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2014 (3) TMI 339 - AT - Service TaxTaxability of Reimbursement of the expenses on advertisement and road show being organized recovered from the supplier of goods - Held that - Respondent during the period of dispute had arranged advertisements and had organized road shows for promoting the sales of the cars being manufactured by M/s Hindustan Motors. This activity of the respondent is covered by the definition of Business Auxiliary Service as given in Section 65 (19) of the Finance Act, 1994. The debit notes issued by the respondent to M/s Hindustan Motors show the total charges for road shows/advertisements at various places and also mention the 50% share of M/s Hindustan Motors. Though the sales promotion activity being undertaken by the respondent may have benefited both respondent as well as M/s Hindustan Motors and satisfied the need of their respective business, to the extent the respondent have recovered expenses from M/s Hindustan Motors, they will be treated as having provided the sales promotion service to them and M/s Hindustan Motors is to be treated as their client and, hence, on the amount being charged by them from M/s Hindustan Motors, service tax would be attracted - there is no relationship of principal and client between the respondent and M/s Hindustan Motors is not correct - Decided in favour of Revenue.
Issues:
1. Whether the respondent provided Business Auxiliary Service of promotion or marketing or sale of goods produced by M/s Hindustan Motors? 2. Whether the reimbursement of expenses incurred by the respondent for sales promotion activities attracts service tax? 3. Whether there is a relationship of principal and client between the respondent and M/s Hindustan Motors? Analysis: Issue 1: The respondent, an authorized service station with service tax registration, received amounts from M/s Hindustan Motors for organizing advertisements and road shows to promote the sale of cars manufactured by M/s Hindustan Motors. The department contended that this activity falls under Business Auxiliary Service. The Additional Commissioner confirmed a service tax demand on this basis. The Commissioner (Appeals) set aside the demand, stating there was no principal-client relationship. The Tribunal, however, found that the respondent's sales promotion activities for M/s Hindustan Motors constituted Business Auxiliary Service under Section 65(19) of the Finance Act, 1994. The Tribunal held that the respondent providing services and recovering expenses from M/s Hindustan Motors established a client relationship, attracting service tax. The Tribunal set aside the Commissioner's order and upheld the Additional Commissioner's decision. Issue 2: The Tribunal noted that the respondent had indeed organized road shows and advertisements for promoting M/s Hindustan Motors' cars, with expenses shared equally. The debit notes issued by the respondent showed charges for these activities and the 50% share of expenses by M/s Hindustan Motors. While the sales promotion benefited both parties, the recovery of expenses from M/s Hindustan Motors indicated the provision of sales promotion services. Consequently, the Tribunal concluded that the reimbursement of expenses for sales promotion activities would attract service tax, as it established a client relationship between the respondent and M/s Hindustan Motors. Issue 3: The Tribunal addressed the question of whether there was a principal-client relationship between the respondent and M/s Hindustan Motors. Despite the Commissioner (Appeals) ruling otherwise, the Tribunal found that the recovery of expenses by the respondent from M/s Hindustan Motors for sales promotion activities established a client relationship. As a result, the Tribunal set aside the earlier decision and upheld the service tax demand, emphasizing the applicability of service tax based on the relationship established through the provision of sales promotion services. This detailed analysis of the judgment highlights the Tribunal's decision on each issue, emphasizing the legal interpretation and application of relevant provisions under the Finance Act, 1994 in determining the liability for service tax in the context of the respondent's activities.
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