ST - Nature of financial dealings or payment of consideration for services rendered by itself will not decide the tax liability of the service: CESTAT
By TIOL News Service
NEW DELHI, SEPT 22, 2016: THE appellants entered into agreements with Rajasthan Small Industries Corporation (RSIC) in connection with operation of Inland Container Depots.
The Department entertained a view that the appellants have rendered "business auxiliary services" (BAS) to various importers and exporters on behalf of RSIC at the ICDs.
A SCN dated 18/10/2010 came to be issued to demand and recover service tax of Rs.8,04,80,401/- for the period from 01/4/2005 to 31/3/2009 and the adjudicating authority confirmed the same with penalties.
The appellant has challenged this order before the CESTAT.
It is submitted that,
++ Agreement between the appellant and RSIC is on cost and revenue sharing basis; both the parties put together their resources and undertake various activities to generate revenue which is shared between them on pre-determined ratios and, therefore, there is no tax liability.
++ RSIC have discharged service tax on the gross amount collected from the importers and exporters. A portion of this amount is sought to be taxed again at the hands of the appellant and hence is not legally sustainable.
++ The demand is hit by limitation as the entire dealings with RSIC is on record and the amount received by them have been reflected in all the financial records including balance sheet and financial statements;that when the service tax was discharged by RSIC on the full gross value, the appellant entertained a bonafide belief that no further service tax is liable to be paid on the said amount in a revenue sharing arrangement.
++ The exercise is revenue neutral as tax is available as a credit to RSIC.
The AR justified the demand.
The Bench observed –
Merits:
++ It is clear (from the agreement) that the appellants were to market the ICD services, ensure the realization of amount from the users and provide various services to importers and exporters which are to be provided by RSIC as a holder of ICD custom operation licence.
++ In other words appellants were providing services in terms of agreement with RSIC w.r.t, import export cargo of various parties. Reading together the terms of agreement and the scope of BAS, it is clear that the appellants are rendering taxable services under the category of BAS.
++ The agreement gives no room for doubt regarding the obligation of the appellants to render various services in terms of ICD operations owned and controlled by RSIC. The nature of financial dealings or payment of consideration for services rendered by itself will not decide the tax liability of the service. In the present case there is a taxable service rendered by the appellant.
++ The tax liability on the gross value as received by RSIC is not a point of dispute in the present appeal. The appellant's case that they are in turn receiving a portion of such gross consideration from RSIC and as such no further tax can be levied on them is not supported by any legal provision.
++ While it is an admitted fact that the appellant's service forms part of the overall service rendered by RSIC to various ICD users, payment of service tax by RSIC by itself will not exclude the tax liability of appellants. Apparently the tax liability on the appellant confirmed in the present proceedings is only w.r.t. the consideration received by them and not on the gross value received by RSIC. There is no double taxation in the present case.
Limitation:
++ The issue involved has been a subject matter of interpretation by the Tribunal and High Courts. In fact the earlier Circular issued by the Board, covering the period prior to the introduction of Cenvat Credit Rules gave an impression that when the main service provider discharged the service tax on gross value there may not be tax liability on the sub-contractor rendering similar service to the main contractor. Service tax liability on the appellant when discharged will be available as a credit to RSIC which can be used by RSIC for discharging their overall service tax liability. As such, to impute motivation to the appellant for intention to evade payment of duty is not sustainable. The service tax liability of both RSIC and the appellant has common source agreement. As such, the demand for extended period is not sustainable in the present case.
While holding that the appellants are liable to service tax under the category of BAS, the demand was confirmed only for the normal period of limitation.
The appeal was disposed of.
(See 2016-TIOL-2487-CESTAT-DEL)
