2024 (2) TMI 197 - AT - Service Tax

Classification of services - reverse charge mechanism - providing offshore drilling services to oil majors - services of various service providers located outside India, to provide engineering consultancy, management consultancy, testing inspection and banking service - Jurisdiction of ADG DGCEI to issue SCN - Complexities of Administration and Shared Jurisdiction - Contracts / Agreements and the Best Evidence Rule - Consulting Engineering Services Vs. Manpower Recruitment Service - The Test Of Employer and Employee or Master and Servant relation - Management Consultancy Services Vs. Intellectual Property Service - Additional Evidence The Legal Issues Involved - Banking and Financial Services - Entire Activity Takes Place Outside India, Hence Not Taxable - Reimbursables Cannot Form a Part of the Value - Technical Inspection - Legal Consultancy Service - Judgments. Jurisdiction of ADG DGCEI to issue Show Cause Notice - HELD THAT - Once a person is empowered under the Act there is no statutory bar on his exercising the powers given there under even if administrative instructions proscribe his activities. His actions will remain legally valid as there is no jurisdictional error even if there may have been the transgression of an administrative circular. The Hon'ble Supreme Court in PAHWA CHEMICALS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI 2005 (2) TMI 136 - SUPREME COURT examined a similar matter and held that the Board can only issue such direction as is necessary for the purpose of and in furtherance of the provisions of the Act - for the purposes of better administration of levy and collection of duty and for purpose of classification of goods the Board may issue directions allocating certain types of works to certain Officers or classes of Officers. These administrative directions cannot take away jurisdiction vested in a Central Excise Officer under the Act. At the highest all that can be said is Central Excise Officers, as a matter of propriety, must follow the directions and only deal with the work which has been allotted to them by virtue of these Circulars. But if an Officer still issues a notice or adjudicates contrary to the Circulars it would not be a ground for holding that he had no jurisdiction to issue the show cause notice or to set aside the adjudication. Complexities of Administration and Shared Jurisdiction - HELD THAT - Certain changes in the designation of officers were made in Rule 3(2) on 30/06/2017 only to accommodate newly designated officers. In the light of Rule 3(3) any officer superior to the officer who is empowered to issue demand notice and adjudicate notice under Section 73 of Finance Act, 1994 can do the same if the officer designated is subordinate to him. Hence so long as the officer has the jurisdiction to issue a notice there is no infirmity in his action. Having issued a notice, as discussed above, it cannot be insisted that the same officer should also adjudicate the matter. There is no such legal necessity as seen from the Pahwa Chemicals judgment - Whether DGCEI officers are Central Excise Officers or not was examined by the Hon ble Madras High Court in M/S. REDINGTON (INDIA) LIMITED VERSUS PRINCIPAL ADDITIONAL DIRECTOR GENERAL, CHENNAI 2022 (7) TMI 231 - MADRAS HIGH COURT . It was held that without doubt, the officers from the Directorate are Central Excise Officers as they have been vested with the powers Central Excise officers - the averments of the Appellant fails to convince of any jurisdictional error in the maintainability of the SCN. Contracts / Agreements and the Best Evidence Rule - HELD THAT - Section 91 of the Indian Evidence Act, 1972 gives immense importance to documentary evidence over oral ones. Hence when written agreements and documents are available they are the best evidence to demonstrate a fact or to understand it. Further, as per section 106 of the Evidence Act, the fact within the knowledge of a person must be proved as the burden is cast upon him. Consulting Engineering Services Vs. Manpower Recruitment Service - HELD THAT - The fact that the hired personnel are available at site on a continuous 28-day basis before taking a break (clause 4), could be due to administrative exigencies and convenience, necessitating such an arrangement. The Consultants are hired for the safe and sound operation of its Offshore Drilling Units which would by and large involve them advising the Appellant at the spot and not for operating the rigs, as would be expected of hired labour. Thus, the matrix of fact regarding the engagement of consultants and the intention of parties can prima facie be discerned by the term consultant being repeatedly used to denote the relationship of the hired team and its members with the appellant in the agreement. Moreover, the words in any manner emphasized in the definition extracted above i.e. consultancy or technical assistance in any manner to a client , is of the widest import and is equivalent to every manner . The term in any manner also appears in MRSAS, which pertains to a more general taxable service. A more generalised service must yield to the more specific one for classification. The Test Of Employer and Employee or Master and Servant - HELD THAT - In the present matter the Appellant has failed to rebut the allegations in the SCN and findings in the impugned order satisfactorily and hence their pleading fails to disturb the findings in the impugned order. Management Consultancy Services Vs. Intellectual Property Service - HELD THAT - Revenue has been able to show that the Agreement was governed by and construed in accordance with the laws of India. The approvals for the collaboration were issued by the Secretariat of Industrial Approval, (Foreign Collaboration Section of Department of Industrial Approval, Development) and Reserve Bank of India. Without the rigs being within designated areas in the Indian Territory the above laws could not have been made applicable to them. The Appellant is having its registered office in Chennai, Tamil Nadu. Having discharged the primary burden of proof to show that the services were taxable in India, it was for the Appellant to rebut the same. Information that was in the special knowledge of the Appellant, if any, should have been disclosed to the Department. Hence it was correctly pointed out in para 11.7 of the impugned order, that all activities were centered around India and the beneficiary was also the Appellant in India. Further Section 66A imposes two conditions which need to be satisfied for the levy of service tax on import of Services i.e. (i) Service must be received by a person (recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India (ii) Service is provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India. The service provided by the service provider satisfy both the conditions and hence are exigible to tax as per the reverse charge mechanism. Hence this argument of the Appellant does not succeed. Additional Evidence The Legal Issues Involved - HELD THAT - The learned Adjudicating Authority has admitted that demand made on accrued expenses as on 16/05/2008, if any, is not sustainable and is liable to be dropped in line with the judgment of the Tribunal in SIFY TECHNOLOGIES LTD. VERSUS LTU, CHENNAI 2012 (5) TMI 376 - CESTAT, CHENNAI . However, he has lamented the lack of duty paid details for the period to tally the payments made. This should have been provided by the Appellant as it was in their knowledge and interest but was surprisingly not responded to nor sought to be placed before us. The doctrine of laches is commonly construed as the equitable doctrine by which a court denies relief to a claimant who has unreasonably delayed in asserting one s legal right or privilege. In this case by not providing verifiable details, the same is now hit by the doctrine of laches . Hence their unsubstantiated pleadings merit no relief - The prayer of the Appellant that service classified as Management Consultancy Services merits to be classified as Intellectual Property Service does not succeed. Banking and Financial Services - the entire activity takes place outside India hence the service is not taxable under FA 1994 - HELD THAT - The person who is legally entitled to receive a service is the one obliged to pay the consideration as per the Agreement which in this case is the appellant only. Further, the question to be asked is did the parties have in mind or intend separate payments for separate activities demarcated in the agreement. If there was no such intention, then it is a composite agreement for a service which cannot be vivisected. Hence it is the Appellant who facilitates the foreign currency investors by offering them the opportunity to invest in their (Appellants) company through the bonds with the potential for equity conversion. In the absence of an agreement, it was deduced that all such activity which takes place outside the taxable territory in connection with the FCCB and involving investors, third parties etc. abroad are on account of the Appellant and are not to be counted as service rendered by Barclays UK to such investor or third party abroad - A negative test may also be of help in deciding the issue involved. If the launch offering and sale of the FCCB abroad fails on the very first day, it is the Appellant who will feel the direct pinch of any deficiency in service from Barclays UK or for any other reasons and not the investors or any third party. As per the agreement Barclays UK will still be eligible for their fee calculated as a percentage of the gross proceeds received in respect of the issue of the FCCB from the Appellant. Hence the services provided from outside India by Barclays UK is received by the Appellant in India with a reverse flow of consideration for the said activity and the service is exigible to tax under the Reverse Charge Mechanism as per section 66A(1) of FA 1994. The appellants averments on this count thus fails. Banking and Financial Services - Reimbursables Cannot Form a Part of the Value - HELD THAT - It is noticed from the impugned order at para 11.8, 11.9, 13.2, 16.0 etc. that the Appellant has not been forthcoming with information even before the learned Adjudicating Authority although it is in their exclusive knowledge. The impugned order notes that details called for by DGCEI was submitted in a piece meal manner stretching over a period of two years. Even now we have not been able to discern what the reimbursable expenses sought to be claimed and due to a lack of descriptive information about the same. As stated by the Hon'ble Supreme Court in A.C. ARULAPPAN VERSUS SMT. AHALYA NAIK 2001 (8) TMI 1428 - SUPREME COURT law courts never tolerate an indolent litigant since delay defeats equity. We hence find no reason to differ with the impugned order on this matter. Technical Inspection - HELD THAT - Paras 13 to 13.2 of the impugned order states that no documentary evidence was provided by the appellant to substantiate their claim and rebut the allegations contained in the SCN. Neither have they alluded to the availability of such information - there are no reason to differ from the findings in the impugned order on this issue. Legal Consultancy Services - HELD THAT - The Appellant does not dispute the classification of the service but hold that that since the entire activity has taken place outside India the confirmation of demand under legal consultancy services is not tenable - Consultancy is a knowledge or technique-based service and is not linked to any identifiable immovable property. It is found that the consultancy with the service providers relate to advice and consultancy in legal matters. Consultancy was provided to the Appellant who is situated in India and hence satisfies the provisions pf Sec 66A to be exigible to Service Tax as discussed in connection with other consultancy services above. Limitation and Penalty - HELD THAT - The alternative classification was done by the Appellant after investigation were started against them and these classifications were not found to be correct. Further the Appellants action cannot be said to be caused by a bonafide dispute, on technical grounds because the sections are clear and the appellant is also one who has been availing of legal and consultative advice in various matters and have not shown that they were in receipt of valid and cogent contrary advice not to pay tax. They have also not sought any clarification from the department for any of the impugned service. Hence the benefit of Section 80 of the Finance Act as amended is also not available to them as there is no reasonable cause for the failure to pay tax - there are no demerit in the impugned order covering the extended period of demand and imposition of penalty. Thus, the lower authority has taken a view which is reasonable, legal and proper and the same is agreed with. The impugned order is hence upheld. The appeals are disposed off accordingly.

Summary

Issues Involved:
1. Jurisdiction of ADG DGCEI to issue Show Cause Notice (SCN).
2. Contracts/Agreements and the Best Evidence Rule.
3. Consulting Engineering Services Vs. Manpower Recruitment Service.
4. Management Consultancy Services Vs. Intellectual Property Service.
5. Banking and Financial Services.
6. Technical Inspection.
7. Legal Consultancy Service.
8. Judgments.
9. Limitation and Penalty.

Summary:

1. Jurisdiction of ADG DGCEI to issue Show Cause Notice:
The appellant argued that the SCN issued by ADG, DGCEI, is untenable based on the Canon India judgment. The Tribunal found that the Canon India judgment is not applicable as it pertains to the Customs Act, 1962, and not the Service Tax law. The Tribunal upheld the jurisdiction of ADG, DGCEI, based on the Notification No. 3/2004-ST dated 11.3.2004, which appointed ADG (DGCEI) as a Central Excise Officer with all powers exercisable by Central Excise officers.

2. Contracts/Agreements and the Best Evidence Rule:
The Tribunal emphasized the importance of documentary evidence over oral ones as per Section 91 of the Indian Evidence Act, 1972. The agreements entered into by the appellant with various service providers were considered the best evidence to understand the nature of services provided.

3. Consulting Engineering Services Vs. Manpower Recruitment Service:
The appellant contended that the services provided by IOMI should be classified under Manpower Recruitment or Supply Agency Service (MRSAS). The Tribunal found that the agreement repeatedly used the term "consultant," indicating the provision of consulting services rather than manpower supply. The Tribunal applied various tests (Control and Supervision Test, Organisation Integration Test, Mutual Obligation Test, Provision of Equipment Test) and concluded that the services were correctly classified under Consulting Engineering Services.

4. Management Consultancy Services Vs. Intellectual Property Service:
The appellant argued that the services provided by IOI should be classified under Intellectual Property Service (IPS). The Tribunal found that the services provided by IOI were predominantly consultancy services related to management and business operations. The Tribunal held that the services were correctly classified under Management Consultancy Services as the appellant failed to prove that the services were provided by the holder of intellectual property rights.

5. Banking and Financial Services:
The appellant contended that the services provided by Barclays UK were not taxable as the entire activity took place outside India and that reimbursable expenses should not form part of the value. The Tribunal found that the services were received by the appellant in India and were taxable under the Reverse Charge Mechanism as per Section 66A(1) of FA 1994. The Tribunal also held that reimbursable expenses could not form part of the assessable value based on the Supreme Court's decision in Intercontinental Consultants.

6. Technical Inspection:
The appellant argued that the technical inspection and certification services were rendered with respect to rigs situated in non-designated areas and therefore not liable for service tax. The Tribunal found that the appellant failed to provide documentary evidence to substantiate this claim and upheld the findings of the impugned order.

7. Legal Consultancy Service:
The appellant did not dispute the classification but argued that the entire activity took place outside India. The Tribunal found that the legal consultancy services were provided to the appellant in India and were taxable under Section 66A.

8. Judgments:
The Tribunal examined various judgments cited by the appellant and found them not applicable to the present case based on the specific facts and circumstances.

9. Limitation and Penalty:
The appellant argued that the SCN was barred by limitation and that there was no suppression or fraud. The Tribunal found that the extended period was correctly invoked as the appellant was not cooperative and delayed providing information. The Tribunal upheld the imposition of penalties, stating that the appellant's actions indicated an intention to evade payment of duty.

Conclusion:
The Tribunal upheld the impugned order, finding it reasonable, legal, and proper, and dismissed the appeals.