2024 (11) TMI 1183 - AT - Service Tax

Liability of service tax - consideration towards the provision of Business Support Services under Section 65(104c)of the Finance Act,1994 for the purpose of charging service tax - reimbursement of expenses recovered by the appellant from its group companies pursuant to common cost sharing - appellant is a power distribution Company which came in to existence pursuant to the Gujarat Electricity Industry Reorganization Regulation Act 2003 HELD THAT - Firstly, the sharing of actual expenditure among the group companies does not amount to service. Hence, the same is not taxable. Secondly, by stretch of imagination such activity is not classifiable as business auxiliary service. Sharing of the common expenditure among the group companies does not amount to business support services. Even the said activity does not amount to service. Therefore, following the aforesaid decisions which are on the identical facts of the present case service tax demand is not sustainable. Accordingly, the impugned orders are set aside, appeals are allowed.

Issues Involved:

1. Whether the reimbursement of expenses shared among group companies can be considered as consideration for Business Support Services under Section 65(104c) of the Finance Act, 1994, and thus liable for service tax.

Issue-wise Detailed Analysis:

1. Nature of Reimbursement and Service Tax Liability:

The primary issue in the appeal was whether the reimbursement of expenses by the appellant from its group companies, pursuant to common cost-sharing, constitutes consideration for Business Support Services, thereby attracting service tax under Section 65(104c) of the Finance Act, 1994. The appellant, a power distribution company, argued that the expenses were shared on an actual basis without any markup, and no additional consideration was received. The appellant acted as a pure agent, merely recovering the share of expenses incurred on behalf of the group companies. The appellant contended that the reimbursement of actual expenses does not amount to the provision of any service, and thus, no service tax is applicable.

2. Department's Argument:

The department maintained that the reimbursement of expenses shared among the group companies falls under the category of business support services and is therefore liable for service tax. The department's stance was based on the interpretation that the shared expenses constitute a taxable service.

3. Tribunal's Findings and Precedents:

Upon careful consideration, the Tribunal found that the sharing of actual expenditure among the group companies does not constitute a service, and hence, is not taxable. The Tribunal referred to several precedents, including the Supreme Court judgment in the case of Gujarat State Fertilizers & Chemicals Limited, which established that shared expenses in a joint venture or cost-sharing arrangement do not amount to the provision of a service. The Tribunal also cited the CESTAT-Ahmedabad decision in Hazira Lng Pvt. Ltd. and the judgment in Reliance ADA Group Pvt. Ltd., which supported the view that cost-sharing arrangements do not constitute taxable services.

4. Revenue Neutrality and Time Bar:

The appellant also argued that even if service tax was applicable, it would be revenue-neutral as the group companies could avail Cenvat credit. Additionally, the demand was not sustainable on the grounds of time bar, as there was no suppression of facts by the appellant. The Tribunal acknowledged these arguments, further supporting the appellant's case.

Conclusion:

Based on the analysis of the facts, legal provisions, and precedents, the Tribunal concluded that the sharing of common expenditure among the group companies does not amount to business support services. Therefore, the service tax demand was not sustainable. The Tribunal set aside the impugned orders and allowed the appeals, affirming that the reimbursement of shared expenses does not constitute a taxable service under the Finance Act, 1994.

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