MUMBAI, APRIL 02, 2013: THE appellant was found to be engaged in recruitment and supply of manpower for the group companies and the cost of expenditure towards the salaries and other administrative expenses were reimbursed to them by other group companies on actual basis from May 2006 onwards. In addition to the reimbursement of the expenditure, the appellant also charged a sum of Rs.1.00 lakh every month for the services rendered by them and started discharging service tax liability on the said amount.

The department was of the view that the services rendered by the appellant to their group companies would come within the purview of “Business Auxiliary Services” and accordingly four show-cause notices were issued for the period from 01/07/2003 to 30/09/2010 demanding service tax of Rs.8,34,86,663/- on the reimbursements received.

The CCE, Mumbai confirmed the demand and imposed penalties and interest.

Before the CESTAT, the appellant submitted that –

+ M/s. Raheja Real Estate and their group companies are separate legal entities and as per the memorandum and articles of association dated 28/08/1997, the main object of M/s. Raheja Real Estate was to carry on the business of vocation of acting as advisers and consultants, etc. and to act as mutual benefit company by employing qualified, experienced personnel in the field of construction industry, such as engineers, supervisors, architects, accountants, lawyers, personnel officers, finance managers, clerks, etc. for providing services of staff to group companies concerns and members of the company on no profit/loss basis.

+ They also undertake all business transactions and functions of and for the group entities including accounting, administration, supervision, management, correspondence, purchase, etc. They are not rendering any Business Auxiliary Services to their group companies but are recruiting staff and supplying them to various group companies.

+ Since the employees belong to Raheja Real Estate they have to pay the salaries and the expenditure towards the salaries are received from the group companies for disbursement.

+ They are not in the business of promoting the services of group companies or undertaking other activities on behalf of the group companies.

+ The employees are made available to the group companies and such employees undertake the functions assigned to them by the group companies. Therefore, the question of treating the service rendered by them under “Business Auxiliary Services” is not sustainable in law. Even if it is assumed that it is rendering business auxiliary services, the reimbursable expenses received by them from the group companies cannot be added to the taxable value in terms of Rule 5(1) of the Service (Determination of Value) Rules, 2006 as held by the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd., Vs. UOI [2012-TIOL-966-HC-DEL-ST]. Reliance is also placed on the decision in Malabar Management Services Pvt. Ltd. vs. CST, Chennai - 2007-TIOL-1949-CESTAT-MAD and the clarification given in the CBEC Circular No.119/13/2009-ST dated 21/12/2009.

The Revenue representative submitted that the transaction undertaken by the group companies and the appellant Raheja Real Estate Services Pvt. Ltd. is only an arrangement to avoid tax liability; that the activities of the group companies relating to the procurement of raw materials, undertaking the construction and maintenance of records, etc. are done by the staff of Raheja Real Estate and therefore, they would come within the purview of the Business Auxiliary Service and, therefore, the appellant should be put to terms.

The Bench observed –

“5.1 After examining the memorandum of ASSOCIATION of the appellant company and the group of companies, prima facie it appears to be a case of recruiting staff for the group companies and supplying them to the group companies to deal with the activities undertaken by the group companies. Such an activity does not, prima facie, come under the purview of the Business Auxiliary services as defined under Section 65 (90) of the Finance Act, 1994. Therefore, we are of the prima facie view the appellant has made out a case in their favour for grant of stay. Accordingly, we grant unconditional waiver from pre-deposit of dues adjudged against the appellant and stay recovery thereof stayed during the pendency of the appeal.”

In view of the large revenue stakes involved, the appeal is listed for final hearing on 10/04/2013.

On our part, we will keep you posted – reimbursements or otherwise.

(See 2013-TIOL-535-CESTAT-MUM)