2024 (8) TMI 93 - AT - Service Tax

Non-payment of service tax - Management consultancy Services (Royalty services) - Intellectual Property Right Services (IPR) - Business Auxiliary services (Job-work charges) - Banking and financial services - time limitation. Management Consultancy service - Royalty services - HELD THAT - The appellant has been recording the Service Tax pertaining to the Management Consultancy services amount paid to their holding company. Payment were made towards expenses incurred by the Joka unit as well as by the Baddi unit. In case of Baddi since they are not in a position to claim the Cenvat Credit. The Service Tax amount and the Management consultancy amounts have been apportioned to their expenses account. This is no way allows the department to come to a conclusion that the appellant provided any service to the Baddi unit. Therefore, on this count itself, the confirmed demand of Rs. 1,44,964,85 is required to be set aside. Intellectual Property Right Services (IPR) - HELD THAT - The intellectual Property Services have become exigible to Service Tax with effect from 10.09.2004. Accordingly the confirmed demand of Rs. 1,30,28,482 for the period of October, 2004 to December, 2010 and Rs. 29,52,461 for the period of January, 20111 to March, 2012 are legally not sustainable and the same is set aside on merits. Business Auxiliary services - Job-work charges - HELD THAT - It is found from the documentary evidence that the finished goods are emerging after the job work in terms of Sec 2(f) of the CEA 1944. Therefore, the same would not amount to rendering of service in BAS Section 65 (19) of the Finance Act, 1994. Accordingly, the confirmed demand of Rs. 3,15,625 and Rs. 4,36,398 are being set aside on merits. Banking and financial services - HELD THAT - It is found that no such services was rendered by the holding company to the appellant. The banking charges paid by the holding company initially was recovered from the present appellant. It cannot be viewed that banking and financial services were rendered by the company. It is also to be noted that transaction is between the company and the appellant which would amount to self service. The Tribunal in the case of Precot Mills Vs. CCE 2005 (3) TMI 594 - CESTAT, BANGALORE has held that where the transaction is between two constituents of the same entity, there is absence of client-service provider relationship. Hence, no Service Tax is payable. Therefore, the confirmed demand of Rs. 3,39,652 set aside on merits. Time Limitation - HELD THAT - The appellant has been paying Service Tax on the Management Consultancy Services and were filing their ST-3 Returns. As per the normal accounting practice they have charged portion of Service Tax amount and Management consultancy services to their Baddi unit. Their bonafide belief that no Service Tax is required to be paid by them, cannot be faulted - Service Tax is actually not payable by them. Apart from this, the transactions are between the constituent entities. In such a case the party cannot be fastened with the allegation of suppression to confirm the demand for the extended period. Hence the confirmed demand in respect of the extended period is being set aside on account of time bar also. Appeal allowed.

Issues Involved:
1. Management Consultancy Services
2. Intellectual Property Services (IPR)
3. Business Auxiliary Services (Job Work Charges)
4. Banking and Financial Services
5. Extended Period of Limitation

Issue-wise Detailed Analysis:

1. Management Consultancy Services:
The appellant, a manufacturer of electrical meters, was charged with a demand for Service Tax under Management Consultancy Services for payments made to their overseas holding company, Landis & Gyr Energy Management Corporation, Switzerland. The appellant argued that the Service Tax was already paid on a reverse charge basis for both their Joka and Baddi units. The Baddi unit, enjoying Excise Duty exemption, could not claim Cenvat Credit, and thus the expenses were charged to its account. The Tribunal found that the appellant did not provide any service to the Baddi unit, as the transactions were internal and amounted to self-service. Consequently, the demand of Rs. 1,44,96,485/- and Rs. 4,32,156/- was set aside.

2. Intellectual Property Services (IPR):
The appellant contested the demand under IPR services, stating that the royalty payments to their holding company were based on agreements signed before the service became taxable on 10.09.2004. The Tribunal referenced similar case laws, such as Switzer Instruments Ltd. Vs. CST, Chennai, which held that no Service Tax was payable for agreements entered into before the effective date. The Tribunal concluded that the confirmed demands of Rs. 1,30,28,482/- and Rs. 29,52,461/- were not sustainable and set them aside.

3. Business Auxiliary Services (Job Work Charges):
The appellant argued that the job work undertaken for their Joka and Baddi units resulted in the manufacture of finished goods, which does not attract Service Tax under Business Auxiliary Services as per Section 65(19) of the Finance Act, 1994. The Tribunal agreed that the job work led to manufacturing as defined under Section 2(f) of the CE Act, 1944, and thus, the confirmed demands of Rs. 3,15,625/- and Rs. 4,36,398/- were set aside.

4. Banking and Financial Services:
The appellant contended that the banking charges incurred by their holding company for arranging working finance were merely reimbursed by the appellant, and no actual service was provided. The Tribunal found that there was no service provider-client relationship, referencing the case of Precot Mills Ltd. Vs. CCE, which established that transactions between constituents of the same entity do not attract Service Tax. Therefore, the confirmed demand of Rs. 3,39,652/- was set aside.

5. Extended Period of Limitation:
The appellant argued against the invocation of the extended period, stating they had been compliant with Service Tax payments and filing returns. The Tribunal noted that the appellant's belief in non-liability for certain taxes was bona fide and that no suppression of facts occurred. Consequently, the demand for the extended period was also set aside on account of time bar.

Conclusion:
The Tribunal allowed the appeal, setting aside all confirmed demands on merits and on the ground of limitation, providing consequential relief to the appellant as per law. The judgment emphasized the lack of a service provider-client relationship in internal transactions and the non-applicability of Service Tax to agreements predating the relevant tax provisions.

← Previous Next →