2022 (11) TMI 437 - AT - Service Tax

Levy of service tax - Cost sharing agreement - services provided to associated company or not - business support services or not - SCN did not allege that the said services are business support services, however, Ld. Commissioner still confirmed the service tax under business support services - violation of principles of natural justice - HELD THAT - The arrangement between them and the associated company was in the nature of cost sharing. In the light of the observation of Hon ble Apex Court in M/S GUJARAT STATE FERTILIZERS CHEMICALS LTD. ANOTHER VERSUS COMMISSIONER OF CENTRAL EXCISE 2016 (12) TMI 103 - SUPREME COURT , it is seen that the arrangement of the appellant with it is associate companies is in the nature of cost sharing and it would not be correct to say that the appellants are providing any services to their associate companies. The revenue has not been able to identify any specific service, which the appellant has provided to its associate companies. In these circumstances, it is not found that the activities in the nature of sharing cost between associate companies amount to provision of any service by one company in the agreement with to any other companies in the said cost sharing agreement. However, since the activities under taken under the cost sharing agreement do not amount to provision of Service in terms of the decision of Hon ble Apex Court in case of Gujarat State Fertilizers Chemicals Ltd., the demand of Service Tax on the activities under taken under the cost sharing agreement cannot be sustained. Appeal allowed.

Issues Involved:
1. Whether the sharing of costs between the appellant and its associated enterprise constitutes the rendition of taxable services.
2. Applicability of service tax on waived-off amounts.
3. Validity of the extended period of limitation for issuing the show cause notice.
4. Classification of services under "business support services."
5. Liability for interest and penalties.

Issue-wise Detailed Analysis:

1. Whether the sharing of costs between the appellant and its associated enterprise constitutes the rendition of taxable services:
The appellant argued that the cost-sharing arrangement with its associated enterprise, HPPL, does not constitute the provision of taxable services. The Tribunal referred to the decision in Gujarat State Fertilizers Corporation Ltd., where the Supreme Court held that sharing expenses between entities does not amount to providing services. The Tribunal concluded that the arrangement between the appellant and HPPL was in the nature of cost sharing and not the provision of any services. Consequently, the demand for service tax on cost-sharing activities was deemed unsustainable.

2. Applicability of service tax on waived-off amounts:
The appellant waived off the amount of Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/- due to HPPL's poor financial condition. The Service Tax Authorities alleged that the waiver constituted consideration received and demanded service tax. The Tribunal noted that prior to the amendment on 10.05.2008, Section 67's explanation did not include book adjustments as payments. Therefore, the waiver did not constitute a taxable event, and the service tax demand was not applicable for the period before the amendment.

3. Validity of the extended period of limitation for issuing the show cause notice:
The show cause notice was issued on 18.10.2010 for the period 01.04.2005 to 31.03.2008, invoking the extended period of limitation due to alleged suppression of facts. The appellant contended that all transactions were recorded in their books of account and disclosed in financial statements. The Tribunal found no evidence of suppression or wilful misstatement and ruled that the extended period of limitation was not applicable. Therefore, the demand was time-barred.

4. Classification of services under "business support services":
The show cause notice did not specifically allege that the services provided fell under "business support services." The Tribunal observed that the Commissioner confirmed the demand without establishing how the activities qualified as business support services. The Tribunal relied on precedents like UCB India Pvt. Ltd. and Micromatic Grinding Technologies Ltd., which emphasized the necessity of specific allegations and statutory definitions in the show cause notice. The Tribunal concluded that the classification under business support services was not substantiated.

5. Liability for interest and penalties:
Since the primary demand for service tax was found unsustainable, the Tribunal ruled that the associated demands for interest and penalties also could not survive. The Tribunal emphasized that the issue involved was one of interpretation, further invalidating the imposition of penalties and interest.

Conclusion:
The Tribunal set aside the demand for service tax, interest, and penalties, allowing the appeal. The judgment emphasized the nature of cost-sharing arrangements, the applicability of amendments to Section 67, and the necessity of specific allegations in show cause notices. The Tribunal also highlighted the importance of adhering to the principles of natural justice and statutory definitions in tax disputes.

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