2016 (9) TMI 1024 - AT - Service Tax

Service tax liability - revenue sharing arrangements - Whether or not the appellants rendered any taxable services under the category of BAS and if so whether the demand has been made within the permissible time limit in terms of Section 73 - full value of consideration for taxable service as received by RSIC from various ICD users has suffered service tax and RSIC remitted the same to the Government - Held that - it is clear that the appellants were to market the ICD services ensure the realization of amount from the users and provide various services to importers and exporters which are to be provided by RSIC as a holder of ICD custom operation licence. In other words appellants were providing services in terms of agreement with RSIC w.r.t. import export cargo of various parties. Reading together the terms of agreement and the scope of BAS as mentioned above it is clear that the appellants are rendering taxable services under the category of BAS. The argument of the appellants that there is no service tax liability in cost/revenue sharing arrangement is not tenable in terms of clear wordings of the agreement and intention of the contracting parties as clearly manifested therein. The revenue sharing model which was discussed in Board s circular dated 23/2/2009 was w.r.t. movie distribution. In any case the said circular was further clarified vide Circular dated 13/12/2011 wherein it was mentioned that revenue sharing arrangement by itself does not preclude service tax liability. We find that the appellant are only pleading on the principle of revenue sharing without actually elaborating on the nature of agreement as already indicated hereinabove. The agreement in the present case gives no room for doubt regarding the obligation of the appellants to render various services in terms of ICD operations owned and controlled by RSIC. The nature of financial dealings or payment of consideration for services rendered by itself will not decide the tax liability of the service. In the present case there is a taxable service rendered by the appellant. Admittedly the considerations received by appellants are for services. These are taxable services. RSIC paid service tax on the gross income and out of that income they have paid some amount to the appellant and hence the plea that the appellants are not liable to service tax is not supported by any legal principle. The fact is that the appellants provided input services (BAS) which enable RSIC to provide overall services w.r.t. ICDs operated under licence by them. Apparently in such arrangement the tax paid by RSIC will be on the total gross value. To render such total service by RSIC to various clients the appellants did provide various taxable services in terms of the agreement. While it is an admitted fact that the appellant service forms part of the overall service rendered by RSIC to various ICD users payment of service tax by RSIC by itself will not exclude the tax liability of appellants Apparently the tax liability on the appellant confirmed in the present proceedings is only w.r.t. the consideration received by them and not on the gross value received by RSIC. There is no double taxation in the present case. It is found that the appellant is having a strong ground regarding the question of time bar. It is to be noted that all invoices for full consideration have been raised by RSIC and the amount collected from the clients importers and exports were subjected to service tax which was deposited to the Government. RSIC in turn are paying certain amount to the appellants to get the services in these ICDs. In such situation there is a clear possibility for a bonafide belief that as the whole amount has been subjected to service tax the amount received by the appellant may not be liable to service tax in connection with the services rendered by them. The issue involved has been a subject matter of interpretation by the Tribunal and High Courts. In fact the earlier Circular issued by the Board covering the period prior to the introduction of Cenvat Credit Rules gave an impression that when the main service provider discharged the service tax on gross value there may not be tax liability on the sub-contractor rendering similar service to the main contractor. The Tribunal in various cases held in such a case involving interpretation of law and also a bonafide belief regarding service tax liability will not attract the demand for extended period. We also take note that service tax liability on the appellant when discharged will be available as a credit to RSIC which can be used by RSIC for discharging their overall service tax liability. As such to impute motivation to the appellant for intention to evade payment of duty is not sustainable. In the facts and circumstances of this case we find that the demand for extended period is not sustainable. We have also perused the reasons recorded by the Original Authority for invoking extended period of demand. He recorded that but for the Department s investigation the non-payment of tax would not have come to the notice. Further the balance sheet for certain years have not been furnished in time by the appellant which was obtained from Registrar of Companies. As such it was held that the appellants willfully suppressed material facts. We find that the service tax demand against the appellant was sought to be confirmed mainly on the basis of the terms of agreement between the appellant and RSIC. The gross receipt of RSIC and service tax payment thereupon is available with the Department. A portion of that receipt is now being taxed under BIS at the hands of the appellant. The service tax liability is as such on the arrangement based on agreement which is also the basis for payment of full service tax by RSIC. In other words the service tax liability of both RSIC and the appellant has common source agreement. As such we find the demand for extended period is not sustainable in the present case. - Appeal disposed of

Summary

Issues Involved:
1. Whether the appellants rendered taxable services under the category of Business Auxiliary Services (BAS).
2. Whether the demand for service tax was made within the permissible time limit.
3. Whether the appellants were liable for service tax in a cost/revenue sharing arrangement.
4. Whether the appellants' services were already subjected to service tax by RSIC.
5. Whether the demand is hit by limitation and the invocation of the extended period for recovery is justified.
6. Whether the appellants' liability for service tax results in double taxation.
7. Whether the appellants had a bonafide belief regarding their service tax liability.

Detailed Analysis:

1. Taxability under BAS:
The appellants entered into agreements with RSIC for services related to the operation of Inland Container Depots (ICDs). The Department considered these services as "business auxiliary services" (BAS) rendered to importers and exporters on behalf of RSIC. The agreement explicitly stated that the appellants were to render services in relation to import and export operations, including marketing activities for ICD services. The definition of BAS under Section 65 (19) of the Finance Act, 1994, includes services related to the promotion or marketing of services provided by the client. The Tribunal concluded that the appellants' activities fell within the scope of BAS, making them liable for service tax.

2. Permissible Time Limit for Demand:
The show cause notice dated 18/10/2010 demanded service tax for the period from 01/4/2005 to 31/3/2009 by invoking the extended period under proviso to Section 73 (1) of the Finance Act, 1994. The Tribunal found that the appellants had a bonafide belief that no further service tax was liable due to the revenue sharing arrangement and the fact that RSIC had already paid service tax on the gross amount. The Tribunal held that the demand for the extended period was not sustainable, as the appellants' actions were based on a reasonable interpretation of the law and there was no intention to evade tax.

3. Cost/Revenue Sharing Arrangement:
The appellants argued that their agreement with RSIC was on a cost and revenue sharing basis, working on a principal-to-principal basis, and not providing services to RSIC. The Tribunal rejected this argument, stating that the agreement clearly outlined the appellants' obligations to render services, which constituted taxable services under BAS. The revenue sharing model was deemed a method of payment and did not alter the tax liability.

4. Services Already Taxed by RSIC:
The appellants contended that RSIC had already discharged service tax on the gross amount collected from importers and exporters, and taxing the same amount again was not legally sustainable. The Tribunal found that the appellants were providing input services (BAS) to RSIC, enabling RSIC to provide overall services to ICD users. The tax liability confirmed was only on the consideration received by the appellants, not the gross value received by RSIC, thus no double taxation occurred.

5. Limitation and Extended Period:
The Tribunal noted that all invoices and amounts collected by RSIC were subjected to service tax, and the appellants' belief that their share of revenue was not liable to further tax was reasonable. The issue involved interpretation of law, and there was no intention to evade tax. The Tribunal found that invoking the extended period was not justified, as the tax liability on the appellants would be available as credit to RSIC, resulting in no loss to the government.

6. Double Taxation:
The appellants argued that taxing their share of revenue would result in double taxation. The Tribunal clarified that the appellants' services were taxable under BAS, and the tax liability confirmed was only on the consideration received by them. RSIC's payment of service tax on the gross value did not exclude the appellants' tax liability.

7. Bonafide Belief:
The Tribunal acknowledged the appellants' bonafide belief that no further service tax was liable due to the revenue sharing arrangement and RSIC's payment of service tax on the gross amount. The Tribunal held that the appellants had a strong ground regarding the question of time bar, and the demand for the extended period was not sustainable.

Conclusion:
The Tribunal upheld the appellants' liability for service tax under BAS but limited the confirmation of the demand to the normal period of limitation, rejecting the extended period demand. The appeal was disposed of accordingly.