2023 (11) TMI 311 - AT - Service Tax

Short payment of service tax - import of services - value of foreign currency expenditure - reverse charge mechanism - levy of service tax on the differential value of foreign currency expenditure reported in the annual accounts of the company vis-a-vis the value of services on which service tax was actually paid as import of services - Professional Fees/ engineering services - Corporate cost allocation - Bank Guarantee Commission Charges - Bank Charges - Subscription / License fees - Repairs and Maintenance (Material purchase) - Payment of tax to government authorities - Purchase of Protective Clothing - Purchase of books magazines - Reimbursement of Insurance charges -Reimbursement of relocation charges of employees - Reimbursement of salary plus other reimbursement - Demurrage charges - Purchase of Dispenser - Conference and meeting - Sundry expenses- Unreconcilable expenses - Time limitation u/s 73 of the Finance Act, 1994 - Suppression of facts or not. Requirement of classification of service under proper category of service - HELD THAT - Even before the issue of show cause notice, during correspondence with the appellant, the department had pointed out the various differences in payments made in foreign currency in the books of account of the appellant vis-a-vis the ST-3 returns and alleged that that the Appellant was procuring various services from foreign vendors and was making payments in foreign currencies towards professional fee/engineering services, license fee/ subscriptions, corporate cost allocations, repairs and maintenance, consultancy fees, bank charges etc. for use in business and had short paid / not paid service tax on the same under reverse charge. Therefore, the appellant was put to a sufficient notice of the alleged irregularities in filing the ST-3 returns and if the appellant did not agree to the allegations, it was incumbent upon him to specifically contradict those allegations by reconciling the figures in books of account and the ST-3 returns - there was no lack of clarity on the part of the department in determining the nature and impugned services in the show cause notice. There are no force in the argument of the appellant that the show cause notice did not determine nature of service and that the appellant was asked to defend the indefensible. In the light of these observations, the case law produced by the appellant which is solely on the basis where there was a lack of clarity in the show cause notice in not relevant to the facts of the case. Professional Fees/ engineering services - HELD THAT - The amount of Rs. Rs. 9,17,72,871.00 was already booked in their accounts during the year 2011-12 and as per the definition of associated enterprises , the amount has to be considered to have been received in 2011-12 even though the invoice was issued at a later stage. Further as per the provisions of Rule 3(iii) of Taxation of Services (Provided from Outside India and received in India) Rules, 2006, the service tax liability in respect of Consulting Engineering Service falling under Section 65(105)(g) of the Finance Act, 1994 lies on the recipient located in India irrespective of the fact that the service has been performed in India or consumed in India when the services have been received by a recipient located in India for use in relation to business or commerce - It is not convincing that the service can be related to in relation to the immovable property or the performance based services which are specifically covered under Rule 3(i) and 3(ii) of the Rules 2006 ibid and which do not cover the services under Section 65(105)(g) of the Finance Act, 1994. Similar issue has already been decided by the Tribunal in the case of M/S. EMI TRANSMISSION LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NASHIK 2018 (4) TMI 776 - CESTAT MUMBAI where it was held that the technical testing and analysis service on the reverse charge basis is not taxable in terms of Rule 3(iii) of Rules, 2006. The said provision was prevailing upto 1-4-2011 as w.e.f. 1-4-2011 vide Notification No. 23/2011-S.T., dated 31-3-2011 Clause (zzh) was omitted under Rule 3(iii) of Rules, 2006. Thus, the professional fees/ Engineering charges which are considered under the expression Consulting Engineering Services were chargeable to service tax during the relevant period. Corporate cost allocation - HELD THAT - On going through the various terms of the representative assignment agreement of the seconded employees as detailed above, there is no doubt that the effective control over the employees deputed in India always remains with Linde AG, Germany and the appellant has no role in their appointment. Terms of service in India, remuneration of the employees, social security benefits, duration of service in India are all decided by Linde AG, Germany and as per agreement German Law is proper law for the agreement . The invoices detailed in the adjudication order clearly state that the services provided by the seconded employees to the appellant are of consulting engineer - the service agreements of the seconded employees do not show that those are the employees of the appellant and for all effective purpose, they remain employee of their Home Company and merely providing services to the Company at the behest of the Home Company i.e Linde AG, Germany. The ratio of the Apex Court judgement in the case of C.C.,C.E. S.T. BANGALORE (ADJUDICATION) ETC. VERSUS M/S NORTHERN OPERATING SYSTEMS PVT LTD. 2022 (5) TMI 967 - SUPREME COURT is squarely applicable to the facts of the case. The Company is effectively providing taxable service of Consulting Engineer services defined under Section 65(105)(g) of the Finance Act, 1994 before 01.07.2012 and taxable service under Section 66B after 10.07.2012. Bank Guarantee Commission Charges - HELD THAT - The matter is finally settled by the Apex Court judgement in the case of COMMISSIONER OF CGST AND CENTRAL EXCISE VERSUS M/S EDELWEISS FINANCIAL SERVICES LTD. 2023 (4) TMI 170 - SC ORDER where the Hon ble court has held that issuance of corporate guarantee without consideration would not be a taxable service. There is no allegation in SCN or findings in the impugned order that LAG had received any consideration other than the re-imbursement of bank guarantee charges from the appellant. Accordingly, we hold that no service tax is chargeable on this count and accordingly, the findings of the impugned order-in-original not agreed upon. Bank Charges - HELD THAT - The appellant has claimed that the impugned charges are bank commissions providing various services with respect to foreign remittances. Service tax is already charged by the banks and only dispute is that the appellant failed to substantiate that these amounts are against bank charges - the case is remanded back to the adjudicating authority with the directions to the appellants to provide all supporting documents with respect to their contention. Thus, this issue is remanded back to the Adjudicating Authority to re-adjudicate the matter after giving opportunity to the appellant to submit necessary documents and after hearing them. Subscription / License fees - HELD THAT - The adjudicating authority has confirmed the taxability as impugned services hypothetically without actually examining the nature of software from the invoices which the appellant has submitted in respect of such goods (softwares) - the matter is remanded back on this issue to pass a fresh order after examining the invoices and ascertain whether the purchased software are goods or services. Repairs and Maintenance (Material purchase) - HELD THAT - Under the service tax law all payments received or paid to the foreign parties by the assessees against any service provided/ received from abroad (i.e other than goods, immovable property or money/actionable claims) are subject to tax unless those are brought under specific exception. Once a discrepancy has been brought to the notice of the assessee for a particular amount, onus lies upon him to prove that the amount was not taxable. Having failed to prove that the amount received in foreign currency was not subject to tax liability, the demand of service tax in this regard is upheld. Payment of tax to government authorities - HELD THAT - The adjudicating authority his merely proceeded on assumption and presumption to the taxability and nature of taxes paid by the appellant to the governments abroad without ascertaining the actual contents of the assessment orders. Merely for the reason that the assessments orders were in German, the adjudicating authority should not have proceeded on presumptions. He should have asked the appellant to provide English Translation of the assessment orders or should have taken assistance of the private translators to arrive at the true nature of the taxes paid by them - matter is remanded back on this issue also to decide the matter afresh. Purchase of Protective Clothing - HELD THAT - Since the services provided by the seconded employees have already been held to be taxable under the service tax provisions as 'Consulting engineer services', the protective clothing will form part of the gross amount to be taxed in terms of Section 67(c) of the Finance Act. Therefore, the demand has been correctly confirmed. Purchase of books magazines - HELD THAT - The adjudication order has failed to specify for the period before 1.7.2012, that the impugned service was covered under any of the specified services. Therefore, they cannot be considered to be taxable before 01.07.2012. Further, the impugned service was duly covered under Section 65(72) under ODIAR services which were taxable at the end of service provider. As the service providers were outside India, the service cannot be taxed in India - the demand for the service under the head Purchase of books and magazines is set aside. Reimbursement of Insurance charges - Reimbursement of relocation charges of employees - School fees - Reimbursement of salary plus other reimbursement - HELD THAT - The relationship between the seconded employees and the appellant was not covered under the exclusion clause contained in the definition of 'Service' under Section 65B(44)(b) of the Finance Act, 1994 as the employee-employer relationship - the said services were chargeable to service tax. Demurrage charges - HELD THAT - Under the service tax after law all payments received or paid to the foreign parties by the assessees against any service provided/ received from abroad (i.e other than goods , immovable property or money/actionable claims) are subject to tax unless those are brought under specific exemption. Once a discrepancy has been brought to the notice of the appellant for a particular amount, onus lies upon him to prove that the amount was not taxable. Having failed to prove that the amount paid in foreign currency was not subject to tax liability, the service tax is leviable after 01.07.2012 on such payments. Purchase of Dispenser - HELD THAT - The matter needs to be remanded to the adjudicating authority to pass a fresh order after examining the invoices. Conference and meeting - Sundry expenses- Unreconcilable expenses - HELD THAT - Under the service tax law after 01.07.2012 all payments received or paid to the foreign parties by the assessees against any service provided/ received from abroad (i.e other than goods, sale of immovable property or money/actionable claims etc.) are subject to tax unless those are brought under specific exception. Once a discrepancy has been brought to the notice of the assessee for a particular amount, onus lies upon him to prove that the amount was not taxable. Having failed to prove that the amount paid in foreign currency was not subject to tax liability, the demand of service tax upheld in this regard. Time limitation u/s 73 of the Finance Act, 1994 - Suppression of facts or not - HELD THAT - There are several layers of suppression and mis-representation of facts with a motive to avoid service tax. These layers of suppression cannot be detected by mere mundane audit of financial records. Thus, the extended time period for demanding service tax has rightly been invoked in this case. Appeal disposed off.

Summary

Issues Involved:

1. Professional Fees/Engineering Services
2. Corporate Cost Allocation (Employee Secondment Cost)
3. Bank Guarantee Commission Charges
4. Bank Charges
5. Subscription/License Fees
6. Repairs and Maintenance (Material Purchase)
7. Other Expenses (including Payment to Government Authorities, Protective Clothing, Books/Magazines, School Fees, Reimbursement of Insurance Charges, etc.)

Summary of Judgment:

1. Professional Fees/Engineering Services:
The appellant argued that the services were provided and consumed outside India, thus not liable for service tax. The tribunal held that the services were taxable under Section 66A of the Finance Act, 1994, as they were received by a recipient located in India for business purposes, irrespective of where the services were performed.

2. Corporate Cost Allocation (Employee Secondment Cost):
The appellant contended that seconded employees were under their control, forming an employer-employee relationship, thus exempt from service tax. The tribunal, referencing the Supreme Court judgment in Northern Operating Systems Pvt Ltd., held that the seconded employees were effectively providing "Consulting Engineer Services" and were taxable.

3. Bank Guarantee Commission Charges:
The appellant claimed these charges had already suffered service tax when paid by the bank. The tribunal, relying on the Supreme Court judgment in Edelweiss Financial Services Ltd., held that no additional service tax was chargeable as there was no consideration beyond reimbursement.

4. Bank Charges:
The tribunal remanded the issue back to the adjudicating authority for re-examination, directing the appellant to provide supporting documents to substantiate their claim that these were bank commissions for foreign remittances already subjected to service tax.

5. Subscription/License Fees:
The appellant argued these were for software purchases classified as goods. The tribunal remanded the matter to the adjudicating authority to verify the nature of the software from the invoices to determine if they were goods or services.

6. Repairs and Maintenance (Material Purchase):
The tribunal upheld the demand for service tax on Rs. 1,89,905/- as the appellant failed to provide evidence that these payments were for goods.

7. Other Expenses:
- Payment to Government Authorities: The tribunal remanded the matter for fresh adjudication, instructing the appellant to provide relevant documents to determine the nature of these tax payments.
- Protective Clothing: The tribunal upheld the demand for service tax as these were part of the gross amount charged for consulting engineer services.
- Books/Magazines: The tribunal set aside the demand for the period before 01.07.2012, stating the service was not specified as taxable. For the period after 01.07.2012, it was held to be non-taxable as the service provider was outside India.
- Reimbursement of Insurance Charges, Relocation Charges, School Fees, and Salary Plus Other Reimbursements: The tribunal upheld the demand for service tax, considering these as part of the taxable consulting engineer services.
- Demurrage Charges: The tribunal upheld the demand for service tax as the appellant failed to provide evidence that these payments were not taxable.
- Purchase of Dispenser: The tribunal remanded the matter for fresh adjudication to verify the nature of the purchase from the invoices.
- Conference and Meeting, Sundry Expenses, and Unreconcilable Expenses: The tribunal upheld the demand for service tax as the appellant failed to prove these were not taxable.

Time Limit for Demand:
The tribunal upheld the extended time period for demanding service tax, citing suppression and misrepresentation of facts by the appellant.

Conclusion:
The appeal was disposed of with specific directions and findings for each issue, with some matters remanded for fresh adjudication.