9911796707
TMI Blog2024 (7) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... and invoices were not brought to the knowledge of the department - the demand for Rs. 1,12,86,898/- on man power services for the period June 2005 to March 2007 is confirmed along with appropriate interest. The equal amount of penalty under Section 78 of the Finance Act is also upheld. All other penalties are set aside. Business auxiliary service or not - services provided by an overseas service provider in terms of the Selling Agreement and Master Agreement - HELD THAT:- As per the Master Agreement the company is engaged in the business of providing software and technology relating services to entities within and outside India. And with regard to payments, it is stated that the company shall pay fees for services provided by the service provider based on the actual cost incurred by the service provider in providing the services plus service fee. As per the Selling Agreement placed on record, the company is engaged in the business of providing software and technology related services to entities within and outside India. As per the payment terms, it is stated that for the selling services the company shall pay the agent the actual cost/expenses incurred by the agent in providing h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the category of Business Auxiliary Service (BAS) under Section 65 of the Finance Act, 1994 for the period from July 2003 to March 2007; an amount of Rs.4,69,45,582/- was demanded and confirmed under the category of Business Auxiliary Service along with interest and equivalent amount of penalty. Aggrieved by this order, the appellant has filed the present appeal. 3. The Learned Counsel on behalf of the appellant, made the following submissions. a) The Appellant is a 100% Export Oriented Unit-Software Technology Park (EOU-STP) unit engaged in the development of embedded software and other software related services and mainly exports their services. During the period of dispute, the Appellant had provided embedded software development and other Information Technology (IT) related services to the customers in India by entering into software outsourcing contracts with its customers. The Department on the basis of Master Services Agreement dated 07.12.2005 entered with M/s. Philips Electronics India Limited (PEIL) had confirmed the Service Tax under the category of Manpower Recruitment or Supply Agency Service . DGCEI investigations held that the Master Service Agreement (MSA) en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n between (a) Fixed Price Projects and (b) Time Material Projects rendered under MSA with M/s. Philips Electronics India Ltd., Both the projects were executed and performed under various terms and conditions as per MSA with M/s. Philips Electronics India Ltd. and both are in relation to information technology service projects . Hence, the Appellant has not rendered mere manpower supply services as held in the impugned order. It is well settled that the contract/agreement has to be read and interpreted in whole and not in bits and pieces. Reliance is placed on the judgment of the Honorable Supreme Court in the case of State of Gujarat v. Variety Body Builders: AIR 1976 SC 2108, 2110 wherein it was held that It is well settled that when there is a written contract it will be necessary for the Court to find out there from the intention of the parties executing the particular contract. That intention has to be primarily gathered from the terms and conditions which are agreed upon by the parties . He also relied on the decision of the Hon ble High Court of Bombay, in the case of CIT v. Information Architects: [2010] 322 ITR 1 (Bom.) in the context of Section 80HHE of the Income tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard, the Appellant place relied on the decision in Suntec Business Solutions Pvt Ltd v. CCE: 2017 (51) STR 446 (Tri-Bang.); CST v. IBM India Pvt Ltd, 2021 (47) STR 7 (Kar.) and Kasturi Sons Ltd v. UOI, 2011 (22) STR 129 (Mad.). Hence, the demand under both the above agreements dated 01.04.2001 prior to 18.04.2006 and for the period post 18.04.2006 cannot be sustained under the category of BAS. g) With regard to extended period of limitation, the Appellant further submits that the demands confirmed are also barred by limitation in as much as there was no willful suppression of facts or contravention of the provisions of the Act with intend to evade payment of Service Tax since the appellants were under a bona fide belief that the services in dispute are classifiable under information technology service in relation to computer software which was either exempted from payment of service tax or was excluded from the definition of taxable service(s). The entire issue revolves around genuine interpretation of statutory provisions in as much as it involves classification of service. The Appellant also submits that imposition of various penalties including equal amount of penalty under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Time and materials project, the personnel provided by the suppliers will be working under the Project Manager of M/s. Philips Electronics India Ltd. and will be engaged in the development of software / testing along with other professionals of M/s. Philips Electronics India Ltd. The projects are fully controlled by Project Manager of M/s. Philips and the personnel provided by the suppliers will be only working under him and as per the directions given by him. In some projects, the suppliers supplement the personnel provided with the knowledge or the updation of the skill required for that project. In all such projects, the supplier s responsibility is limited to supply of personnel with required skill. In case of each requirement, the supplier will give the list of personnel with their skill, qualification and experience, based on which they interact with those personnel and only after they are satisfied that personnel are up to their mark, purchase orders are placed on the suppliers specifying the name of the personnel required. As per the rates specified in the purchase orders, the billing is made by the supplier on monthly basis and the payments are accordingly made. The Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of C.Ex (ST), Chennai-IV [2018(18)GSTL 441(Tri-Chennai)], (ii) M/s. Future Focus Infotech Pvt Ltd Vs Commissioner of C.Ex (ST), Chennai-IV [2010(18) STR 308 (Tri-Chennai)], (iii) M/s. Talking Technology (P) Ltd Vs the Commissioner of Service Tax, Chennai [2020 (3) TMI 315 CESTAT Chennai] 4.5. With regard to Business Auxiliary Service, it is submitted that during the DGCEI Investigation, it was also noticed that the Appellant Company had been paying certain amounts as commission in foreign exchange to M/s. Aztec Software Inc., USA (overseas service provider having no office in India) who were engaged as overseas agent of the Appellant for promotion / marketing of goods / services of the Appellant in USA. The said activities / services received were in the category of taxable service and leviable to service tax w.e.f. 01.07.2003 under the category of Business Auxiliary Service . The investigations revealed that the both the above services were provided / received as per terms and conditions under valid agreements between the parties. The impugned order examined the classification / taxability of the services involved and held that the services were received for promotion or marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails only on the initiation of the enquiry. In the case of M/s. Six Sigma Soft Solutions (P) Ltd. Versus Commissioner of Service Tax, Chennai: [2018 (4) TMI 1504 - CESTAT Chennai], where similar issue of taxability of supply of personnel to the IT companies was decided, it was held at para 6.6 that the department was justified in invoking extended period of limitation of five years where the facts came to light only when the department conducted scrutiny of annual reports. 5. Heard both sides. 5.1 The issues to be decided is whether the appellant is liable to pay Service Tax under the category of Manpower Recruitment or Supply Agency Service and Business Auxiliary Service . 6. Let us examine the definition of Manpower Recruitment or Supply Agency Service , which is reproduced below: Section 68: Manpower Recruitment or Supply Agency means any [person] engaged in providing any service, directly or indirectly, if any manner for recruitment or supply of manpower, temporarily or otherwise, [to any other person]; 6.1. The appellant undertakes 2 types of projects known as Fixed Price Project and the Time and Material Project to his client M/s. Philips Electronics India Limited and M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are one and same cannot be accepted. 6.3. From Clause 2(h) of the same agreement under Testing and Acceptance , it is seen that in the case of Fixed Price Projects the payments are based on acceptance of the deliverables after testing and subject to payment terms in the Statement of Work (SOW). While the payments in Time and Material Projects billing will be proportionate for resources employed for less than a month and it will commence only after commencement of staff. Under clause 3(b), it is seen that in the case of Fixed Price Project s along with the personnel the day-to-day activities are clearly specified in the purchase orders; while in the case of Time and Materials Project , the appellant has to only verify the technical and work history of the personnel. And as seen from clause 3(b)(iii), the appellant is to furnish a staffing plan specifying the details of the skills, experience and qualification of the personnel to be assigned to their client. As per Clause 7(a) under payments, it is mentioned that each SOW shall contain either on a fixed fee or time and material terms. In case of Fixed Price Projects , the payment is based on the deliverables associated with the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r supply and the Tribunal has observed as follows: 12 . We find that the arguments advanced on behalf of the appellants are mainly based on the various clauses in the agreements executed between them and their clients namely TCS and Infosys. We are of the view that not only the wordings of these clauses are to be considered but also how different clauses of the contracts actually operate have to be seen. We find that the appellants are supplying various skilled personnel to TCS and Infosys to work on software projects undertaken by TCS and Infosys from their respective clients. The personnel deputed by the appellants appear to be working at the site of the clients of TCS and Infosys or in the premises of TCS and Infosys. There is no evidence produced before us to indicate that any of the software projects undertaken by TCS and Infosys from their respective clients has been sub-contracted to the appellants or that the appellants are working on any such project on their own. What has emerged clearly is that the appellants have deputed skilled personnel including computer engineers to work under the supervision and control of TCS and Infosys personnel in-charge of projects undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aggregate actual cost/expenses incurred by the agent, in providing the services. The Commissioner in the impugned order referring to the definition of Business Auxiliary Service states that the overseas service provider has provided the services from abroad to the appellant and the appellant who is in India has received the services is liable to pay service tax as per Section 66A of the Finance Act, 1994. The Commissioner has confirmed the demand in terms of Rule 2(1)(d)(iv) of the Service Tax Rules, which has been disputed by the appellant on the ground that prior to insertion of Section 66A of the Finance Act, 1994, there can be no levy of service tax for the period 01.04.2001 to 17.04.2006 as is held by the Hon ble High Court of Bombay in the case of Indian National Shipowners Association Vs. UOI (supra), wherein the Hon ble High Court has held as follows: 17 . Reliance is placed on the provisions of Rule 2(1)(d)(iv) quoted above for justifying the levy of service tax for the period from 16.08.2002. Perusal of the above quoted Rule 2(d)(iv) shows that by that provision a person liable for paying the service tax was defined to mean in relation to any taxable service provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om outside India is notified. If Rule 2(d)(iv) is taken to be rule framed pursuant to this provision, then a person who receives taxable service in India from a person who is non-resident or is from outside India becomes taxable and not service rendered outside India by a person who is non-resident or is from outside India. Therefore, levy of service tax from the members of the Petitioners-association from 1-2-2005 (sic) 1-1-2005 cannot be justified. 19 . Then reliance is placed on explanation which is added below Section 65(105). That explanation was added by Finance Act, 2005 with effect from 16-6-2005. That explanation reads as under :- Explanation - For the removal of doubts, it is hereby declared that where any service provided or to be 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 and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India, such service shall be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66A, there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association. The Supreme Court Bench comprising Hon ble Mr. Justice S.H. Kapadia and Hon ble Mr. Justice Aftab Alam on 14-12-2009 dismissed the Petition for Special Leave to Appeal (Civil) No. 18932 of 2009 filed by Union of India against Bombay High Court Judgment dated 11-12-2008 in Writ Petition No. 1449 of 2006 in the case of Indian National Shipowners Association v. Union of India and reported in 2009 (13) S.T.R. 235 (Bom.). While dismissing the SLP, the Supreme Court passed following order: Heard learned counsel on both sides. The special leave petition is dismissed. [Union of India v. Indian National Shipowners Association 2010 (17) S.T.R. J57 (S.C.)] 7.1 Based on the above decision of the Hon ble High Court which was up held by the Supreme Court, subsequently, the Board (CBEC) vide F.No.276/08/2009-CX.8A, dated 26.09.2011 (reproduced below), accepted the above decision of the Hon ble Supreme Court and rescinded the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed this position. Accordingly, the instruction F.No. 275/7/2010-CX8A, dated 30-6-2010 stands rescinded. 3. Appropriate action may please be taken accordingly in the pending disputes. 7.2 In view of the above, the demand for the period 1.04.2001 to 17.04.2006 cannot be sustained. 7.3 The appellant has not denied that the services have been received from their overseas company but only submits that for the period prior to 17.04.2006 they are not liable to pay duty for the reasons discussed above. For the period from 18.04.2006 to March 2007, the appellant submits that since the definition of Business Auxiliary Service does not include information technology services, the demand of Service Tax under RCM for the above period cannot be sustained. There is no finding in the impugned order with regard to this plea taken by the appellant. Therefore, since the demand from 18.04.2006 to March 2007 is within the normal period, the same is remanded to the Commissioner to redetermine the tax liability after taking into consideration the submissions of the appellant that the Business Auxiliary Service excludes information technology service. 7.4 Accordingly, we confirm the demand amounting to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
