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Case Number

Appeal No. ST/00243/2011

Attorney(S)

Shri Raghavan Ramabadran, Advocate ;
Shri K. Veerabhadra Reddy, JC (AR)

Judges

Sulekha Beevi C.S., Member (Judicial)
Madhu Mohan Damodhar, Member (Technical)

Acts

Rule 3(ii) of the Taxation of Services

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The appellant is a wholly owned subsidiary of Standard Chartered Bank, U.K., providing back-end IT/ITES support to group branches worldwide including India. During an audit, the Department found that the appellant had availed Cenvat credit on certain input services which the Department contended were not eligible, and that the appellant had rendered Commercial Coaching and Training Services both in India and abroad and was liable to pay service tax on a forward and reverse charge basis.

A Show Cause Notice was issued proposing to (a) disallow the Cenvat credit claimed on input services, (b) demand short-paid service tax (including amounts attributable to Commercial Coaching and Training Services), (c) charge interest, and (d) impose penalties. The Original Authority disallowed input credit amounting to Rs. 2,09,28,910 for April 2005 to December 2008 and ordered recovery with interest. The Original Authority also confirmed a demand of Rs. 12,83,005 as service tax on Commercial Coaching and Training Services for January 2005 to December 2007, appropriated Rs. 6,83,897 paid by the appellant, confirmed interest and imposed equal penalties. The appellant appealed to the Tribunal challenging these findings.

Legal Issues Presented

Whether the appellant was eligible to claim Cenvat credit on the input services (outdoor catering, rent-a-cab, cargo handling/packers and movers, and event management) disallowed by the Original Authority on the ground of lack of nexus with output services.
Whether service tax was correctly demanded on Commercial Coaching and Training Services provided by the appellant: (a) for services performed abroad after 18.04.2006, and (b) for services provided (or on reverse charge) prior to 18.04.2006.
Whether penalties imposed in respect of the service-tax demands (particularly for amounts paid before issuance of the Show Cause Notice and where the issue was interpretational) were justified.

Arguments of the Parties

Appellant's Arguments

The adjudicating authority wrongly denied Cenvat credit on various input services alleging no nexus with the appellant's output services; the appellant described how each input service directly supported its IT/ITES output (examples provided for outdoor catering, rent-a-cab, cargo handling/packers & movers, and event management).
For the period before 01.04.2011 the definition of "input services" had a wider ambit (including "activities relating to business"), so the appellant was entitled to the claimed credits for the period involved.
Reliance was placed on several decisions to support credit entitlement for distinct input services:
- Reliance Communication Ltd. v. CST [2018 (5) TMI 488 - CESTAT Mumbai] and related Final Order No. 40194 — 40207/2018 (CESTAT Chennai) (for outdoor catering, rent-a-cab).
- KLA Telcor Software India Pvt. Ltd. v. CST [2016 (45) STR 242 (Tri.-Chennai)] and Montage Enterprises Pvt. Ltd. v. Commissioner of ST [2018 (3) TMI 710 - CESTAT Chennai] (for cargo handling).
- Titan Industries Ltd. v. Commissioner of ST [2018 (3) TMI 710 - CESTAT Chennai] (for event management).
As regards Commercial Coaching and Training Services, the Department erroneously demanded service tax for services performed abroad; services performed outside India do not attract service tax.
The levy of service tax prior to 18.04.2006 on services provided from outside India was not sustainable; reliance placed on Union of India v. Indian National Shipowners Association, 2010 (17) S.T.R. J 57 (S.C.) and C.C.E. v. Lumax Samlip Industries Ltd., 2015 (39) S.T.R. 787 (Mad.).
The appellant admitted and paid liability for training conducted in India post 18.04.2006 (Rs. 6,83,897) and relied on C.C.E. & S.T. v. Addeco Flexione Workforce Solutions Ltd. [2012 (26) S.T.R. (3) Kar.] to contend that no penalty can be imposed where the tax was paid before issuance of the Show Cause Notice.

Respondent's (Department's) Arguments

The adjudicating authority's findings disallowing credit were correct because the input services were not used for providing the appellant's output services and lacked nexus with outputs.
The appellant had failed to discharge service tax liability on Commercial Coaching and Training Services performed in India as well as abroad, and the failure amounted to tax evasion; penalties were therefore legal and proper.
The Department relied on Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006 to contend that services provided outside India could be treated as received in India if partly performed in India.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Reliance Communication Ltd. v. CST [2018 (5) TMI 488 - CESTAT Mumbai]; Final Order No. 40194 — 40207/2018 (CESTAT Chennai)	Authority relied upon by appellant for entitlement to credit on outdoor catering and rent-a-cab input services.	The court recorded that the appellant placed reliance on these decisions and, on the facts and period involved, found the disallowance unjustified and allowed the credits for the listed input services.
KLA Telcor Software India Pvt. Ltd. v. CST [2016 (45) STR 242 (Tri.-Chennai)]	Authority relied upon for cargo handling input service being eligible as input service.	The court noted reliance and, on its examination of facts and the wide scope of "input services" for the period involved, allowed the credits for cargo handling services.
Montage Enterprises Pvt. Ltd. v. Commissioner of ST [2018 (3) TMI 710 - CESTAT Chennai]	Authority relied upon for cargo handling input service.	Same as above — the court accepted that cargo handling qualified as input service and set aside the disallowance.
Titan Industries Ltd. v. Commissioner of ST [2018 (3) TMI 710 - CESTAT Chennai]	Authority relied upon for event management services being input services.	The court accepted that event management qualified as input service for the period and set aside the disallowance.
Union of India v. Indian National Shipowners Association, 2010 (17) S.T.R. J 57 (S.C.)	Held that liability of an assessee to pay service tax under reverse charge for services provided abroad arises only w.e.f. 18.04.2006.	The court applied this apex decision to hold that demands for reverse-charge service tax prior to 18.04.2006 could not be sustained and set aside the portion of demand falling before that date.
C.C.E. v. Lumax Samlip Industries Ltd., 2015 (39) S.T.R. 787 (Mad.)	Authority relied upon to argue that demand of service tax on services provided by non-resident or person located outside India arises only w.e.f. 18.04.2006.	The court referenced the same principle when addressing the pre-18.04.2006 portion of the demand and held that such demand could not be sustained for the period prior to 18.04.2006.
C.C.E. & S.T. v. Addeco Flexione Workforce Solutions Ltd. [2012 (26) S.T.R. (3) Kar.]	Authority cited to contend that penalty should not be imposed where tax was paid before issuance of the Show Cause Notice.	The court, noting that the appellant had paid the Indian training-related liability before issuance of the Show Cause Notice and that the issue was interpretational, set aside the penalty for that portion of the demand.
Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006	Rule relied upon by the Department to treat services provided outside India as received in India where partly performed in India.	The court noted the Department's reliance on Rule 3(ii) for demanding tax on services allegedly partly performed in India, but found no supporting allegations or evidence that the foreign training constituted a continuation of Indian training; consequently the court set aside that portion of the demand.

Court's Reasoning and Analysis

The Tribunal's analysis proceeds in discrete steps corresponding to the categories of contested relief:

Nexus and entitlement to Cenvat credit on input services:
- The Tribunal examined the appellant's explanations regarding how each input service (outdoor catering, rent-a-cab, cargo handling/packers & movers, event management) assisted or was necessary for the appellant's provision of output IT/ITES services (examples: cafeteria services under labour-law obligations and round-the-clock operations, cab services for odd-hour commuting due to time-zone differences, cargo handling for transfer and clearance of imported IT equipment, event management for employee motivation and team-building).
- The Tribunal observed that the period in question was prior to 01.04.2011 when the statutory definition of "input services" had broader wording (including "activities relating to business").
- On these facts and the statutory position for the relevant period, the Tribunal concluded that these services qualified as input services; the adjudicating authority's disallowance lacked justification and was set aside.
Demand of service tax on Commercial Coaching and Training Services:
- The Tribunal reviewed the Annexure to the Show Cause Notice and accepted that training services were conducted both in India and abroad. It segregated the demand into: (A) amount pre-18.04.2006 (Rs. 3,08,539), (B1) post-18.04.2006 for training conducted in India (Rs. 6,83,897), and (B2) post-18.04.2006 for training conducted outside India (Rs. 2,90,569), totaling Rs. 12,83,005 as per the impugned order.
- Applying the Apex Court authority in Indian National Shipowners Association, the Tribunal held that reverse-charge liability for services provided from abroad can be imposed only w.e.f. 18.04.2006; therefore the demand portion prior to 18.04.2006 could not be sustained and was set aside.
- For the post-18.04.2006 portion relating to training conducted in India (Rs. 6,83,897), the Tribunal found the amount was payable and observed that the appellant had paid this liability along with interest; however, because the issue of reverse-charge liability was an interpretational one during the relevant period, the Tribunal held that penalties could not be imposed on this amount.
- For the post-18.04.2006 portion relating to training conducted outside India (Rs. 2,90,569), the Department relied on Rule 3(ii) of the Taxation of Services Rules, 2006 and argued that these services were partly performed in India and thus taxable. The Tribunal found the Department's argument unsupported by allegations in the Show Cause Notice or by evidence; the Annexure showed separate charges for training in India and abroad, and the appellant maintained that sessions abroad were distinct and not a continuation of Indian sessions. On that basis the Tribunal concluded the services were performed entirely outside India and set aside this portion of the demand.
Penalties and consequential relief:
- The Tribunal considered penalty imposition in light of facts that (i) the appellant had paid the Rs. 6,83,897 (India post-18.04.2006) liability along with interest before issuance of the Show Cause Notice, and (ii) the liability involved interpretational questions which were under litigation and not clear at the relevant time.
- On these bases, and with reference to the decision in Addeco, the Tribunal set aside the penalty in respect of the upheld domestic training demand (Rs. 6,83,897).

Holding and Implications

Holding: The appeal is allowed partly.

Direct consequences and implications as per the Tribunal's order:

The Tribunal set aside the disallowance of Cenvat credit in respect of the impugned input services (outdoor catering, rent-a-cab, cargo handling/packers & movers, and event management). The credit previously disallowed (noted in the Original Authority's order as Rs. 2,09,28,910) is therefore allowed by the Tribunal.
The Tribunal set aside the portion of the service-tax demand in relation to Commercial Coaching and Training Services that fell prior to 18.04.2006 (Rs. 3,08,539), applying the Apex Court's ruling that reverse-charge liability for services provided from abroad arises only w.e.f. 18.04.2006.
The Tribunal set aside the portion of the demand for training conducted outside India post-18.04.2006 (Rs. 2,90,569), finding no evidence that such sessions were part of a single training program that was partly performed in India.
The Tribunal upheld the demand for training conducted in India post-18.04.2006 (Rs. 6,83,897) along with interest; the appellant had already paid this amount and interest as recorded in the impugned order.
The Tribunal set aside the penalty imposed in respect of the upheld India-based training demand (Rs. 6,83,897) because (a) the appellant paid the amount prior to issuance of the Show Cause Notice and (b) the underlying liability was an interpretational issue.
No new legal precedent was announced by the Tribunal; the decision modifies the impugned order by allowing certain credits and setting aside specified demands and penalties on the factual and legal bases discussed above. The appeal was allowed partly "in above terms, with consequential reliefs, if any."

End of summary. All information in this summary is taken solely from the provided opinion and no additions or inferences beyond that text have been made.

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Scope International Pvt. Ltd. v. Commissioner Of Central Excise, Chennai .

The appellant is a wholly owned subsidiary company of M/s. Standard Chartered Bank, U.K. and is engaged in the business of providing back-end support to certain branches of the bank spread across the globe including India. In the course of audit, it was noticed that appellants had availed Cenvat Credit of service tax paid on certain input services which, according to the Department, was not eligible for credit. Further, it was also noticed that they had been imparting service of Commercial Coaching and Training Services in India as well as abroad and are liable to pay service tax on forward as well as reverse charge basis. Show Cause Notice was issuse proposing to disallow the credit of input services and also for demanding the short paid service tax along with interest and for imposing penalties. After due process of law, the Original Authority disallowed the credit to the tune of Rs. 2,09,28,910/- on input services for the period from April, 2005 to December, 2008 and ordered for recovery of the same along with interest. The demand of Rs. 12,83,005/- was confirmed, being the service tax payable on Commercial Coaching and Training Services for the period from January, 2005 to December, 2007. The amount of Rs. 6,83,897/- paid by the appellant towards the said service was appropriated. The order also confirmed the payment of interest and imposed equal penalties. Aggrieved, the appellants are now before the Tribunal.

2. On behalf of the appellant, the learned Counsel Shri Raghavan Ramabadran submitted that the adjudicating authority has denied credit on various input services alleging that there is no nexus of these services with the output services provided by the appellant. He made the following submission regarding the correlation between input services and output service which is shown in the table below:

Sl. No. Input Service Usage in Output Service 1. Outdoor Caterer Services Appellant provides service to the group companies located across the globe in different countries. The services are provided round the clock and the employees are required to work on shift basis. As there is no facility nearby the office premises, where the employees can quickly go and have their food and come back, the Company provides the food and snacks to the employees at the office cafeteria itself. The Company has to mandatorily provide this service in terms of the requirement under the statutory labour laws. 2. Rent-a-cab Services The Appellant provides service to their group companies located across the globe. Due to difference between the time zones of those countries, the services are provided round the clock. The company hires cabs for picking their employees from their residence and drops them back. In absence of public transport facility for commuting at the odd hours of the day, it is essential to provide transport facilities to the employees. It is an important input service for providing output services. 3. Cargo handling services/Packers and Movers Services These professional services assist the Appellant in documentary process and arrangement for transfer of the imported goods viz. networking equipment and servers from Customs port/airport till office premises including clearance at subsequent stages during the forwarding operations. These imported networking equipment and servers are essential to provide ITES services. 4 Event Management Services Manpower is the backbone of the IT industry and for which it has to motivate its employees to perform job responsibilities efficiently. The Appellant organizes various events and team building activities with the help of even management agencies to motivate the employees. Without the availability of the motivated manpower, Appellant would not be able to carry out its work effectively.

3. He argued that the authorities below have disallowed the credit on input services on flimsy grounds without any evidence. It is pointed out by him that the period involved is prior to 01.04.2011 when the definition of “input services” had a wide ambit has it included the words “activities relating to business” and, therefore, the appellant has rightly availed the credit. To support his contentions, he placed reliance on the following decisions:

Service Involved Legal Authority Outdoor Catering, Rent-a-Cab Reliance Communication Ltd. v. CST [2018 (5) TMI 488 - CESTAT Mumbai] Final Order No. 40194 — 40207/2018 passed by Hon'ble CESTAT, Chennai Cargo Handling i. KLA Telcor Software India Pvt. Ltd. v. CST [2016 (45) STR 242 (Tri.-Chennai)] ii. Montage Enterprises Pvt. Ltd. v. Commissioner of ST [2018 (3) TMI 710-CESTAT Chennai] Event Management Titan Industries Ltd. v. Commissioner of ST [2018 (3) TMI 710 - CESTAT Chennai];

4. He submitted that the Department has erroneously demanded service tax for the services relating to Commercial Coaching and Training Services for the period from 01.01.2005 to 18.04.2006 for the services which have been performed abroad. The total demand for the said services is Rs. 12,83,005/-. Out of this, an amount of Rs. 6,83,897/- relates to services/training conducted in India for the period after 18.04.2006. The appellant admits this liability and has paid the same along with interest. An amount of Rs. 2,90,569/- pertains to charges for training conducted outside India for the period after 18.04.2006 and services having been performed outside India do not attract the levy of service tax. That the service in the nature of Commercial Coaching and Training Service is a performance based service and, therefore, as services are performed outside India, no service tax is payable. Further, that the levy of service tax prior to the period 18.04.2006 cannot sustain as decided by the Hon'ble Apex Court in the case of Union of India v. Indian National Shipowners Association, 2010 (17) S.T.R. J 57 (S.C.). He also relied upon the decision in the case of C.C.E. v. Lumax Samlip Industries Ltd., 2015 (39) S.T.R. 787 (Mad.) to argue that the demand of service tax on any service provided by a nonresident or a person located outside India to a recipient in India would arise only w.e.f. 18.04.2006. For the same reason, he prayed that the penalty in respect of demand of service tax for Commercial Coaching and Training Services performed in India during the disputed period may be waived. Further, that the appellant has paid the said service tax along with interest prior to the issuance of Show Cause Notice and, as per the decision in the case of C.C.E. & S.T. v. Addeco Flexione Workforce Solutions Ltd. [2012 (26) S.T.R. (3) Kar.] no penalty can be imposed.

5. The learned AR, Shri K. Veerabhadra Reddy, supported the findings in the impugned order. He submitted that the various input services were not used for providing output services and, therefore, are not eligible for credit. Further, though the appellant was liable to pay service tax on Commercial Coaching and Training Services performed in India as well as abroad, they have failed to discharge the service tax. The evasion of tax would not have come to light but for the interference of the Department and, therefore, the penalties imposed are legal and proper.

6. Heard both sides.

7.1 The credit on various input services, shown in the table above, namely, outdoor catering services, Rent-a-Cab services, Cargo Handling, Event Management, were disallowed by the adjudicating authority on the ground that these services have no nexus with the output services of the appellant. In the table given above, the appellant has stated the necessity of availing such services and their nexus with the output services. We are convinced that these services qualify as input services. Further, the period involved is prior to 01.04.2011 when the definition of input services had a wide ambit as pointed out by the learned Counsel for appellant. We find that the disallowance of credit on these input services is unjustified and requires to be set aside, which we hereby do.

7.2 The next issue that has to be addressed is regarding the demand of service tax on Commercial Coaching and Training Services. From the Annexure attached to the Show Cause Notice, it is clear that the appellant has imparted training services in India as well as abroad. Part of the demand falls prior to 18.04.2006. It is settled position of law, as rendered by the Hon'ble Apex Court in the case of Indian National Shipowners Association (supra), that an assessee would be liable to pay service tax under reverse charge mechanism for the services provided abroad only w.e.f. 18.04.2006. The demand prior to 18.04.2006 cannot, therefore, sustain. The details of the demand in respect of Commercial Coaching and Training Services as per the impugned order as given by the learned Counsel for appellant, is as below:

Particulars Amount (Rs.) Demand pre 18.04.2006 A 3,08,539 Demand post 18.04.2006 (Rs. 9,74,466/-) For training conducted in India B1 6,83,897 For training conducted outside India B2 2,90,569 Demand under Commercial Coaching and Training Service as per the impugned OIO C = A + B 1 + B 2 12,83,005

7.3 It is seen that the appellants have conducted training in India post 18.04.2006 for which an amount of Rs. 6,83,897/- is liable to be paid by them. As per the impugned order, the appellants have paid up this liability along with interest. The issue whether an assessee is liable to pay service tax on reverse charge basis was under litigation and there was much confusion with regard to the said issue during the relevant period. For the same reason, we find that being an interpretational issue, no penalties can be imposed on the appellant in regard to the amount of Rs. 6,83,897/- pertaining to Commercial Coaching and Training Services imparted in India post 18.04.2006.

7.4 It is seen that an amount of Rs. 2,90,569/- relates to training conducted by the appellant outside India. The Department has relied on Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006 to demand the service tax post 18.04.2006 for services provided outside India contending that the services were partly performed in India and, therefore, has to be treated as performed in India. Though the learned AR has made a frail effort to argue that the training conducted abroad is a continuation of the training conducted by appellants in India, he has not been able to support this by any allegation raised in the Show Cause Notice or by any evidence. In fact, in Annexure to the Show Cause Notice, the charges collected by appellant for training imparted in various places abroad as well as in India are separately shown. It is submitted by the appellant that the training sessions conducted for employees in India and abroad are distinct training sessions and are not part of a single training programme. Thus, the service is performed entirely outside India and, therefore, does not attract the levy of service tax and the demand pertaining to the training conducted outside India to the tune of Rs. 2,90,569/- requires to be set aside, which we hereby do.

7.5 From the above discussions, the impugned order is modified to the extent of allowing the credit on the impugned input services, setting aside the demand in respect of Commercial Coaching and Training Services for the period prior to 18.04.2006 and also setting aside the demand relating to the Commercial Coaching and Training Services conducted outside India (Rs. 2,90,569/-). The demand in respect of Commercial Coaching and Training Services conducted in India post 18.04.2006 to the tune of Rs. 6,83,897/- is upheld along with interest. However, the penalty in respect of the said demand is set aside for the reason that the appellant has paid up the amount before issuance of Show Cause Notice and also for the reason that the issue is an interpretational one.

8. The appeal is allowed partly in above terms, with consequential reliefs, if any.

Scope International Pvt. Ltd. v. Commissioner Of Central Excise, Chennai .

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's (Department's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Scope International Pvt. Ltd. v. Commissioner Of Central Excise, Chennai .

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