By TIOL News Service

MUMBAI, NOV 03, 2017: THE appellant, a 100% EOU is engaged in the manufacture of Resistors, Capacitors and is also registered as a provider of Business Auxiliary Service.

The appellant have various IT systems and lease lines which are centrally managed by IT department of M/s. BC Components International BV, Netherland , which are their associate company. The costs relating to lease line charges for e-mail and internet services, software maintenance and software licence fee, maintenance of IT services, systems support, etc. are managed centrally. These costs are then allocated to various companies of the group on logical basis like the number of users, system usages etc. The share of such IT cost allocated to the appellant is paid by them.

During the scrutiny of the financial records it was revealed that the appellant had made payment to M/s. BC Components International BV, Netherland towards the costs of the said services and was shown as communication expenses and technical fees under the heading of 'Expenditure in Foreign Currency'.

Alleging that the said services are taxable under the category of "Online Information and database access or retrieval services" on reverse charge basis, a demand of service tax of Rs.46,84,276/- was raised for the period 2006-07, 2007-08 and 2008-09 (up to 15.5.2008) and which was confirmed by the lower authorities.

In appeal before the CESTAT, the appellant inter alia submitted that since the associated group company is giving facilities to the Vishay Group worldwide entity, there is no provision of service, however it is only re-imbursement of cost of facility provided by the associated group company M/s. BC Components International BV, Netherland ;that it is well settled law that cost sharing within the group company, no service tax is charged; that being a 100% EOU, their activities are closely supervised by the department as per the Circular no.88/98-Cus dated 2-12-1998 and, therefore, it cannot be said that appellant willfully suppressed any information/fact from the department; that audit was conducted in the year 2008 and SCN was issued in June 2011, hence time barred. A plethora of case laws were also cited in support.

The AR supported the impugned order.

The Bench considered the submissions and inter alia observed -

On merits:

++ The cost relating to the e-mail and internet services, software maintenance and software licence fee, maintenance of IT services, systems support, etc. are managed centrally by BC Components International BV, Netherland and cost of the same is then allocated to their various companies of the group based on the logical basis like number of users and system usages. The share of such IT cost allocated to the appellant is paid by them to M/s. BC Components International BV, Netherland.

++ This clearly shows that there is relation of service provider and recipient of the service and the payment made towards such service is a consideration paid by the appellant to service provider, BC Components International BV, Netherland.

++ Since against the service, payment is made, whether it is on cost sharing basis or otherwise the same is considered as gross value of the service and merely by giving term 'cost sharing' it does not take … the nature of consideration towards service.

++ For the purpose of Finance Act, 1994, BC Components International BV, Netherland and the appellant are two different entity. Accordingly the relationship is clearly of service provider and service recipient.

++ In the context of the present case as per the nature of the service it is internet service and online information service that includes database service, provision of information on website, data retrieval etc.

++ Taking into consideration overall facts, it is clear that appellant have received the service and paid consideration to BC Components International BV, Netherland, therefore, they are liable to pay service tax on reverse charge mechanism.

Limitation:

++ We find that appellant have not disclosed the said arrangement to the department and it is only come to the notice of the department while conducting audit, therefore, appellant have suppressed the fact from the department.

Revenue neutrality:

++ Except mere submission, they (appellant) have not adduced any evidence such as they are eligible for Cenvat credit, whether they discharged excise duty from PLA etc. In absence of such evidence, Cenvat credit cannot be extended to the appellant.

The case laws cited by the appellant were distinguished by observing that in all the judgments, sharing of cost was within the group company in India, whereas in the present case all the service charges were paid by the appellant to their group company i.e. BC Components International BV, Netherland and the two were different entities by fiction of law under Finance Act.

In fine, the impugned order was sustained and the appeal was dismissed.

(See 2017-TIOL-3884-CESTAT-MUM)