ST - CAI, USA were providing services to customers of appellants - As CAI was engaged in providing services in relation to provision of service on behalf of client, which in this case is appellants, prima facie, services are classifiable under BAS - Pre-deposit ordered: CESTAT
By TIOL News Service
NEW DELHI, MAY 20, 2015: A Service Tax demand of Rs.6,54,64,554/- is confirmed by the CCE & ST, Noida against the appellant for the period October, 2007 to March, 2011 (along with interest and penalties) under the category of BAS on reverse charge basis.
The facts:
Appellants have entered into an agreement with M/s. Convas M America Inc., USA and as per the same -
+ Appellants are in the business of Value Added Services, in India and abroad.
+ Appellants are in the business of, inter alia, acting as a marketing service provider and rendering services for the development of computer software and other related services in the United States of America (USA).
+ Appellants have appointed CAI as its marketing service provider and billing/collection service provider and for rendering Services for development of software on a non-exclusive basis in USA and which appointment CAI has accepted.
+ Appellants will be entering into contracts with the customers based in USA for development/modification of software and other related services to the customers based in USA.
+ CAI in certain cases may enter into contracts in its own name with the customers based in USA while rendering the agreed services to the appellants.
+ At all times, CAI will be the service provider to the appellants as agreed between the two parties and at no times CAI will undertake business and entrepreneurial risk in the contracts entered in its own name.
+ At all times, appellants will direct, supervise and maintain control over the contract with the customers and be responsible for the overall quality and final delivery of the services to the customers irrespective of the contacts entered into by them or by CAI.
As mentioned, the adjudicating authority held that CAI was doing the provision of service on behalf of the appellants and, therefore, it was a case of import of service classifiable under BAS and, therefore, the appellants were required to pay service tax under reverse charge mechanism in terms of Section 66A of Finance Act, 1994.
Before the CESTAT, the appellant strenuously argued that the services received by them from CAI were not BAS but were "Technical Testing and Analysis service” and hence the demand was not sustainable; that it was not a case of provision of services on behalf of the client and the service was rendered to the customers directly. It was also submitted that the case was Revenue neutral and so the extended period could not be invoked.
The AR reiterated the order passed by the original authority.
The Bench observed -
+ It is seen that CAI were providing the services to the customers of the appellants as per the agreement between CAI and the appellants and the payment for the same was made by the appellants to CAI. Thus, CAI was engaged in providing services in relation to provision of service on behalf of client, which in this case is, the appellants. Thus, prima facie the services received by the appellants are classifiable under BAS.
+ As regards the contention of the appellants that they were receiving "Technical Testing and Analysis" service, it is seen that the said service is defined under Section 65 (105) (zzh) as "to any person by a technical testing and analysis agency, in relation to technical testing and analysis". It can be hardly anybody's case that the appellants were receiving services from CAI in relation to "Technical Testing and Analysis" because nothing belonging to appellants was subjected to technical testing and analysis.
+ As regards Revenue neutrality, we are unable to locate any statutory or constitutional provisions which support the notion that in case of revenue neutrality the liability to tax abates.
The case law cited by the appellant of NBCC was distinguished by the Bench by observing that the said judgement did not lay down any ratio and that it is well settled that what is of precedential value is not the judgement but the ratio of judgement.
Holding that the appellants had not been able to make out a case for full waiver of pre-deposit, the CESTAT directed the appellant to make a pre-deposit of 50% of the adjudicated ST liability along with interest and report compliance.
(See 2015-TIOL-904-CESTAT-DEL)
