MUMBAI, APRIL 29, 2013: THE appellant entered into a conducting agreement on 25 th August, 2004 by which it allowed the use of its plant, machinery and equipment by a company called International Synthfabs Private Ltd. (ISPL) for a period of eleven months from September 2004 to July 2005.

It is the allegation of the department that the agreement involved the rendering of ‘support services of business or commerce' within the meaning of Section 65(104c) of the Finance Act as amended and, therefore, the appellant is liable to pay Service Tax.

The relevant clause reads:-

"(104c) "support service of business or commerce"means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

Explanation.-For that purposes of this clause, the expression "infrastructural support services"includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security."

The appellant during the adjudication proceedings submitted that the service rendered gets covered with effect from 1 st June 2007 in Clause 90(a) under the category of ‘renting of immovable property' and not earlier and that they have been paying Service tax under this category since this date.

They also relied upon the Board circular 109/03/2009-ST dated 23 rd February 2009 which explains the clause in the following terms:-

" 2.5…By definition 'Business Support service' is a generic service of providing 'support to the business or commerce of the service receiver'. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provider…."

Reliance was inter alia placed on the decision in Air Liquide North India (P) Ltd vs. Commissioner of Central Excise, Jaipur - 2011-TIOL-1795-CESTAT-DEL where it was held -

"5.3 We are of prima facie view that the ratio of the above mentioned judgement of the Apex Court is applicable to this case, and therefore, the expression "Services in relation to business or commerce"in the definition of "support service, of business or commerce"in section 65 (104c) would get its colour from the inclusive portion of the definition. On this basis we are of prima facie view that the expression "support service of business or commerce"would cover only the services of supporting nature for the main business-manufacture, trading and service like services relating to marketing, customer relationship, distribution and logistics, accounting and transaction processing, office infrastructure, etc. and would not include service of renting of machinery and equipment for production or manufacture which being services relating to manufacturing activity are of altogether different nature."

The CCE confirmed the demand of Rs.55.95 lakhs and also imposed interest and penalty.

In appeal, the CESTAT directed the appellant to make a pre-deposit of the Service Tax and, therefore, the appellant is before the High Court.

The appeal was admitted on the following substantial question of law:-

Whether in the facts and circumstances of the case the Hon'ble CESTAT was justified in holding that the Appellants failed to make out a prima facie case that the agreement is for providing business support services?

The High Court observed -

"7. In our view, having regard to these facts, it must be held that the petitioner would be entitled to a complete waiver of pre-deposit. The Petitioner has made out a prima facie case on merits raising a serious triable issue. The Court has been informed that for the subsequent period after the insertion of clause 90(a), the petitioner has been paying service tax. The dispute as noted earlier relates to the period prior to insertion of clause 90(a). The issue as to whether the petitioner was providing a support service of business or commerce under the terms of the agreement involves a serious triable question.

8. In these circumstances, we allow the appeal and direct that the petitioner would be entitled to a waiver of pre-deposit. However, we clarify that all our observations are confined to the disposal of the stay application and shall not come in the way of disposal of the appeal as the question of law is answered to the aforesaid extent confined to the disposal of the stay application. Since the appellant has been granted a waiver of pre-deposit, necessary consequences shall now follow."

The Appeal was accordingly disposed of.

(See 2013-TIOL-330-HC-MUM-ST)