ST - In absence of any consideration, there is no taxable service and, in absence of taxable service, leviability of tax would not arise: CESTAT
By TIOL News Service
MUMBAI, JAN 23, 2019: DURING the period April 2007 to March 2010, the appellant had deputed some of their employees, temporarily rendered surplus owing to lack of sufficient work, to a 100% Export oriented unit, of the same group of companies.
The salaries and other compensation of these employees was settled as inter-company dues as these employees continued to be on the rolls of the appellant while operationally deployed in the other.
The adjudicating authority held that this transaction was liable to tax under the category of 'Manpower recruitment or supply agency service'.
The appellant is before the CESTAT and submits that the demand is unsustainable in view of the decision in Arvind Mills Ltd. - 2013-TIOL-1455-CESTAT-AHM as approved by the Gujarat High Court - 2014-TIOL-441-HC-AHM-ST and on the decision in Spirax Marshall Pvt. Ltd. - 2016-TIOL-238-CESTAT-MUM which was upheld by the dismissal of appeal of Revenue by the Supreme Court.
While supporting the impugned order, the AR inter alia referred to the clarification of CBEC in F.No. 137/35/2011 dated 13th July 2011 and Circular no. 96/7/2007-ST dated 23 rd August 2007 elaborating the scope of taxability of 'manpower recruitment or supply agency'.
The Bench considered the submissions and observed that the decisions cited by the appellant relate to the period when the definition of taxable service was unamended. Inasmuch as the definition of taxable service was amended during the period in dispute to substitute 'commercial concern' with 'any person' and which resultantly stultified the applicability of those decisions. Insofar as the decisions cited by the AR, the Bench observed that in those cases the dispute was not on taxability but the inclusion of statutory deductions, such as provident fund, in the computation of taxable value. Moreover, the Board clarification did not cover the impugned issue as neither of those dealt with deputation of employees within the corporate group, the CESTAT added.
The Bench, therefore, noted that in the absence of any decision that provides precedent, it required the Tribunal to resort to an examination of the provisions of the Finance Act, 1994 to resolve the problem.
It was further observed –
+ The attempt of service tax authorities has been to bring the deputation of an employee whose salaries and compensation had been reimbursed by the borrowing company within the definition in section 65(105)(k) and the definition of 'manpower recruitment and supply agency' in section 65.
Adverting to the apex court decisions in Intercontinental Consultants and Technocrats Pvt. Ltd. - 2018-TIOL-76-SC-ST, Bengal Shrachi Housing Development Limited and anr - 2017-TIOL-414-SC-ST and Bombay Tyre International Ltd. and Ors - 2002-TIOL-33-SC-CX-LB, it was also observed –
++ Finding of the Hon'ble Supreme Court in re Intercontinental Consultants and Technocrats P Ltd. that the inclusion of value in section 66 imposing the tax on service restricted the scope of value to the service itself till the subsequent incorporation of Explanation in section 67 of Finance Act, 1994 would also lead to the further conclusion that levy of tax is permitted by law contingent upon there being a value inherent as consideration for the service and not a provision of service gratis to which a value could be assigned under the relevant Rules.
++ There is no allegation in the show cause notice, or in the impugned order, that the appellant had retained any amount from out of the payment received from the group company, thus, discrediting the receipt of any consideration by the appellant.
++ There is no provision in the relevant rules for computing the value in the absence of consideration even though provisions exist for monetising consideration other than in money. Absence of consideration is not the same as uncountable consideration requiring rules for conversion.
Concluding that in the absence of any consideration, there is no taxable service and, in the absence of taxable service, leviability of tax would not arise, the appeal was allowed.
(See 2019-TIOL-272-CESTAT-MUM)
