2024 (12) TMI 353 - AT - Service Tax

Availment of inadmissible credit on invoices received at the premises which is not registered - Franchise Service - Maintenance or Repair Service - Commercial Training or Coaching Service - Management of Business Consultant Service - Reimbursable Expenses - Manpower Recruitment and Supply Service - extended period of limitation - levy of penalties. Franchise Service - HELD THAT - On going through the Contract dated 23rd October 2008 between the parties, it is found that, it is mentioned that the parties acknowledge that they are entering into this agreement as independent parties. Unless expressly stated otherwise, neither party shall be construed as legal representative of the other for any purpose. From this, it is apparent that the appellant cannot be treated as a representative of the Aircom International Company, U.K. - On going through the various clauses of the agreement, it is understood that the appellant is not seen as a representative of Aircom International Company, U.K; no representative rights have been given to the appellant; the independent existence of the appellant is manifest by various agreement they have entered into with Indian customers. Mere granting of right to distribute sub- license, copy right products of Aircom International Company, U.K; it does not make the appellant a Franchisee of Aircom International Company U.K. - Department has not made out any case regarding the levy of service tax on the appellants on the Franchise Service alleged to have been availed by them. Maintenance or Repair Service - HELD THAT - It has been held in a number of cases that levy of service tax critically hinges on the identification of service provider, the service provided, the recipient of the service and the consideration paid or payable for the same thereof. It is found that Show Cause Notice dated 22.04.2010 simply takes out the figures from the balance sheet on account of license fee; support and maintenance; training fee; reimbursement and management fee etc. and quotes the relevant provisions of law pertaining to the definition of the said services and proceeds to say that the appellant is liable to pay service tax on the same. No identification of the service recipient and consideration is shown and no analysis whatsoever has been done. The Show Cause Notice being vague, unsubstantiated and not considering the various premises to levy service tax cannot be sustained. Learned Authorized Representative for the Department tries to argue that the appellant failed to produce documentary evidence or certified entries regarding transactions in the balance sheet and therefore, the assessment by the authorities is hampered and therefore, the appellant is liable to pay the duty demanded along with interest. It is opined that such an argument is not tenable. Particularly with reference to the Show Cause Notice dated 22.04.2010, whether or not extended period is invoked, it was open to the Revenue to conduct necessary investigation, to give adequate opportunity to the appellants and issue Show Cause Notice on rational and reasoned grounds. In the absence of the same, the allegations are to be held as unsubstantiated. It is not expedient and necessary to go into the other submissions of the appellants on the issue of invocation of extended period, computation mistakes etc. Appeal allowed.

Summary

Issues Involved:

1. Classification of services under "Franchise Service."
2. Demand under "Maintenance or Repair Service."
3. Demand under "Training and Coaching Service."
4. Demand under "Consultancy Charges."
5. Disallowance of CENVAT credit.
6. Validity of the second Show Cause Notice.
7. Invocation of the extended period for demand.
8. Imposition of penalties under Sections 76 and 78.

Detailed Analysis:

1. Classification of Services under "Franchise Service":

The primary issue was whether the payments made by the appellant to their parent company in the UK for software usage constituted "Franchise Service" under the Finance Act, 1994. The Department alleged that the appellant was granted representational rights, thus fulfilling the definition of "Franchise Service." However, the Tribunal found that the appellant operated as an independent entity, with no representational rights granted by the parent company. The Tribunal relied on previous judgments, including the Reckitt Benckiser and SAP India Pvt. Ltd. cases, to conclude that granting a license does not equate to establishing a franchise relationship. Therefore, the demand for service tax under this head was not justified.

2. Demand under "Maintenance or Repair Service":

The appellant argued that the fees for maintenance and technical support were already included in the 45% and 20% payable to the parent company and thus should not attract additional service tax under the Reverse Charge Mechanism. The Tribunal agreed, noting that the charges were part of the comprehensive fee structure and not separate services provided by the parent company.

3. Demand under "Training and Coaching Service":

The Tribunal noted that the training received by the appellant's personnel was integral to the software purchase and was a one-time occurrence ancillary to the main transaction. Therefore, the demand for service tax on training and coaching services was deemed untenable.

4. Demand under "Consultancy Charges":

The appellant contended that these charges were merely reimbursable expenses incurred by the parent company and not subject to service tax. The Tribunal referred to the Supreme Court's decision in Intercontinental Consultants and Technocrats Pvt. Ltd., which supports the view that reimbursable expenses do not constitute taxable services.

5. Disallowance of CENVAT Credit:

The Department disallowed CENVAT credit on the grounds that invoices were received at unregistered premises. The Tribunal, referencing the mPortal India Wireless Solutions case, held that registration is not a prerequisite for claiming CENVAT credit, provided the services are used in the provision of output services.

6. Validity of the Second Show Cause Notice:

The Tribunal found the second Show Cause Notice vague and lacking specific allegations or categories of services. Citing the Brindavan Beverages and Shubham Electricals cases, the Tribunal emphasized that a Show Cause Notice must clearly identify the service provider, service provided, recipient, and consideration to be valid. The lack of specificity rendered the notice unsustainable.

7. Invocation of the Extended Period for Demand:

The Tribunal dismissed the invocation of the extended period, noting the lack of suppression or intent to evade duty by the appellant. The Tribunal highlighted that the case was based on the appellant's records, and there was no clarity on the taxability of software services, which had been subject to divergent opinions.

8. Imposition of Penalties under Sections 76 and 78:

The Tribunal found the simultaneous imposition of penalties under Sections 76 and 78 inappropriate, as they are mutually exclusive. The absence of suppression or intent to evade duty further negated the justification for penalties.

Conclusion:

The Tribunal allowed the appeal, setting aside the demands and penalties imposed by the adjudicating authority. The judgment emphasized the necessity for clear and substantiated allegations in Show Cause Notices and the importance of distinguishing between different types of service agreements.