Hazira Lng Pvt. Ltd. Vs C.S.T. Service Tax (CESTAT Ahmedabad)
CESTAT Ahmedabad held that arrangement of the appellant with it is associate companies is in the nature of cost sharing and it would not be correct to say that the appellants are providing any services to their associate companies and hence demand of service tax unsustainable.
Facts-
The Appellants have another group company associated enterprise namely M/s. Hazira Port Pvt. Ltd. (HPPL). The Appellants shared certain expenditure like common office building, security services, insurance services, manpower costs etc. with HPPL. The Appellants used to raise cost sharing invoices on HPPL. The Appellants also charged applicable service tax under the taxable category of Business Support Services from the invoices raised on or after 01.04.2006 for the cost sharing invoices. Thus, during the period 01.04.2005 to 31.03.2008, the Appellants charged the cost sharing expenses of Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/-.
Due to poor financial conditions of HPPL, the Appellants waived off the sum of Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/- on 31.03.2008.
The said waiver was duly approved by the Board of Directors of the Appellants vide resolution dated 18.03.2008.
The show cause notice alleged that the waive off of the balance pertained to M/s. HPPL is nothing but consideration received and therefore, Appellants are liable for payment of service tax of Rs.2,64,57,777/-.
Conclusion-
Held that the arrangement of the appellant with it is associate companies is in the nature of cost sharing and it would not be correct to say that the appellants are providing any services to their associate companies.
We find that revenue has not been able to identify any specific service, which the appellant has provided to its associate companies. In these circumstances, we do not find that the activities in the nature of sharing cost between associate companies amount to provision of any service by one company in the agreement with to any other companies in the said cost sharing agreement.
However, since the activities under taken under the cost sharing agreement do not amount to provision of Service in terms of the decision of Hon’ble Apex Court in case of Gujarat State Fertilizers & Chemicals Ltd., the demand of Service Tax on the activities under taken under the cost sharing agreement cannot be sustained.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
This appeal has been filed by M/s. Hazira Lng Pvt Ltd against confirmation of demand of Service Tax, Interest and Penalty.
2 Learned Counsel submitted that the Appellants are the company registered under the provisions of erstwhile Companies Act, 1956. The Appellants were registered with Service Tax Authorities, Ahmedabad having registration number AAACH9143CST001.
2.1 Learned Counsel submitted that the Appellants have another group company associated enterprise namely M/s. Hazira Port Pvt. Ltd. (for sake of brevity, hereinafter referred to as “HPPL”). The Appellants shared certain expenditure like common office building, security services, insurance services, manpower costs etc. with HPPL. The Appellants used to raise cost sharing invoices on HPPL. The Appellants also charged applicable service tax under the taxable category of Business Support Services from the invoices raised on or after 01.04.2006 for the costsharing invoices. Thus, during the period 01.04.2005 to 31.03.2008, the Appellants charged the cost sharing expenses of Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/-.
2.2 However, due to poor financial conditions of HPPL, the Appellants waived off the sum of Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/- on 31.03.2008. The said waiver was duly approved by the Board of Directors of the Appellants vide resolution dated 18.03.2008. The certified copy of the Board Resolution dated 18.03.2008 is available in appeal paper book on Page No. 35.
2.3 During the course of audit of the Appellants by the Service Tax Authorities, Ahmedabad, it was observed that the Appellants have waived Rs.29,20,64,558/- along with service tax of Rs.2,64,57,777/- on 31.03.2008, however, the Appellants have not paid the service tax.
2.4 The said audit observation culminated in to issuance of show cause notice having number F. No. STC/4-51/O&A/10-11 dated 18.10.2010. The show cause notice dated 18.10.2010 alleged that the waive off of the balance pertained to M/s. HPPL is nothing but consideration received and therefore, Appellants are liable for payment of service tax of Rs.2,64,57,777/-. The show cause notice dated 18.10.2010 alleged that an explanation under Section 67 of the Finance Act, 1994 as it existed on 31.03.2008 (the date on which the Appellants have waived off Rs.29,20,64,558/-along with service tax of Rs.2,64,57,777/-) defines “gross amount charged” which includes payment by book adjustment. The show cause notice dated 18.10.2010 alleged that since the Appellants and HPPL are associated enterprises, hence, any amount waived off by book adjustment are nothing but realization of amount charged towards the service tax and consequently, the Appellants are liable to pay service tax of Rs.2,64,57,777/. The show cause notice dated 18.10.2010 alleged suppression, wilful misstatement on the part of the Appellants and therefore, invoked extended period of limitation and also demanded interest and penalties from the Appellants.
2.5 Learned Counsel submitted that the Appellants vide their letter dated 03.01.2011 filed a detailed reply to the show cause notice dated 18.10.2010 and submitted that the service tax is not payable. However, the Commissioner of Service Tax Ahmedabad vide his Order in Original No. STC/32/COMMR/AHD/2011 dated 13.07.2011 confirmed the demand of service tax along with interest and penalty as it was proposed in the show cause notice.
2.6 Learned Counsel for the Appellants argued that the sharing of costs between two associated enterprises is not rendition of service and therefore, demand of service tax is not sustainable.
2.7 He argued that the demand of service tax of Rs.2,64,57,777/- is raised on the Appellants on the costs shared with their associated enterprise namely HPPL. The Appellants submit that cost sharing is not rendition of service and therefore demand of service tax itself is not sustainable.
2.8 Learned Counsel for the Appellants further relied on following decisions:
