BCA Landmark cases - bcasonline.orgFreight Forwarder Ocean Freight Surplus 11th January 2017 25 A....

22 11

Important CaseImportant Case--laws of 2016 in Service taxlaws of 2016 in Service tax

ByBy

A. R. Krishnan A. R. Krishnan

J 11 2017J 11 2017January 11, 2017January 11, 2017

Bombay Chartered Accountants SocietyBombay Chartered Accountants Society

CAVEATS

Case laws have been grouped topic wise Case laws have been grouped topic wise.

Not all significant cases of 2016 have been covered – but

important ones have been covered.

Any bias in selection/ omission may be condoned.

In some cases only some issues have been considered.

11th January 2017 A. R. Krishnan & Co.2

y

The analysis herein is cryptic & no substitute for actual

reading of the cases.

22 22

CROSS BORDER TRANSACTIONS

M/s. Tech Mahindra v. CCE [2016-TIOL-709-CESTAT-MUM]

Genom Biotech Pvt. Ltd. v. CCE&C [(2016) 42 STR 918 (Tri. – Mumbai)]

3i Infotech v. CST [2016-TIOL-3340-CESTAT-MUM]

SBI Cards & payment services Pvt. Ltd. v. CST [(2016) 41 STR 846 (Tri.-Del.)]


Citibank N.A. v. CST [(2016) 43 STR 445 (Tri.-Chennai)]

Tech Mahindra v. CCE(2016) 44 STR 71 (Tri. – Mumbai)

2016-TIOL-709-CESTAT-MUM

Facts Salary of deputed employees for on-site

activity abroadA R i Overseas

Branch

Funds towards expenses given to branch

Customers

Branch Expensesabroad

y

India

Outside India

A - Receipts

A-(B1+B2)= Net


H.O.

Company’s main businessDevelopment of software for overseas customers – Exports

22 33

PaymentPayment towardstowards expensesexpenses byby HOHO toto branchbranch

RCMRCM BASBAS u/su/s.. 6666AA readread withwith TaxationTaxation ofof servicesservices (provided(provided

formform OutsideOutside IndiaIndia andand receivedreceived inin India),India), Rules,Rules, 20062006

Demand based on -

[“Import[“Import Rules”]Rules”]

(i)(i) BranchBranch andand HOHO differentdifferent personspersons..

(ii)(ii) ActivitiesActivities ofof branchbranch forfor renderingrendering serviceservice toto HOHO..

Decision


OverseasOverseas branchbranch andand HOHO areare distinctdistinct entitiesentities forfor thethe purposepurpose

ofof ss.. 6666AA ofof FinanceFinance ActAct..

ButBut ss.. 6666AA toto bebe readread withwith ImportImport RulesRules..

“3. Taxable services provided from outside India and received in India. - Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services -

Rule 3 of Import RulesCont…

(i) *****(ii) *****(iii) specified in clause (105) of section 65 of the Act, but excluding -(a) sub-clauses (zzzo) and (zzzv);(b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d) (zzzc) (zzzr)


provision of taxable services specified in clauses (d),(zzzc),(zzzr) and (zzzzm) does not relate to immovable property; and(c) those specified in clause (ii) of this rule, be such services as are received by a recipient located in India for use in relation to business or commerce.”

22 44

Section 66A requires taxing of taxable services rendered by an

overseas branch to its head office but the two sets of Rules

[Import Rules & PoP Rules] limit tax demand only to the

DecisionCont…

extent that these services are received in India in relation to

business or commerce. A plain reading would make it

apparent that the services referred to must be for pursuit of

business or commerce in India.

Present case branch activity exclusively for export business.

Even if tax paid – refund available under Cenvat Credit Rules.

Exporter operating through branches clearly not target of legal

fiction of branches being distinct from head office.11th January 2017 A. R. Krishnan & Co.7

The intent of Section 66A to tax the overseas branch activity

rendered to its HO in India limited to Indian business activities

of head office.

Cont…

Mere existence as a branch for the overall promotion of

objectives of primary establishment in India which is essentially

an exporter of services does not render the transfer of financial

resources to the branch taxable under Section 66A.

A branch, by its very nature, cannot survive without resources

assigned by the head office but transfer of funds not within

the purview of service tax – either pre or post 2012.


22 55

Genom Biotech Pvt. Ltd. v. CCE&C(2016) 42 STR 918 (Tri. – Mumbai)

[EOU & Pharmaceuticals unit]Facts

Vendor Agreement for market promotion and publicity

Genom

promotion and publicity for sale of products

abroad

India

Outside India

Demand Period post 18.04.2006

RCM u/s. 66A on amount paid towards advertising services

Demand based on balance sheet – Expenditure in Foreign

Currency11th January 2017 9 A. R. Krishnan & Co.

• Import Rules intend to tax only such services provided by aforeign service provider to an Indian recipient for pursuit ofbusiness or commerce in India. It is not intended to taxservices that are rendered in connection with business of theservice recipient outside the territory of India as in the present

Decision

case. Hence Genom not liable to pay service tax on expensesincurred abroad for overseas business [exports] under reversecharge.

• “Services that are undeniably rendered by a foreign ‘serviceprovider’ in relation to the goods sold abroad cannot be

d t b d b th l i l ti i t t t t T tpresumed to be covered by the legislative intent to tax. To taxa service using the legal fiction of import and then reimbursethat tax because the service was not required for any activitywithin the country is an exercise in futility and is contrary tothe objectives of and means devised for export promotion bythe State.


22 66

3i Infotech v. CST

2016-TIOL-3340-CESTAT-MUM[Business of Software development for exports]

Facts

Independent Branch

Expenses abroad for Marketing & promotion

of software abroadOutside India

HOIndia

11th January 2017 11 A. R. Krishnan & Co.

RCM on expenses incurred by Branch abroad

Basis: Expenses shown in HO accounts under Expenditure in

Foreign currency

Demand

Assessee’s Contentions

HO and Branch are separate entities

Branch is the recipient of service and not HO

Foreign currency


Branch is the recipient of service and not HO

Hence recipient not in India

22 77

Relying on - British Airways, M/s. Tech Mahindra, GenomBiotech Pvt Ltd, assessee’s appeal allowed based on –

Inclusion of branch expenses in HO accounts does not mean

Decision

Inclusion of branch expenses in HO accounts does not meanForeign SP (FSP) has rendered services to HO.

Even if the payments are attributable to service rendered byforeign service providers to the appellant unless the recipient islocated in India, section 66A cannot be invoked.


Further, reference to 'business or commerce' in rule 3(iii) inImport Rules is restricted to 'business and commerce' in Indianot to 'business and commerce' outside India – No allegationthat FSP’s services not for overseas business.

CURRENCY CONVERSION CURRENCY CONVERSION TRANSACTIONS

[USE OF CREDIT/ DEBIT CARDS]


22 88

Visa / Master Card

100/100/

Visa / Master Card

Domestic Transaction Cross border Transaction

FACTS

IB

Card ME

(AB)

100/-100/-

100/-100/-100/-100/-

100/-100/-

IB

Card ME

(AB)

$ 100$ 100

$ 100$ 100$100$100

??

Cardholder ME

100/-100/-

IB= Issuing Bank

ME= Merchant Establishment

AB= Acquiring Bank

Cardholder ME

Rs. 6180/-Rs. 6180/-


1. Cost of goods in foreign currency (say) US$ 100

2. Exchange Rate (say)

(a) VISA exchange rate per USD (say) Rs. 60.00

Currency Conversion is as under:

(a) VISA exchange rate per USD (say) Rs. 60.00

(b) Appellant’s mark-up of about 3% of Rs.

60.00Rs. 1.80

. .

. INR for each USD Rs. 61.80

Cost of Goods recoverable in INR is 100 x 61.80 Rs. 6,180/-


IssueWhether service tax on “mark-up” [Rs. 1.80] isapplicable prior to 01.05.2006 under the category ofBanking and Other Financial Services as ‘credit cardservices’ ?

22 99

Tribunal held ‘mark up’ not liable for service tax - reasoning –

SBI Cards and payment services Pvt. Ltd. v. CST (2016) 41 STR 846 (Tri.-Del.)

Based on Standard Chartered Bank Larger Bench Decisionwhere it was held that interchange charges would not beconsidered as credit card service since scope of credit cardservices is not wide but restricted as captured by Para 2.2 ofthe Board Circular dated 9.7.2001 i.e. as meaning a servicewhere the customer is provided credit facility for


where the customer is provided credit facility forpurchase of goods and services; etc. On the same analogy,‘Mark-up’ charge directly attributable to the conversion ofcurrency is not covered under ‘credit card services’.

“Admittedly the card transaction happened outside India. Theservice in respect of such transaction is rendered, receivedand consumed outside India The card issuing appellant and

Cont…

and consumed outside India. The card issuing appellant andcardholder having normal residence in India is of noconsequence for tax liability on service rendered andconsumed outside India. The Tribunal’s decision in Cox &Kings India Ltd. (supra) is applicable to the present case. Theessence of taxability of service is that it should be taxed in thejurisdiction of its consumption. Here, the service, namely


jurisdiction of its consumption. Here, the service, namelyfacility of use of card for payment, is rendered outside Indiaand duly consumed by the recipient-cardholder outside India.We find service tax liability on such service is not sustainablefor want of jurisdiction”.

22 1010

Demand dropped - reasoning -

As regards credit card -

Citibank N.A. v. CST(2016) 43 STR 445 (Tri.-Chennai)

[Mark-up both on credit and debit card]

g the mark-up on foreign currency transaction in case of a credit

card is part of the cost of goods / services purchased by thecard holder and is not a consideration for extending creditfacilities.

‘mark-up’ is essentially a part of the exchange rate that is tobe applied for arriving at the cost of goods or services


purchased by the card holder and hence is a part of the cost ofgoods / services purchased which are recoverable from theuser and is not a consideration for the services of providingcredit to the user.

Also SBI Cards and Payment Services Pvt. Ltd. followed

As regards debit card –

Department not correct in demanding service tax on ‘mark-up’

Cont…

Department not correct in demanding service tax on mark upin respect of debit card transactions under ‘operation of bankaccount’ under Banking and Other Financial Services thoughissue identical to ‘mark-up’ in respect of ‘credit card’transactions.

In any case ‘mark-up’ (in debit card also) is essentially to


y p ( ) ymeet the foreign exchange fluctuations for arriving the cost ofthe goods/ services purchased by the card holder.

22 1111

FREIGHT FORWARDER (AIRLINE & SHIPPING INDUSTRY)

Greenwich Meridian Logistics (I) Pvt. Ltd. [(2016) 43 STR 215 (Tri-Mum)]

DHL Lemuir Logistics Pvt. Ltd. [2016-TIOL-1455-CESTAT-MUM]

Phoenix International Freight Services P. Ltd. [2016-TIOL-2353-CESTAT-MUM]

Global Transportation Services Pvt Ltd [2016 TIOL 20 ARA ST]


Global Transportation Services Pvt. Ltd. [2016-TIOL-20-ARA-ST]

Circular No. 197/7/2016-ST dated 12.08.2016

Shipping industry2 Scenarios

Freight Forwarder Steamer Agent

Issue


Applicability of service tax on Ocean Freight Surplus (OFS)

22 1212

Ocean Freight received from Shipper for transportation of goods by sea in international waters

10,000/-

Freight Forwarder – OFS

Amount Paid to shipping line for slot 8,000/-Profit 2000/-

Whether profit is liable for Service Tax?

ISSUE


• Pre 1/7/12 under BAS

• Post 1/7/12 as ‘service’

Ocean Freight received from shipper for transportation of goods

10,000/-

Tariff rate payable to principal (Shipping line) 9,000/-

Streamer Agent - OFS

Less: Agency Commission 5% on Rs. 9,000/- 450/-Remitted to shipping line 8,550/-

Service Tax paid on agency commission of Rs. 450/-


ISSUEWhether service tax is payable on the Ocean Freight Surplus of Rs. 1,000/- [ Rs. 10,000 – Rs. 9,000/-]

22 1313

Freight ForwarderOcean Freight

Surplus


Greenwich Meridian Logistics (I) Pvt. Ltd. (2016) 43 STR 215 (Tri-Mum)

FACTSFACTSSteamerSteamer agencyagency businessbusiness AppellantAppellant aa steamersteamer agentagent –– receivingreceiving commissioncommission fromfrom ShippingShipping LineLine

onon whichwhich taxtax paidpaidonon whichwhich taxtax paidpaidFreightFreight forwardingforwarding businessbusiness AppellantAppellant alsoalso aa multimulti--modalmodal transporttransport operatoroperator wherebywhereby itit assumedassumed

responsibilityresponsibility forfor safesafe custodycustody ofof cargocargo asas commoncommon carriercarrier quaqua shippershipper ProcuresProcures containercontainer slotslot onon aa vesselvessel byby makingmaking paymentpayment ofof freightfreight toto

LineLine andand sellssells thethe samesame toto thethe shipper/shipper/ consignorconsignor atat aa profitprofit –– thethedifferencedifference beingbeing accountedaccounted asas ‘Ocean‘Ocean FreightFreight Surplus’Surplus’


differencedifference beingbeing accountedaccounted asas OceanOcean FreightFreight SurplusSurplus

Revenue’s contention – Freight forwarding Surplus AppellantAppellant hadhad undertakenundertaken toto dodo promotionpromotion && marketingmarketing ofof thethe servicesservices

ofof clientclient (presumably(presumably shippingshipping line)line) andand thethe oceanocean freightfreight surplussurplusearnedearned byby itit waswas liableliable forfor STST underunder BASBAS

22 1414

Ocean freight surplus not liable for ST under BAS

•• TheThe factfact thatthat oneone lineline ofof businessbusiness vizviz..,, steamersteamer agencyagency businessbusinessattractsattracts serviceservice taxtax onon commissioncommission doesdoes notnot ipsoipso factofacto meanmean allall

Tribunal held

receiptsreceipts ofof samesame kindkind areare exigibleexigible toto serviceservice taxtax.. Each source ofincome must be looked at independently relying on Bax Global IndiaLtd. v. CST [(2008) 9 STR 412 (Tri.-Bang.)]

•• TaxabilityTaxability ofof receiptreceipt doesdoes notnot dependdepend uponupon nomenclaturenomenclature inin A/A/cc..ss butbutbasedbased onon descriptiondescription && definitiondefinition ofof taxabletaxable serviceservice..


•• AppellantAppellant byby issuingissuing multimodalmultimodal B/LB/L takestakes responsibilityresponsibility ofof goodsgoods andandcommitscommits toto deliverydelivery atat consigneeconsignee endend –– toto ensureensure safesafe deliverydelivery ititcontractscontracts withwith carriercarrier withoutwithout dilutingdiluting itsits responsibilityresponsibility toto shipper/shipper/consignorconsignor –– shippershipper isis notnot privyprivy toto contractcontract betweenbetween thethe appellantappellantandand carriercarrier

•• Space/Space/ slotsslots areare bookedbooked inin vesselvessel byby appellantappellant inin anticipationanticipation ofof

demanddemand andand riskrisk ofof nonnon--usageusage ofof procuredprocured spacespace devolvesdevolves uponupon thethe

appellantappellant –– suchsuch assumptionassumption ofof riskrisk doesdoes notnot fallfall withinwithin scopescope ofof

agencyagency functionfunction

Contd…

agencyagency functionfunction

•• PaymentPayment ofof freightfreight toto shippingshipping lineline && collectioncollection ofof freightfreight fromfrom shippershipper

areare twotwo independentindependent principalprincipal toto principalprincipal transactionstransactions

• The Ocean freight surplus earned arises from purchase and sale of

space and not by acting for a client who has space or slot on a vessel.


• The purchase and sale of space is on own a/c of appellant & not as

promotion/ marketing of a client [Shipping line]

HENCEHENCE OCEANOCEAN FREIGHTFREIGHT SURPLUSSURPLUS WOULDWOULD NOTNOT BEBE LIABLELIABLE FORFOR SERVICESERVICE

TAXTAX UNDERUNDER BUSINESSBUSINESS AUXILIARYAUXILIARY SERVICESSERVICES

22 1515

DHL Lemuir Logistics Pvt. Ltd.2016-TIOL-1455-CESTAT-MUM

[Analysis only to the extent of freight forwarder issue]

AppellantsAppellants engagedengaged byby consignorsconsignors forfor transporttransport ofof goodsgoods throughthrough AppellantsAppellants engagedengaged byby consignorsconsignors forfor transporttransport ofof goodsgoods throughthrough

airlineairline.. TheyThey prepre--bookbook spacespace fromfrom airlineairline atat reducedreduced raterate && givegive

thethe spacespace toto customerscustomers onon incentive/incentive/ profitprofit recordedrecorded inin booksbooks asas

‘airline‘airline incentive’incentive’


RevenueRevenue demandeddemanded STST onon thesethese incentivesincentives onon thethe groundsgrounds thatthat

thethe samesame waswas aa considerationconsideration forfor marketingmarketing ofof servicesservices providedprovided

byby thethe clientclient..

TribunalTribunal HeldHeld::--

PrePre--bookingbooking ofof slotslot fromfrom airlineairline && sellingselling samesame toto consignorconsignor –– 22 independentindependent

transactiontransaction

Appellant’sAppellant’s clientclient isis consignorconsignor && notnot thethe airlineairline.. SpaceSpace offeredoffered byby airlineairline notnot

marketedmarketed butbut prepre bookedbooked spacespace (brought)(brought) isis soldsold byby appellantappellantmarketedmarketed butbut prepre--bookedbooked spacespace (brought)(brought) isis soldsold byby appellantappellant

ClientClient beingbeing anan essentialessential ingredientingredient inin thethe renderingrendering ofof taxabletaxable serviceservice;; thethe clientclient isis

thethe oneone whowho payspays thethe considerationconsideration forfor renderingrendering ofof serviceservice.. NoNo recordrecord ofof anyany

receiptsreceipts flowflow fromfrom airlinesairlines asas clientsclients.. OnOn thethe contrary,contrary, thethe appellantappellant payspays thethe

airlinesairlines forfor bookingbooking ofof spacespace inin aircraftaircraft.. TheThe airlines,airlines, therefore,therefore, lacklack thethe

distinguishingdistinguishing characteristicscharacteristics ofof aa clientclient


distinguishingdistinguishing characteristicscharacteristics ofof aa clientclient..

ProcurementProcurement ofof spacespace onon ownown behalfbehalf && sellingselling itit toto consignorconsignor -- hencehence appellantappellant notnot

commissioncommission agentagent ofof airlineairline.. NotNot liableliable toto paypay serviceservice taxtax asas commissioncommission agentagent ofof

airlineairline..

GreenwichGreenwich MeridianMeridian LogisticsLogistics followedfollowed

22 1616

Phoenix International Freight Services P. Ltd.2016-TIOL-2353-CESTAT-MUM

NetNet incomeincome earnedearned asas freightfreight forwarderforwarder notnot liableliable forfor serviceservice taxtax

[Restricted to the analysis of freight forwarder ]

NetNet incomeincome earnedearned asas freightfreight forwarderforwarder notnot liableliable forfor serviceservice taxtax

sincesince

AppellantAppellant notnot renderingrendering anyany serviceservice eithereither toto customercustomer oror toto

thethe shippingshipping lineline.. NoNo BASBAS renderedrendered byby thethe appellantappellant

T ib lT ib l d i id i i ii G i hG i h M idiM idi L i tiL i ti dd DHLDHL


TribunalTribunal decisiondecision inin GreenwichGreenwich MeridianMeridian LogisticsLogistics andand DHLDHL

LemuirLemuir logisticslogistics followedfollowed

Global Transportation Services Pvt. Ltd.2016-TIOL-20-ARA-ST

WhetherWhether freightfreight marginmargin recoveredrecovered byby applicantapplicant fromfrom thethe shippershipper inin respectrespect ofof ––

Issue before AARIssue before AAR

(a)(a) OutboundOutbound shipmentshipment byby air/air/ seasea liableliable forfor STST inin viewview ofof RuleRule 1010 ofof PoPsPoPs RulesRules..

(b)(b) InboundInbound shipmentshipment byby air/air/ seasea bebe exemptedexempted fromfrom paymentpayment ofof serviceservice taxtax u/su/s..

6666DD ofof thethe ActAct..AAR heldAAR held

ApplicantApplicant contractscontracts withwith shippershipper toto provideprovide transportationtransportation ofof cargocargo &&

ti tti t ithith i li /i li / hi ihi i lili kiki && titi ff t t tit t ti ff


negotiatesnegotiates withwith airline/airline/ shippingshipping lineline seekingseeking spacespace && timetime forfor transportationtransportation ofof

cargocargo

ApplicantApplicant doesdoes notnot contractcontract withwith airline/airline/ shippingshipping lineline onon behalfbehalf ofof shippershipper asas

anan intermediaryintermediary

22 1717

Cont…•• InIn casecase ofof damage/damage/ destructiondestruction ofof cargocargo applicantapplicant toto havehave rightright toto

recoverrecover damagesdamages fromfrom airlineairline && shippershipper toto havehave rightright toto recoverrecover

damagesdamages fromfrom applicantapplicant –– applicant’sapplicant’s agreementagreement withwith airline/airline/

hh ll ll ll bb ddshippingshipping lineline isis onon principalprincipal toto principalprincipal basisbasis andand notnot asas anan agentagent..

•• SinceSince applicantapplicant providingproviding servicesservices onon ownown accountaccount itit isis notnot anan

‘intermediary’‘intermediary’.. Accordingly,Accordingly, PoPPoP ofof applicant’sapplicant’s servicesservices wouldwould bebe

governedgoverned byby RuleRule 1010 && notnot RuleRule 99(c)(c)..

•• InIn absenceabsence ofof specificspecific exclusionexclusion inin RuleRule 1010,, revenue’srevenue’s contentioncontention thatthat


onlyonly servicesservices ofof actualactual transportationtransportation ofof goodsgoods byby airline/airline/ shippingshipping

lineline wouldwould bebe coveredcovered u/ru/r.. 1010 isis incorrectincorrect.. EvenEven aa personperson whowho

arrangesarranges forfor suchsuch transportationtransportation ofof goodsgoods wouldwould bebe coveredcovered byby RuleRule

1010 ofof POPSRPOPSR..

Cont… SinceSince asas perper RuleRule 1010,, PoPPoP ofof outboundoutbound shipmentshipment waswas outsideoutside IndiaIndia nono

serviceservice taxtax wouldwould bebe payablepayable onon freightfreight marginmargin receivedreceived onon outboundoutbound

shipmentsshipments..

AsAs regardsregards freightfreight marginmargin onon inboundinbound shipmentsshipments AsAs regardsregards freightfreight marginmargin onon inboundinbound shipmentsshipments

PeriodPeriod uptoupto 0101..0606..20162016 -- sincesince transportationtransportation ofof goodsgoods byby aircraft/aircraft/

vesselvessel fromfrom placeplace outsideoutside IndiaIndia toto IndiaIndia wouldwould bebe coveredcovered underunder

negativenegative listlist –– ss.. 6666D(p)(ii)D(p)(ii) -- NoNo serviceservice taxtax wouldwould bebe payablepayable..

PostPost 0101..0606..20162016 -- airair freightfreight marginmargin onon inboundinbound shipmentshipment wouldwould bebe

exemptexempt underunder entryentry 5353 ofof NotNot.. 2525//20122012..


exemptexempt underunder entryentry 5353 ofof NotNot.. 2525//20122012..

NoNo commentscomments onon InboundInbound shipmentshipment byby vesselvessel postpost 0101..0606..20162016..

22 1818

Freight Forwarding Transaction Fact Proof

Some musings

Document

MTD Only separate invoice

House B/L,


Airway bill

CBEC Circular

Board had issued a Circular wherein it has pointed out certain

crucial factors to determine when freight forwarders act as a

Circular No. 197/7/2016-ST dated 12.08.2016On Freight Forwarding

crucial factors to determine when freight forwarders act as a

principal. They are:-

They negotiate rates with carriers as well as shippers;

They raises invoice on the shippers;

They take legal responsibility for the transportation of the


They take legal responsibility for the transportation of the

goods and undertake all the attendant risks.

FF when acts as a principal - not liable to pay service tax in case of outbound shipments

22 1919

Ocean Freight received from shipper for transportation of goods

10,000/-

Tariff rate payable to principal (Shipping line) 9,000/-

Steamer Agent Surplus

Less: Agency Commission 5% on Rs. 9,000/- 450/-Remitted to shipping line 8,550/-

Service Tax paid on agency commission of Rs. 450/-


ISSUE REMAINS AN ISSUE ?

Any Defence ?

‘Freight Surplus’ retained by agent– Whether liable

‘Surplus’ still part of ocean freight – character not altered due to

agent retaining it – not commission for agency services.

The surplus retained by the agent would remain a contractual The surplus retained by the agent would remain a contractual

liability as per the terms of the agreement with shipping line and

also as per the general law of agency (section 216 of the Indian

Contract Act, 1872)

Being a contractual liability – Not consideration for agency


g y g y

services – Not liable [Grey Worldwide (I) Pvt. Ltd. v. CST (2015)

37 STR 597 (Tri.-Mum.) / 2014-TIOL-1650-CESTAT-MUM; Lintas

India Pvt. Ltd. v. CST 2014-TIOL-2125-CESTAT-MUM]

22 2020

Section 216 of the Indian Contract Act,1872 which reads as

under:

“216. Principal’s right to benefit gained by agent dealing

on his own account in the business of agency. If an agent,

without the knowledge of his principal, deals in the business of

the agency on his account instead of on account of his


the agency on his account instead of on account of his

principal, the principal is entitled to claim from the agent any

benefit which may have resulted to him from the transaction.”

CENVAT CREDIT

M/s. Marudhan Motors v. CCE & ST [2016-TIOL-2576-CESTAT-DEL (SMC)]

Tricity Auto v. CCE [2016 (44) STR 601 (Tri-Chan.)(SMC)]

M/s. TFL Quinn India Pvt. Ltd. v. CCE [2016-TIOL-856-CESTAT-HYD (SMC)]

Godfrey Philips India Ltd. v. CCE [2016-TIOL-3096-CESTAT-MUM]

Jawahar SSK Ltd. v. CCE [(2016) 46 STR 396 (Tri. – Mum.)]

Tata technologies Ltd. v. CCE [(2016) 42 STR 290 (Tri. – Mum.)]

Aster Pvt. Ltd. v. CCE [(2016) 43 STR 411 (Tri. – Hyd.)]

OTHER IMPORTANT CASE LAWS ON CENVAT CREDIT


Zapak Digital Entertainment Ltd. v. CST [2016-TIOL-3323-CESTAT-MUM]

Vamona Developers Pvt. Ltd. v. CCCE & ST [(2016) 42 STR 277 (Tri. – Mum.)]

Reliance Industries Ltd. v. CCE [(2016) 45 STR 383 (Tri. – Mum.)]

Essar Steel India Ltd. v. CCE & ST [(2016) 42 STR 869 (Tri. – Ahmd.)]

22 2121

RULE 6

Reversal / payment on account of cenvat credit attributable to exempted service - present broad position w.e.f. 1.4.2016

RULE 6

Reversal / payment on account of cenvat credit attributable to exempted service - present broad position w.e.f. 1.4.2016 No credit allowed on input/input services used exclusively for exempt

services [ES].

Full credit on input / input service [FC] used exclusively for taxable services

No credit allowed on input/input services used exclusively for exemptservices [ES].

Full credit on input / input service [FC] used exclusively for taxable services[TS] allowed.

Common Credit (“CC”) for TS and ES –

Avail entire credit but pay specified % of exempt turnover [ET] subject tomax. of total credit taken [“% option”]

Reduce CC proportionately i.e. in ratio of exempt / total turnover [TT]and avail balance [“proportionate option”]

[TS] allowed.




Intimate exercise of proportionate option and follow prescribed procedure

Trading –

‘exempted service’ – listed in negative list [S.66D(e)]

Value = Higher of – Margin or 10% of Cost of Goods Sold

Intimate exercise of proportionate option and follow prescribed procedure

Trading –

‘exempted service’ – listed in negative list [S.66D(e)]

Value = Higher of – Margin or 10% of Cost of Goods Sold11th January 2017 41 A. R. Krishnan & Co.

ISSUES

Whether Trading is an exempted service prior to

1.4.2011

If so any cenvat credit needs to be reversed

Whether credit can be reversed under proportionate

th d b d t di i i l t

11th January 2017

method based on trading margin i.e. law post

1.4.2011

A. R. Krishnan & Co.42

22 2222

Cenvat credit reversalCenvat credit reversal

•• Proportionate method Proportionate method –– Whether FC to be considered or CC Whether FC to be considered or CC

credit to be considered i.e.credit to be considered i.e.

•• Whether proportionate method allowed if option not Whether proportionate method allowed if option not

exercised?exercised?

FC XET

TTCC X

ET

TTOR

exercised?exercised?

•• If option not exercised, whether specified % option on ET If option not exercised, whether specified % option on ET

can be collected irrespective of amount of credit available?can be collected irrespective of amount of credit available?

4311th January 2017 A. R. Krishnan & Co.

Treatment of Trading activityAMENDMENT w.e.f. 01.04.2011

Trading considered as ‘exempted service’ by way of

explanation to rule 2(e) defining exempted serviceexplanation to rule 2(e) defining exempted service

[Post 1.7.12 Negative List – S. 66D(e)]

Value of Traded Goods – Greater of

44

Sales price minus Cost of goods Sold (excluding purchase expenses)

10% of Cost of goods sold


[Margin based formula]

22 2323

M/s. Marudhan Motors v. CCE & ST, 2016-TIOL-2576-

CESTAT-DEL (SMC), Tribunal held that activity of trading

cannot be considered as exempted service prior to 1.4.2011.

Therefore no cenvat credit needs to be reversed.

M/s. Marudhan Motors v. CCE & ST, 2016-TIOL-2576-

CESTAT-DEL (SMC), Tribunal held that activity of trading

cannot be considered as exempted service prior to 1.4.2011.

Therefore no cenvat credit needs to be reversed.

N.B. Orion not considered

Tricity Auto v. CCE, 2016 (44) STR 601 (Tri-Chan.)(SMC),

Tribunal held that prior to 1.4.11 trading not an exempted

N.B. Orion not considered

Tricity Auto v. CCE, 2016 (44) STR 601 (Tri-Chan.)(SMC),

Tribunal held that prior to 1.4.11 trading not an exempted

11th January 2017

p g p

service and provisions of rule 6(3)(ii)[re: reversal of cenvat

credit] not applicable.

N.B. No comment whether reversal is required or not

p g p

service and provisions of rule 6(3)(ii)[re: reversal of cenvat

credit] not applicable.

N.B. No comment whether reversal is required or notA. R. Krishnan & Co.45

M/s. TFL Quinn India Pvt. Ltd. v. CCE, 2016-TIOL-856-

CESTAT-HYD (SMC) where Tribunal held –

M/s. TFL Quinn India Pvt. Ltd. v. CCE, 2016-TIOL-856-

CESTAT-HYD (SMC) where Tribunal held –

Trading cannot be considered as service or exempted

service prior to 1.4.2011.

Some portion of credit needs to be reversed

Proportionate formula post 01.04.2011 can be adopted

Trading cannot be considered as service or exempted

service prior to 1.4.2011.

Some portion of credit needs to be reversed

Proportionate formula post 01.04.2011 can be adopted

11th January 2017

prior to 01.04.2011 also for computing the reversal of

credit attributable to trading

prior to 01.04.2011 also for computing the reversal of

credit attributable to trading


22 2424

Godfrey Philips India Ltd. v. CCE, 2016-TIOL-3096-CESTAT-MUM[Only one of the issue taken for study]

FACTS

Business of manufacturing and trading in cigarettes

HODelhi(ISD)

FactoryMumbai (Registered)

D1 D2 D3 D4


D1(ISD)

D2(ISD)

D3(ISD)

D4(ISD)

Clearing Excisable goods

Trading Excisable goods

Trading Trading TradingExcisable goods

Excisable goods

Factory avails credit of input, input services and capital goods

At depots no credit availed on input services exclusively used

for trading

Factory avails credit of input, input services and capital goods

At depots no credit availed on input services exclusively used

for trading

Common credit at HO and depots distributed to factory as ISD Common credit at HO and depots distributed to factory as ISD

MAIN ISSUE Prior to 1.4.2011, if cenvat credit attributable to trading is to


be reversed, what is the formula based on which it needs to

be reversed

22 2525

The issue was only on common input services to be

reversed No contest was made on –

Wh th t di i t i i t 1 4 2011

The issue was only on common input services to be

reversed No contest was made on –

Wh th t di i t i i t 1 4 2011• Whether trading is an exempt service prior to 1.4.2011

• Is there a need for reversal

Appellant argued formula prescribed post 1.4.2011 to be used

for pre 1.4.2011 i.e. margin based instead of total sales value

since margin indicates value addition

• Whether trading is an exempt service prior to 1.4.2011

• Is there a need for reversal

Appellant argued formula prescribed post 1.4.2011 to be used

for pre 1.4.2011 i.e. margin based instead of total sales value


11th January 2017


Department’s contention - common service credit attributable

to trading to be based on total sales value of trading and not

margin based.


Department’s contention - common service credit attributable

to trading to be based on total sales value of trading and not

margin based.A. R. Krishnan & Co.49

In the words of the Tribunal

“We do not find that for apportioning the service tax credit

of common services used between the dutiable

f t d d d t d d d th V l dditi

In the words of the Tribunal

“We do not find that for apportioning the service tax credit

of common services used between the dutiable

f t d d d t d d d th V l dditimanufactured goods and traded goods the Value addition

of traded goods has any relevance. The formula

prescribed for the period after 01.04.2011 does not

provide reasonable estimate of the credit attributable to

the exempted and dutiable activities Futhermore the

manufactured goods and traded goods the Value addition

of traded goods has any relevance. The formula

prescribed for the period after 01.04.2011 does not

provide reasonable estimate of the credit attributable to

the exempted and dutiable activities Futhermore the

11th January 2017

the exempted and dutiable activities. Futhermore, the

formula sought to be adopted by the appellants is not the

formula prescribed for the period after 01.04.2011”

the exempted and dutiable activities. Futhermore, the

formula sought to be adopted by the appellants is not the

formula prescribed for the period after 01.04.2011”


22 2626

Tribunal concurred with department based mainly on following

arguments –

• Formula [Margin based] not suitable since if value of trading is based

on value addition / margin then value of manufactured goods also

h ld b l ‘ ’ / l dd f l

Tribunal concurred with department based mainly on following

arguments –

• Formula [Margin based] not suitable since if value of trading is based

on value addition / margin then value of manufactured goods also

h ld b l ‘ ’ / l dd f lshould be only ‘margin’ / value addition – say Manufacturing value

minus cost of raw materials. [Para 4.15(a) and (b)]

• Appellant’s argument that the post 1.4.2011 formula has to be

applied only on common input service credit at depots is incorrect

- the factory input service also needs to be considered. [Para 4.15

should be only ‘margin’ / value addition – say Manufacturing value

minus cost of raw materials. [Para 4.15(a) and (b)]

• Appellant’s argument that the post 1.4.2011 formula has to be

applied only on common input service credit at depots is incorrect

- the factory input service also needs to be considered. [Para 4.15

11th January 2017

(c)]

• If the reversal is only in respect of common credit at depots, sales

value is a fair formula for apportioning since most of the services

cost on the basis of the value or volume or weight or turnover.

(c)]

• If the reversal is only in respect of common credit at depots, sales

value is a fair formula for apportioning since most of the services

cost on the basis of the value or volume or weight or turnover.A. R. Krishnan & Co.51

As regards Tribunal’s contention that total cenvat credit to be

considered and not common the following points to be noted:

As regards Tribunal’s contention that total cenvat credit to be

considered and not common the following points to be noted:

• That was not the issue under consideration.

• The observation that “Total cenvat credit” and not merely

“common cenvat credit” is to be taken for reversal is an

‘obiter’ [a passing observation]. It was not considered

l t t t l i H it t h

• That was not the issue under consideration.

• The observation that “Total cenvat credit” and not merely

“common cenvat credit” is to be taken for reversal is an

‘obiter’ [a passing observation]. It was not considered

l t t t l i H it t h

11th January 2017

relevant to come to a conclusion. Hence, it may not have

precedential value.

relevant to come to a conclusion. Hence, it may not have

precedential value.


22 2727

Jawahar SSK Ltd. v. CCE, (2016) 46 STR 396 (Tri. – Mum.)

FACTS

Appellant manufacturer of sugar / molasses

Jawahar SSK Ltd. v. CCE, (2016) 46 STR 396 (Tri. – Mum.)

FACTS

Appellant manufacturer of sugar / molassespp g

Generated electricity from baggase (non-excisable goods)

-Partly for captive use; partly sold to MSEB

No separate accounts of input / input services for captive

use and sales

pp g

Generated electricity from baggase (non-excisable goods)

-Partly for captive use; partly sold to MSEB

No separate accounts of input / input services for captive

use and sales

11th January 2017

use and sales

Revenue demanded 10 / 5% of MSEB sales u/r. 6(3)

use and sales

Revenue demanded 10 / 5% of MSEB sales u/r. 6(3)


Tribunal held –

• Since baggase is non-excisable demand u/r. 6(3) not

sustainable since Rule 6 applies only to dutiable and

exempted goods.

Tribunal held –

• Since baggase is non-excisable demand u/r. 6(3) not

sustainable since Rule 6 applies only to dutiable and

exempted goods.

• Cenvat credit reversible on input / input services to the

extent used in generation of electricity sold to MSEB.

• Tribunal identified common inputs / input services used for

generation of electricity (captively used and sold) and

• Cenvat credit reversible on input / input services to the

extent used in generation of electricity sold to MSEB.

• Tribunal identified common inputs / input services used for

generation of electricity (captively used and sold) and

11th January 2017

directed reversal of credit only to the extent used for

generation of electricity sold.

Comment: Advances the concept that reversal to be done only of

common credit when Rule 6(3) not applicable.

directed reversal of credit only to the extent used for

generation of electricity sold.

Comment: Advances the concept that reversal to be done only of

common credit when Rule 6(3) not applicable.A. R. Krishnan & Co.54

22 2828

“Total Cenvat Credit Taken” – whether includes input services excl. for taxable services or only common input services ?

Two ViewsTwo Views

Lit l P i Literal Interpretation

“Total Cenvat Credit Taken” includes inputs excl. for taxable services

Purposive Construction

• R. 6(2) which deals only with separate recordsfor common inputs [Cir. 754 dtd. 9.10.03 &Eicher Tractors v. CCE (2000)116 ELT 712 ]. R.6(3) which is an option to r. 6(2) must also beinterpreted as applicable only for common


services. inputs.

• Rule 6(3)(ii) - purpose to exclude creditattributable to “exempt” service

Good case inputs excl. for taxable services would not be subject to proportionate option

55

RULE 6

Reversal / payment on account of cenvat credit attributable to exempted service - present broad position w.e.f. 1.4.2016

RULE 6

Reversal / payment on account of cenvat credit attributable to exempted service - present broad position w.e.f. 1.4.2016 No credit allowed on input/input services used exclusively for exempt

services [ES].

Full credit on input / input service [FC] used exclusively for taxable services

No credit allowed on input/input services used exclusively for exemptservices [ES].

Full credit on input / input service [FC] used exclusively for taxable services[TS] allowed.




[TS] allowed.




N.B. When the provisions were introduced w.e.f. 01.04.2016 CBEC stated“……. (new provision) being drafted with the objective of simplifying andrationalizing the same without altering the established principles ofreversal of such credit”

N.B. When the provisions were introduced w.e.f. 01.04.2016 CBEC stated“……. (new provision) being drafted with the objective of simplifying andrationalizing the same without altering the established principles ofreversal of such credit”


22 2929

• Whether proportionate method allowed if option p p p

not exercised?

• If option not exercised, whether % option on ET

can be collected irrespective of amount of credit ?


Tata technologies Ltd. v. CCE, (2016) 42 STR 290 (Tri. – Mum.)

FACTS• Assessee providing taxable and exempt services for April –

September, 2008.

FACTS• Assessee providing taxable and exempt services for April –

September, 2008.September, 2008.

• ‘Proportionate option’ exercised after F.Y. and intimated on7.5.2009 [Credit reversed – Rs. 5,06,736/-]

• Revenue demanded 8% of exempt service [Rs. 1,62,52,969/-]since intimation of proportionate option –

September, 2008.

• ‘Proportionate option’ exercised after F.Y. and intimated on7.5.2009 [Credit reversed – Rs. 5,06,736/-]

• Revenue demanded 8% of exempt service [Rs. 1,62,52,969/-]since intimation of proportionate option –

11th January 2017

Mandatory;

Filed belatedly and not before exercising option;

Exercising the option belatedly amounts not exercising theoption.

Mandatory;

Filed belatedly and not before exercising option;

Exercising the option belatedly amounts not exercising theoption.


22 3030

TRIBUNAL HELD

Condition of filing declaration only directory not mandatory

Most details available with department

TRIBUNAL HELD

Condition of filing declaration only directory not mandatory

Most details available with department

Rule 6 cannot be used as tool of oppression to extract theamount which is much beyond the remedial measure and whatcannot be collected directly, cannot be collected indirectly, aswell

substantive compliance made by the assessee i e calculation of

Rule 6 cannot be used as tool of oppression to extract theamount which is much beyond the remedial measure and whatcannot be collected directly, cannot be collected indirectly, aswell

substantive compliance made by the assessee i e calculation of

11th January 2017

substantive compliance made by the assessee i.e. calculation ofthe amount of CENVAT Credit reversible on annual basis andpayment of the amount before the prescribed date (30TH June).Hence substantial benefit cannot be denied.

substantive compliance made by the assessee i.e. calculation ofthe amount of CENVAT Credit reversible on annual basis andpayment of the amount before the prescribed date (30TH June).Hence substantial benefit cannot be denied.


In the garb of Rule 6, the provisions of Section 93 of the

Finance Act, 1994 cannot be overridden and/or the

exemption provided under the Section 93 of the Finance Act,

1994 cannot be negated by the Cenvat Credit Rules which is1994 cannot be negated by the Cenvat Credit Rules, which is

a delegated legislation and subservient to the main Act.

Hence demand set aside

In Aster Pvt. Ltd. v. CCE (2016) 43 STR 411 (Tri. –

11th January 2017

Hyd.) the Tribunal held failure to intimate does not

result in losing choice of proportionate option.


22 3131

OTHER IMPORTANT CASE LAWS ON CENVAT

CREDIT

OTHER IMPORTANT CASE LAWS ON CENVAT

CREDIT


Rs.

Towards media charges (Gross spend) 100.00

Less: Discount @ 15% 15.00

Net Chargeable 85.00

BILL RAISED BY MEDIA ON AGENCY (Also name of advertiser mentioned)

Zapak Digital Entertainment Ltd. v. CST, 2016-TIOL-3323-CESTAT-MUM

g

Add: Service tax@ 15% 12.75

TOTAL 97.75

BILL RAISED BY AGENCY (On Advertiser)

Reimbursement of media cost Rs.

Broadcaster’s Value 85.00

Add: Broadcaster’s Service tax @ 15% 12 75


Add: Broadcaster s Service tax @ 15% 12.75

TOTAL - A 97.75

Ad. agency commission, say, 2.5% of Rs.100/- 2.50

Service tax on Ag. commission @15% 0.38

TOTAL – B 2.88

TOTAL (A+B) 100.63

22 3232

• Agency pays broadcaster. Thereafter advertiser

reimburses agency.

ISSUE

• Agency pays broadcaster. Thereafter advertiser

reimburses agency.

ISSUEISSUE

Whether advertiser entitled to take credit of Rs. 12.75

(broadcaster’s service tax)

Revenue denied credit contending –

ISSUE

Whether advertiser entitled to take credit of Rs. 12.75

(broadcaster’s service tax)

Revenue denied credit contending –

11th January 2017

• Broadcaster’s services input services for ad agency

• Invoice of broadcaster not on advertiser but on ad

agency.

• Broadcaster’s services input services for ad agency

• Invoice of broadcaster not on advertiser but on ad

agency.


Tribunal allowed credit and held –

• Agencies by definition work on behalf of their client.

• Advertising agency has engaged the broadcaster for the

purpose of advertisement and has merely acted as a conduit

Tribunal allowed credit and held –

• Agencies by definition work on behalf of their client.

• Advertising agency has engaged the broadcaster for the

purpose of advertisement and has merely acted as a conduit

for transfer of money from the advertiser to the

broadcaster.

• The invoices of the broadcaster clearly show the name of

advertiser as Zapak Digital Entertainment Ltd and name of

for transfer of money from the advertiser to the

broadcaster.

• The invoices of the broadcaster clearly show the name of

advertiser as Zapak Digital Entertainment Ltd and name of

11th January 2017

the advertising agency is mentioned and is an agent in the

said invoice.

• Invoices of the broadcaster is issued in the name of

advertiser.

the advertising agency is mentioned and is an agent in the

said invoice.

• Invoices of the broadcaster is issued in the name of

advertiser.A. R. Krishnan & Co.64

22 3333

Vamona Developers Pvt. Ltd. v. CCCE & ST, (2016) 42 STR 277 (Tri. – Mum.)

FACTS Assessee constructed a mall and registered under construction

Vamona Developers Pvt. Ltd. v. CCCE & ST, (2016) 42 STR 277 (Tri. – Mum.)

FACTS Assessee constructed a mall and registered under construction

and renting services in 2011

It sold 20% of constructed area

It availed 80% credit on input services and capital goods used

for construction of mall for the period June,2007 to

and renting services in 2011

It sold 20% of constructed area

It availed 80% credit on input services and capital goods used

for construction of mall for the period June,2007 to

11th January 2017

March,2011

Revenue denied credit since the services have only resulted in

an immoveable property which is neither excisable nor service

taxable.

March,2011

Revenue denied credit since the services have only resulted in

an immoveable property which is neither excisable nor service

taxable.A. R. Krishnan & Co.65

Tribunal held –

• The appellant had declared their intention of availing credit on

input services for discharging the service tax liability on renting

the units in the mall in 2011. There is no prohibition or restriction

on taking pre registration credit i e prior to 2011

Tribunal held –

• The appellant had declared their intention of availing credit on

input services for discharging the service tax liability on renting

the units in the mall in 2011. There is no prohibition or restriction

on taking pre registration credit i e prior to 2011on taking pre-registration credit. i.e prior to 2011

Differentiating the decision in Bharti Airtel Ltd. v. CCE (2014) 35 STR

865 (Bom.) and relying on –

• CCE v. Sai Samhita Storages, (2011) 23 STR 341 (AP)

• CCE v. Navaratna S.G.Highway prop. Pvt. Ltd., (2012) 28 STR

on taking pre-registration credit. i.e prior to 2011

Differentiating the decision in Bharti Airtel Ltd. v. CCE (2014) 35 STR

865 (Bom.) and relying on –

• CCE v. Sai Samhita Storages, (2011) 23 STR 341 (AP)

• CCE v. Navaratna S.G.Highway prop. Pvt. Ltd., (2012) 28 STR

11th January 2017

166 (Tri. – Ahmd.)

• Mundra Ports & SEZ Ltd. v. CCE, (2015) 39 STR 726 (Guj.)

Tribunal held credit allowable [ratio being without the immovable

property renting services (taxable) cannot be rendered]

166 (Tri. – Ahmd.)

• Mundra Ports & SEZ Ltd. v. CCE, (2015) 39 STR 726 (Guj.)

Tribunal held credit allowable [ratio being without the immovable

property renting services (taxable) cannot be rendered]A. R. Krishnan & Co.66

22 3434

The credit was allowed under cl. (i) of rule 2(l) i.e.

‘any service used for providing an output service’

The credit was allowed under cl. (i) of rule 2(l) i.e.

‘any service used for providing an output service’

Tribunal also observed, pre 1.4.2011 services used for

“setting up” of premises was allowed as input service.

Post 1.4.2011, the words “setting up” was deleted.

Hence cenvat credit on input services used for

Tribunal also observed, pre 1.4.2011 services used for

“setting up” of premises was allowed as input service.

Post 1.4.2011, the words “setting up” was deleted.

Hence cenvat credit on input services used for

11th January 2017

p

construction of mall is eligible.

p

construction of mall is eligible.


Reliance Industries Ltd. v. CCE, (2016) 45 STR 383 (Tri. –

Mum.)

Post 1 4 2011 credit on services [e g outdoor catering health

Reliance Industries Ltd. v. CCE, (2016) 45 STR 383 (Tri. –

Mum.)

Post 1 4 2011 credit on services [e g outdoor catering health Post 1.4.2011, credit on services [e.g. outdoor catering, health

and fitness, etc.] used primarily for personal use or

consumption of an employee was not allowed. However,

Tribunal on facts found that outdoor catering services, club or

Association services and health and fitness services was

Post 1.4.2011, credit on services [e.g. outdoor catering, health

and fitness, etc.] used primarily for personal use or

consumption of an employee was not allowed. However,

Tribunal on facts found that outdoor catering services, club or

Association services and health and fitness services was

11th January 2017

utilized for business activity and hence allowed cenvat credit.utilized for business activity and hence allowed cenvat credit.


22 3535

Essar Steel India Ltd. v. CCE & ST, (2016) 42 STR 869 (Tri. –

Ahmd.)

In CCE v. Cadila Healthcare Ltd. (2013) 30 STR 3 (Guj.), the

Gujarat High Court held that cenvat credit on commission paid to

Essar Steel India Ltd. v. CCE & ST, (2016) 42 STR 869 (Tri. –

Ahmd.)

In CCE v. Cadila Healthcare Ltd. (2013) 30 STR 3 (Guj.), the

Gujarat High Court held that cenvat credit on commission paid toGujarat High Court held that cenvat credit on commission paid to

foreign agents (sales promotion) is not allowable.

Explanation inserted to definition of input service w.e.f. 3.2.2016

“Explanation - For the purpose of this clause, sales promotion

includes services by way of sale of dutiable goods on

Gujarat High Court held that cenvat credit on commission paid to

foreign agents (sales promotion) is not allowable.

Explanation inserted to definition of input service w.e.f. 3.2.2016

“Explanation - For the purpose of this clause, sales promotion

includes services by way of sale of dutiable goods on

11th January 2017

commission basis.”

Tribunal held that the explanation would have a retrospective

effect and allowed cenvat credit on commission paid to foreign

agents

commission basis.”

Tribunal held that the explanation would have a retrospective

effect and allowed cenvat credit on commission paid to foreign

agents A. R. Krishnan & Co.69

COST SHARING ARRANGEMENTS

Gujarat State Fertilizer & chemicals (GSFC) [2016-TIOL-198-SC-ST]

Mormugao Post Trust (MPT) [2016-TIOL-2843-CESTAT-MUM]

Reliance ADA Group Pvt. Ltd. [(2016) 43 STR 372 (Tri.Mum)]


Franco Indian Pharmaceutical (P) Ltd. [FIPPL] [(2016) 42 STR 1057 (Tri-Mum)]

22 3636

Gujarat State Fertilizer & chemicals (GSFC)2016-TIOL-198-SC-ST

FACTSReliance Industries supplies

HCN in pipelineIntermittent

hold tank with

•• Quantity of HCL received consumed in ratio of 60:40Quantity of HCL received consumed in ratio of 60:40

Incineration Charges 100

GACL Plant40%

hold tank withincineration

facility at GSFCpremises

GSFC Plant60%

•• Quantity of HCL received consumed in ratio of 60:40Quantity of HCL received consumed in ratio of 60:40

•• Both the parties contributed investment tank for developing facility at GSFC premisesBoth the parties contributed investment tank for developing facility at GSFC premises

•• Necessitated since it has to be used immediately both together could consume the Necessitated since it has to be used immediately both together could consume the

threshold supplythreshold supply

•• Arrangement between parties to share operative expenditure 50:50Arrangement between parties to share operative expenditure 50:5011th January 2017 71 A. R. Krishnan & Co.

Revenue’s ContentionRevenue’s Contention•• StorageStorage // holdingholding tanktank isis ‘storage‘storage facility’facility’

•• 5050%% shareshare paidpaid byby GACLGACL toto GSFCGSFC isis towardstowards ‘storage‘storage &&

warehousingwarehousing services’services’ liableliable u/su/s 6565((105105)()(zzazza))

Assessee’s ContentionAssessee’s Contention

•• On facts no storage and warehousing services providedOn facts no storage and warehousing services provided

•• StorageStorage tanktank notnot aa storagestorage facilityfacility -- onon safetysafety groundsgrounds storagestorage

ofof chemicalschemicals notnot permissiblepermissible chemicalschemicals receivedreceived inin oneone tanktank


ofof chemicalschemicals notnot permissiblepermissible –– chemicalschemicals receivedreceived inin oneone tanktank

onlyonly forfor convenienceconvenience purposepurpose

•• AmountsAmounts receivedreceived fromfrom GACLGACL waswas onlyonly shareshare ofof expensesexpenses asas

agreedagreed uponupon notnot towardstowards supplysupply ofof serviceservice..

22 3737

• For installation of facilities both parties contributed towards investment.

• Since handling facilities are in premises of GSFC, incineration also takes place

at GSFC’s premises.

Supreme Court held

• Handling facilities expenditure thereof is shared equally by both the parties as

per the agreement / arrangement.

• Based on facts handling portion and maintenance of facility in the nature of

‘Joint Venture’

• Payment by GACL to GSFC – towards share of expenditure incurred

• GSFC cannot be said to have provided service to GACL


• GSFC cannot be said to have provided service to GACL

• Service Tax demand under Storage and Warehouse services not sustainable.

• The question whether receiving of HCN through the said common pipeline in

the tank which is setup by the GFSC and GACL amounts to ‘storage’ was left

open.

Mormugao Post Trust (MPT) 2016-TIOL-2843-CESTAT-MUM

Agreement b/w MPT & SWPL whereby bids were invited in line with the Governments

policy of encouraging Private participation in the port sector through the Public Private

Partnership route (PPP for short)

MPT leased out land & water-front area to SWPL for license fees

SWPL constructs and operates two multi-purpose bulk cargo handling berths

MPT gives permission to conduct exclusive port operation

MPT maintenances general port infrastructure, pilotage, overseeing dock safety,

monitoring air and water pollution & scheduling entry berthing & sailing of vessel

etc.,


,

MPT earns-

• License fees on which it pays ST under renting of immovable property services

• Royalty @18% being share of revenue earned towards cargo handling charges – no

ST paid – treated as share in Joint Venture

22 3838

• Assessee & SWPL were jointly rendering port services & earning profit.

The relationship between them was that of a J/V & not that of a SP and

SR

• Activity undertaken by assessee for the venture was for his own benefit

Assessee Contention

Activity undertaken by assessee for the venture was for his own benefit

& there was no quid-pro-quo between them

• Capital contribution to J/V – transaction in money not liable [Reliance

on CBEC Circular 4179/5/2014 dated 24.9.14] So logically return on /

of capital from venture being transaction in money also not liable.

Department’s Contention


Department s Contention

• Cl. in agreement – obligation & liabilities not jointly / collective – no

partnership created

• Appellant does not bear any loss in J/V

Tribunal’s finding• On facts of the case royalty earned a reward for contribution of

grant of permission to conduct port business using water-front

Several services which it was statutorily obliged to provide to SWPL &

port usersport users

• Arrangement b/w assessee & SWPL is a ‘PPP’ in the nature of J/V – the

agreement evidenced a joint conduct over the operations

• Activity carried out by assessee for the venture cannot be said to be in the

nature of service as what it does is only to advance its own interest. There

is no intention to render service & there is no quid-pro-quo for such service


is no intention to render service & there is no quid pro quo for such service

accordingly such activities cannot be taxed.

• There being no estoppel in law the fact that the appellant started paying

tax on royalty after 1.7.2012 would not be relevant for determining liabilty

of past period

22 3939

• What the partner/co-venture does is for his own benefit

cannot ipso facto be considered as a service rendered to

the partnership (joint venture)

• The mere fact that the partnership (joint venture) mayThe mere fact that the partnership (joint venture) may

also benefit from the same is irrelevant as there is no

contract of service agreed upon or performed by the

partner (co-venturer) to the partnership (joint venture)

• There was no consideration agreed upon or provided


g p p

• Transaction b/w coventurer & J/V are governed by

partnership law - no stipulation in partnership law that

partner must necessarily share losses.

Reliance ADA Group Pvt. Ltd. (2016) 43 STR 372 (Tri.Mum)

Aircraft hiring service

Branding Services

Professional services

Custodianservices

RADAG

Aircraft hiring

i

Branding Services

Professional services

Custodianservices


service Se ces se ces se ces

R1 R2

22 4040

Cost Sharing Arrangement• CSA between RADAG - R1 & R2 – Purpose - Cost benefit

to group – by minimizing overall operational cost

• RADAG pays for the services and recovers the actual cost

from R1 & R2 in the ratio of estimated use of services by

them. Nothing more is recovered. No profit or loss.

ISSUE


• Are the payments a pure pass through or does RADAG

provide a ‘business Support services’ to the group Cos.,

R1 & R2

Findings of Tribunal• On facts, RADAG held to be a manager / trustee to procure service

on behalf of group entities. It carries out agency function of

procurement of services for participating group Cos. which share cost

& th& expenses thereon

• Amounts received are towards reimbursement of cost / expenses

incurred & not consideration for providing any service

• Perse it has not provided any specified service to participating group

Cos.


• Pure agent conditions prescribed u/r. 5(2) of Valuation Rules also

satisfied.

• Amounts recovered only towards actual cost – nothing more

SINCE NO TAXABLE SERVICE PROVIDED ST DEMAND NOT SUSTAINABLE

22 4141

• Reliance on following decisions

Tata Technologies Ltd. v. CCE (2007) 8 STR 358 (Tri.-

Mum.) - Tripartite agreement among TTL, Group entities and

SAP India. TTL only collected licence and maintenance fees

from group entities and paid to SAP India - TTL acted as a

payment conduit – No provision of service by TTL to group

entities

JM Financial Services Pvt. Ltd. Vs. CST 2014 (36) STR

151 (T i M ) th i b t f


151 (Tri – Mum) – the reimbursement of common expenses

[mainly electricity] received from the group entities is against

their share of expenses and held there was no provision of

service

Franco Indian Pharmaceutical (P) Ltd. [FIPPL] (2016) 42 STR 1057 (Tri-Mum)[Manufacturers of Pharmaceuticals products having a marketing network]

Group Co. 1

•• Lending services of employees for marketing of goods to Group Co’s.Lending services of employees for marketing of goods to Group Co’s.

FIPPL Group Co. 2

Group Co. 3E1 E2 E3 E4

•• Expenses incurred on employee recovered as percentage of value of sale madeExpenses incurred on employee recovered as percentage of value of sale made

Issue WhetherWhether assesseeassessee isis providingproviding BASBAS (promotion(promotion && makingmaking ofof goodsgoods belongingbelonging

toto GroupGroup co’s)co’s) andand thethe expensesexpenses recoveredrecovered cancan bebe saidsaid toto bebe aa considerationconsideration

forfor suchsuch servicesservices11th January 2017 82 A. R. Krishnan & Co.

22 4242

Recovery from Group Co’s. not liable under BAS•• AppellantsAppellants employeesemployees areare sentsent onon deputationdeputation toto groupgroup CosCos.. &&

deputeddeputed employeeemployee areare governedgoverned byby rules,rules, termsterms && conditionsconditions ofof

Tribunal Decision (Main reasoning)

deputeddeputed employeeemployee areare governedgoverned byby rules,rules, termsterms && conditionsconditions ofof

saidsaid groupgroup CosCos..

•• SaleSale effectedeffected byby employeesemployees areare consideredconsidered asas salesale byby groupgroup CosCos..

•• AfterAfter completioncompletion ofof jobjob employeesemployees areare deputeddeputed backback toto appellantappellant

•• RelianceReliance onon KK.. RahejaRaheja RealReal EstateEstate ServicesServices.. FinalFinal orderorder NoNo..


A/A/10481048//20132013 dateddated 1010..44..1313 –– wherewhere assesseeassessee startedstarted payingpaying

underunder BSSBSS fromfrom 11//55//20062006 butbut contestedcontested classificationclassification underunder

BAS]BAS]

Tribunal Decision (Alternate reasoning) •• EmploymentEmployment servicesservices outsideoutside ambitambit ofof STST prepre andand postpost ((--veve)) listlist

•• SigningSigning ofof employmentemployment letterletter jointlyjointly byby allall CosCos.. oror byby oneone ofof themthem andand lendinglending

thethe employeesemployees toto othersothers wouldwould notnot makemake aa differencedifference toto thethe taxabilitytaxability ofof

employmentemployment contractcontract

•• IfIf employmentemployment contractcontract silentsilent –– employeeemployee cancan refuserefuse toto workwork onon deputationdeputation //

secondmentsecondment.. HoweverHowever ifif hehe consentsconsents toto deputationdeputation // secondmentsecondment knowingknowing thatthat

hishis emolumentsemoluments areare paidpaid byby secondedseconded CoCo.. byby virtuevirtue ofof conductconduct ofof partiesparties itit

transformstransforms intointo jointjoint employmentemployment withwith severalseveral employersemployers [Referred[Referred toto DraftDraft

CircularCircular dateddated 2727..77..20122012 onon JointJoint employment]employment]


•• AbsenceAbsence ofof markupmarkup // marginmargin inin paymentspayments receivedreceived -- doesdoes notnot partakepartake charactercharacter

ofof considerationconsideration butbut aa purepure reimbursementreimbursement ofof costcost..

HENCEHENCE RECOVERYRECOVERY FROMFROM GROUPGROUP COSCOS.. TOWARDSTOWARDS EMPLOYEEEMPLOYEE DEPUTATIONDEPUTATION NOTNOT

LIABLELIABLE FORFOR SERVICESERVICE TAXTAX..

22 4343

MISCELLANEOUS CASE LAWS

N Bala Baskar v UOI [(2016) 43 STR 161 (Mad )] N. Bala Baskar v. UOI [(2016) 43 STR 161 (Mad.)]

Sumeet C. Tholle & Pratima S. Tholle v. CCE [(2016) 43

STR 110 (Tri.- Mum)]

Magarpatta Township Dev. & Construction Co. Ltd.

[(2016) 43 STR 132 (Tri.- Mum)]


[(2016) 43 STR 132 (Tri. Mum)]

N. Bala Baskar v. UOI(2016) 43 STR 161 (Mad.)

Maintainability of Writ Petition PetitionerPetitioner hadhad enteredentered intointo aa developmentdevelopment agreementagreement withwith developerdeveloper inin

respectrespect ofof aa plotplot ofof landland ownedowned byby himhim alongwithalongwith hishis siblingssiblings forfor

developmentdevelopment ofof aa landland intointo residentialresidential housinghousing complexcomplex wherebywhereby 6565%% ofof

constructedconstructed areaarea waswas toto bebe handedhanded overover toto thethe appellantappellant && hishis siblingssiblings &&

remainingremaining 3535%% alongwithalongwith undividedundivided shareshare inin landland waswas toto bebe takentaken overover byby

developerdeveloper..

UnderUnder thethe agreementagreement eacheach partyparty hadhad agreedagreed toto bearbear thethe respectiverespective serviceservice


taxtax && VATVAT liabilityliability pertainingpertaining toto itsits portionportion

SubsequentlySubsequently hehe filedfiled aa writwrit challengingchallenging thethe viresvires ofof BoardBoard CircularCircular NoNo..

151151//22//20122012 dateddated 1010..0202..20122012 basedbased onon whichwhich thethe developerdeveloper chargedcharged STST onon

thethe 6565%% ofof thethe constructedconstructed areaarea toto thethe petitionerpetitioner

22 4444

High Court’s Observation

HCHC dismisseddismissed thethe WPWP holdingholding petitionerpetitioner beingbeing aa personperson toto whomwhom thethe burdenburden ofof taxtax isis

ultimatelyultimately passedpassed onon hashas nono locuslocus standistandi toto challengechallenge aa levylevy && hencehence thethe writwrit filedfiled byby

thethe appellantappellant toto declaredeclare thethe circularcircular asas ultraultra viresvires waswas notnot maintainablemaintainable..

The contention that the person to whom the burden of tax is ultimately passed on is The contention that the person, to whom the burden of tax is ultimately passed on, is

entitled to challenge a levy, if accepted, would lead to disastrous consequences. Any

increase in the incidence of sales tax affects all consumers of all products. Therefore,

any person will be entitled to come and challenge the increase in the levy on the ground

that the manufacturer or dealer will eventually pass on the burden only to the ultimate

consumer. We can quote any number of examples of this nature. Every citizen is a


consumer of any number of products. Every Finance Act imposes an additional burden

upon many such products. Millions of consumers are entitled to come and challenge

such levies, if such a contention is accepted. Therefore, we are of the considered view

that the petitioner has no locus standi to challenge the above circulars.

High Court’s Observation

ToTo petitioner’spetitioner’s contentioncontention thatthat thethe transactiontransaction waswas onlyonly anan

exchangeexchange // transfertransfer ofof immovableimmovable propertyproperty thethe HCHC heldheld thatthat

effectivelyeffectively thethe developerdeveloper hashas providedprovided constructionconstruction servicesservices toto

SLPSLP againstagainst thethe aboveabove decisiondecision beforebefore SCSC dismisseddismissed byby

thethe petitionerpetitioner // landownerlandowner

AccordinglyAccordingly thethe writwrit petitionpetition waswas dismisseddismissed


thethe SCSC.. HoweverHowever SCSC observedobserved petitionerpetitioner entitledentitled forfor

refundrefund ifif permissiblepermissible byby lawlaw [[20162016--TIOLTIOL--225225--SCSC--ST]ST]

22 4545

Sumeet C. Tholle & Pratima S. Tholle v. CCE(2016) 43 STR 110 (Tri.- Mum)

FactsFacts ProcuresProcures aa 33 storiedstoried bungalowbungalow alongwithalongwith proportionateproportionate undividedundivided

interestinterest inin commoncommon areaarea andand facilitiesfacilities videvide salesale deeddeed dateddated3131 1212 201320133131..1212..20132013

ServiceService taxtax collectedcollected byby thethe developerdeveloper fromfrom thethe appellantappellant.. RefundRefund claimclaim filedfiled byby thethe appellantappellant rejectedrejected byby thethe RevenueRevenue onon

thethe followingfollowing groundsgrounds.. ProofProof ofof taxtax depositeddeposited withwith thethe govtgovt.. byby thethe developerdeveloper waswas notnot

furnishedfurnished


PlanPlan ofof househouse showedshowed thatthat withwith minorminor alterationalteration itit couldcould bebemademade intointo 33 unitsunits

ProjectProject ofof vendorvendor waswas notnot restrictedrestricted toto appellant’sappellant’s unitunit butbut totoaa largerlarger complexcomplex ofof whichwhich thethe unitunit waswas onlyonly aa partpart..

Tribunal’s Findings & Conclusion

ApplicantApplicant ofof refundrefund cancan onlyonly establishestablish taxtax hashas beenbeen

includedincluded inin amountsamounts mademade overover toto suppliersupplier –– evidenceevidence ofof

tt ff tt tt thth lili ii ditiditi ffpaymentpayment ofof taxtax toto thethe suppliersupplier isis necessarynecessary conditioncondition forfor

refundrefund butbut notnot evidenceevidence ofof depositdeposit ofof suchsuch taxtax..

TheThe planplan ofof thethe house,house, determinationdetermination ofof size,size, nono.. ofof doorsdoors oror itsits

potentialpotential adaptabilityadaptability inin futurefuture doesdoes notnot determinedetermine thethe coveragecoverage

underunder thethe definitiondefinition ofof ‘single‘single residentialresidential unit’unit’ asas defineddefined inin NotfNotf


underunder thethe definitiondefinition ofof ‘single‘single residentialresidential unit’unit’ asas defineddefined inin NotfNotf..

2525//20122012--STST dateddated 2020..0606..20122012.. Hence,Hence, rejectionrejection ofof applicant’sapplicant’s

claimclaim thatthat thethe transactiontransaction wouldwould bebe coveredcovered underunder entryentry 1414 ofof

aboveabove NotfNotf.. onon aboveabove groundsgrounds isis incorrectincorrect..

22 4646

DismissalDismissal ofof thethe refundrefund claimclaim byby relyingrelying onon definitiondefinition ofofss..6565((105105)()(zzzhzzzh)) && 6565((9191a)a) isis notnot legallylegally sustainablesustainable [since[since issueissuepertainspertains toto postpost negativenegative list]list].. TheThe wisdomwisdom ofof erstwhileerstwhile legislationlegislationmaymay undeniablyundeniably provideprovide insightsinsights toto prevailingprevailing legallegal provisionprovision butbutrecourserecourse toto thatthat erstwhileerstwhile statutestatute toto refuterefute contentioncontention ofofdisputantdisputant isis withoutwithout authorityauthority ofof lawlaw..pp yy

TheThe transactiontransaction betweenbetween applicantapplicant && thethe developerdeveloper isis notnotsatisfyingsatisfying conditioncondition forfor exclusionexclusion fromfrom thethe declareddeclared serviceservice [in[inrespectrespect ofof nono paymentspayments beforebefore completioncompletion certificate]certificate] oror forforinclusioninclusion underunder EntryEntry 1414 ofof NotfNotf.. 2525//20122012--STST dateddated 2020..0606..20122012(single(single unit)unit).. However,However, sincesince underunder thethe agreementagreement vendorvendorhadhad onlyonly renouncedrenounced allall rightsrights inin thethe propertyproperty thatthat waswas


yy gg p p yp p ytransferred,transferred, thethe transactiontransaction waswas forfor transfertransfer ofof immovableimmovablepropertyproperty byby wayway ofof salesale && hencehence excludedexcluded fromfrom ambitambit ofofdefinitiondefinition ofof ‘service’‘service’ asas defineddefined inin ss.. 6565B(B(4444)) && hencehence notnotliableliable forfor STST..

AccordinglyAccordingly thethe refundrefund claimclaim waswas admissibleadmissible..

Magarpatta Township Dev. & Construction Co. Ltd.(2016) 43 STR 132 (Tri.- Mum)

ServicesServices ofof ForeignForeign ArchitectArchitect availedavailed forfor designingdesigning andand planningplanning ofofvariousvarious commercialcommercial buildingbuilding –– STST liabilityliability dischargeddischarged onon considerationconsiderationpaidpaid toto SPSP

RevenueRevenue demandingdemanding STST onon incomeincome taxtax paidpaid toto thethe GovtGovt.. onon thethe saidsaid RevenueRevenue demandingdemanding STST onon incomeincome taxtax paidpaid toto thethe GovtGovt.. onon thethe saidsaidForeignForeign Architect’sArchitect’s servicesservices onon thethe basisbasis thatthat lumpsumlumpsum amountamount paidpaid totoforeignforeign partyparty isis netnet ofof taxestaxes..

Tribunal’sTribunal’s findingfinding onon FactsFacts && ConclusionsConclusions –– TaxTax dischargeddischarged onon amountamount paidpaid toto foreignforeign architectarchitect IncomeIncome taxtax paidpaid

byby appellantappellant outout ofof itsits ownown pocketpocket AppellantAppellant hadhad notnot recoveredrecovered thethe amountamount ofof incomeincome taxtax paidpaid fromfrom


pppp ppthethe serviceservice providerprovider && thatthat thethe incomeincome taxtax paidpaid isis notnot aaconsiderationconsideration forfor thethe servicesservices

InIn viewview ofof ss.. 6767 readread withwith RR.. 77((ii)) ofof ValuationValuation RulesRules1,, STST toto bebedischargeddischarged onlyonly onon amountsamounts billed/billed/ chargedcharged byby SPSP..

1 Deleted w.e.f. 01.07.2012

22 4747

Important CaseImportant Case--laws of 2016 in Service taxlaws of 2016 in Service tax

By ABy A. R. Krishnan . R. Krishnan

email: [email protected]: [email protected]

[email protected]@gmail.com

January 11 2017January 11 2017January 11, 2017January 11, 2017

Bombay Chartered Accountants SocietyBombay Chartered Accountants Society

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