification of amounts received under a purchase agreement as management fees subject to service tax.

2. The facts revealed that the appellant received amounts from the buyer as per the purchase agreement, which the Department deemed as falling under Management or Business Consultant Service taxable under the Finance Act, 1994. The appellant argued that the amounts were for job work done for the buyer, constituting manufacturing activity subject to central excise duty payment. The appellant emphasized that no indication was given by the Department that the activity was a service, and thus, no service tax should be levied.

3. The agreement between the parties outlined the nature of goods, specifications, production process, raw materials, quality control, prices, taxes, contract period, and other provisions related to the sale of goods. Annexure I detailed the amounts to be paid under various heads, such as salaries, rent, depreciation, and profit. The appellant contended that the amounts received were solely for the job work performed, which was manufacturing activity subject to excise duty, and not for rendering services subject to service tax.

4. The Tribunal analyzed the agreement, the nature of the transactions, and the categorization of amounts received. It emphasized that for service tax to be applicable, specific criteria must be met, including the presence of a service provider, recipient, service, consideration, and taxable service. The Tribunal concluded that the amounts received by the appellant were for the sale of manufactured goods, not for rendering services, as no evidence suggested a separate consideration for services provided.

5. Ultimately, the Tribunal found that the elements required for levying service tax were absent in the case. The Tribunal set aside the impugned order, ruling in favor of the appellant and granting consequential relief. The decision highlighted that the mere accounting classification of amounts as management fees did not alter the underlying nature of the agreement, which primarily involved the manufacture and sale of goods, exempt from service tax.

6. In conclusion, the Tribunal's detailed analysis focused on the contractual provisions, the nature of the transactions, and the legal requirements for levying service tax. By scrutinizing the agreement and the activities undertaken by the appellant, the Tribunal determined that the amounts received were not subject to service tax, leading to the reversal of the Commissioner's order and the allowance of the appeal.

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