Service Tax – Applicant seeks ruling on a running pilot project with employees already in place – Advance Ruling can be sought only on a service proposed to be provided

The definition of advance ruling  makes it abundantly clear that it is concerned with determining a question of law or fact in relation to a service which is proposed to be provided by an applicant. The applicant admits in its affidavit that it has been providing investment research services since June, 2005 to the holding company (though claimed to be provided on a trial run basis) and is being paid for such services as per the agreement of December, 2005. The law does not differentiate between services provided during a trial run and those provided on an on going basis, more so, when the applicant has not set forth any details as to the ambit of such trial run, whether such trial run ceased or the operations continued till the date of application and the details of amounts received in consideration of services provided. The statement that “AP Asia in order to defray its expenses as per the agreement entered into in the month of December, 2005.” is quite vague and does not rule out the possibility of the applicant receiving fees/remuneration as contemplated by the Agreement for the services rendered from time to time. The applicant has not come forward with any details of the receipts from AP Asia and the nature of activities undertaken. The applicant has not put forward any evidence to indicate that the services already provided are distinguishable from those proposed to be provided in the future. It has, therefore, to be concluded that the ruling sought does not relate to a matter falling in the realm of “a service proposed to be provided” qualifying for issue of an advance ruling. In the circumstances, we decline to go into the merits and give the advance ruling. The application is rejected.

BEFORE AUTHORITY FOR ADVANCE RULINGS
(CENTRAL EXCISE, CUSTOMS & SERVICE TAX)
NEW DELHI

Order No.AAR/06(ST)/2007
in
Application No.AAR/14(ST)/2006

Hon’ble Mr. Justice P. V. Reddi (Chairman) & Mr. A Sinha Mrs. Chitra Saha (Member)

Dated: April 17, 2007

Appellant rep by: None
Respondent rep by: Mr. Deepak Garg, SDR concerned CESTAT, New Delhi

ORDER

(Mrs. Chitra Saha, Member)

The applicant is a wholly owned subsidiary Indian company of A.P. Asia, a foreign company. It is stated that it would be providing among others, investment research and other advisory services. For this purpose, it has entered into an agreement with the holding company for providing services on payment of fees which are claimed to be an arm’s length return on total costs over a financial period.

On the aforementioned facts, the applicant has sought an advance ruling of the Authority on the following question :

“Whether investment research and advisory services proposed to be provided by AP India to the overseas entity fulfill the eligibility conditions provided in the Export of Services Rules, 2005 (as amended), which have been introduced by Notification No. 9/2005-S.T.dated March 3,2006?”

The application was admitted for pronouncement of advance ruling under the provision of section 96D (2) of the Finance Act, 1994 vide Authority’s Order dated 5.12.2006.

The matter was heard again on 11.1.2007, when it was observed by the Authority from annexure-I of the application, that the applicant had commenced providing investment research services to AP Asia on a ‘trial run’ basis since June, 2005 which continues till date. Prima facie, the matter appeared to relate to an ‘on going activity’. The applicant was, therefore, directed vide Authority’s Miscellaneous Order No. AAR/02(ST)/2007 dated 11.1.2007 to file an affidavit to explain as to why their activity should not be treated as an ‘on going activity’.

In compliance with the Authority’s directions, the applicant filed an affidavit dated 29.1.2007. A copy of the affidavit was sent to the concerned Commissioner who filed comments thereon vide letter dated 2.3.2007.

When the matter was re-fixed for hearing on 10.4.2007, the applicant vide letter dated 3.4.2007 submitted that a decision be taken on the basis of application dated 6.9.2006 and the submissions made in the hearing on 11.1.2007 and in the affidavit dated 29.1.2007.

On 10.4.2007, none appeared on behalf of the applicant. Shri Deepak Garg, Senior Departmental Representative appeared on behalf of the Commissioner and made his submissions.

In the affidavit dated 29.1.2007, the applicant, inter alia, has stated as under :

“ AP India is running a pilot/trial run operation, since June, 2005, with only four employess.

AP India began its pilot/trial run operations, in June, 2005, with employee strength of two Investment Analysts and one Office Manager. It added one more employee in November, 2005. These four employees continue to be on the roles of AP India till date. AP India has not recruited any new employee since then. Consequently our existing strength remains at four employees.

AP India has been receiving remittances from AP Asia in order to defray its expenses as per the agreement entered into in the month of December, 2005.

The purpose of starting up with a small office on trial run basis is to ascertain whether the same is viable in the long run.

A small office with four employees during the trial run period also enabled AP India to acquire a sound understanding of the Indian economy, markets and practices before commencing full-fledged operation.

Considering the current stock markets trend in India coupled with the result of pilot/trial run operations, AP India is exploring the possibility of hiring more people to reap the benefits of the booming Indian stock markets and commence full-fledged commercial operations in future.”

The concerned Commissioner in his comments dated 2.3.2007 submits that the investment and research services are admittedly being provided by the applicant since June, 2005 and that therefore such services fall in the category of an ‘on going activity’ which is not covered under the definition of advance ruling in section 96A(a) of the Finance Act, 1994. The Senior Departmental Representative reiterates the views of the Commissioner.

Section 96A(a) defines advance ruling as follows :

‘ “advance ruling” means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided , by the applicant.’

The definition of advance ruling referred to above, makes it abundantly clear that it is concerned with determining a question of law or fact in relation to a service which is proposed to be provided by an applicant. The applicant admits in its affidavit that it has been providing investment research services since June, 2005 to the holding company (though claimed to be provided on a trial run basis) and is being paid for such services as per the agreement of December, 2005. The law does not differentiate between services provided during a trial run and those provided on an on going basis, more so, when the applicant has not set forth any details as to the ambit of such trial run, whether such trial run ceased or the operations continued till the date of application and the details of amounts received in consideration of services provided. The statement that “AP Asia in order to defray its expenses as per the agreement entered into in the month of December, 2005.” is quite vague and does not rule out the possibility of the applicant receiving fees/remuneration as contemplated by the Agreement for the services rendered from time to time. The applicant has not come forward with any details of the receipts from AP Asia and the nature of activities undertaken. The applicant has not put forward any evidence to indicate that the services already provided are distinguishable from those proposed to be provided in the future. It has, therefore, to be concluded that the ruling sought does not relate to a matter falling in the realm of “a service proposed to be provided” qualifying for issue of an advance ruling.

In the circumstances, we decline to go into the merits and give the advance ruling. The application is rejected.

NF