Commissioner of GST & Central Excise Vs Chemplast Sanmar Ltd (CESTAT Chennai)
CESTAT Chennai held that the sharing services of their corporate staff with the group of companies is covered by the definition of ‘manpower recruitment or supply agency’ as defined in Section 65(105)(k) of FA, 1994 read with section 65(68) ibid.
Facts- The Internal Audit Group of LTU, Chennai conducted an audit of records of M/s Chemplast Sanmar Ltd (respondent). On verification of the records of the taxpayer, it was noticed that the services of corporate staff at the top-level management viz. legal, finance, taxation etc. in the respondents company was shared by the entire Sanmar group of companies and who at the end of each year, calculated the proportional cost of salaries of these staff borne by the respective companies based on their turnover and paid it to Chemplast. This system of supply of skilled manpower appeared to fall within the purview of taxable services under ‘Manpower Recruitment and Supply Services’ as defined in section 65(105)(k) of the Finance Act, 1994, read with section 65(68) ibid and hence chargeable to service tax.
Therefore, a Show Cause Notice was issued to M/s. Chemplast Ltd. seeking to demand Service Tax of Rs.96,70,383/-. After due process of law, the matter was adjudicated. The original authority dropped all proceedings. Aggrieved by the said order, Revenue is before us in appeal.
Conclusion- Held that the respondent sharing services of their corporate staff with the Sanmar group of companies is covered by the definition of ‘manpower recruitment or supply agency’ as defined in Section 65(105)(k) of FA, 1994 read with section 65(68) ibid.
Held that the respondent M/s Chemplast had by their blameworthy conduct deliberately supressed facts with intention to evade payment of duty cannot be faulted. It has been held by courts that appellate bodies should be mindful of the first-hand knowledge of the original authority and the position that he holds to assess the facts and the credibility of circumstances from his own observations. Even if a superior appellate body feels that another view is possible, that is no ground for substitution of the original authorities view with one’s own by exercising its appellate jurisdiction. The exception would be if the impugned order is demonstrably found as not being rational or reasonable or is suffering from procedural impropriety which is not the case here. The two judgments cited by the respondent hence do not come to their rescue. Hence we find that the SCN has been issued correctly under the extended period of time.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This is an appeal filed by Revenue against Order in Original No. LTUC/160/2013 (C) dated 17.5.2013 passed by the Commissioner, LTU, Chennai.
2. Brief facts of the case are that the Internal Audit Group of LTU, Chennai conducted an audit of records of M/s Chemplast Sanmar Ltd (hereafter also referred to as ‘respondent’), for the period April 2008 to January 2011. On verification of the records of the taxpayer, it was noticed that the services of corporate staff at the top-level management viz. legal, finance, taxation etc. in the respondents company was shared by the entire Sanmar group of companies and who at the end of each year, calculated the proportional cost of salaries of these staff borne by the respective companies based on their turnover and paid it to Chemplast. This system of supply of skilled manpower appeared to fall within the purview of taxable services under ‘Manpower Recruitment and Supply Services’ as defined in section 65(105)(k) of the Finance Act, 1994 (FA 1994), read with section 65(68) ibid and hence chargeable to service tax. From the records, it was seen that the taxpayer had received Rs.4,98,11,000/-, Rs.1,91,73,000/- and Rs.1,49,41,000/- from their group companies on account of corporate salary expenses for the years 2008 – 09, 2009 – 10 and 2010 – 11 respectively. By providing the services of their employees to the group companies, Chemplast appeared to have rendered ‘manpower supply service’ and appeared to be liable to pay service tax on the same. Therefore, a Show Cause Notice was issued to M/s. Chemplast Ltd. seeking to demand Service Tax of Rs.96,70,383/-. After due process of law, the matter was adjudicated. The original authority dropped all proceedings. Aggrieved by the said order, Revenue is before us in appeal.
3. No cross-objection has been filed by the respondent-assessee.
4. The learned Superintendent (AR) Smt. Anandalakshmi Ganeshram appeared for the appellant and Smt. Radhika Chandrasekar, learned counsel appeared for the respondent.
4.1 The learned AR Smt. Anandalakshmi Ganeshram has stated that this is a case where the respondents have admitted that they have shared the cost of services of their top-level corporate staff with their group companies who are legal entities having separate PAN for income tax purpose. Hence it is not a case of self-service and would tantamount to a person rendering service to another and will be liable for Service Tax as determined by the nature of transaction. She further stated that what is received by Chemplast from their group companies cannot be held as reimbursement but it was a consideration for the service rendered. She referred to the decision of the Larger Bench of the Tribunal in the case of Sri Bhagavathy Traders Vs. CCE, Cochin – 2011 (24) STR 290 (Tri. LB). She also added that since the respondent had suppressed this activity from the department; not filed ST-3 returns clearly showing this activity nor have paid duty or sought a clarification after amendment to the statute, which was clear and did not have any ambiguity, they had suppressed the matter and were liable to pay Service Tax on a demand under the extended period. She has further referred to Board Circular No. 148/17/2011-ST dated 13.12.2011, Boards Circular in F. No. 137/35/2011-ST dated 13.7.2011 and ‘Education Guide to Service Tax’ brought out by the Tax Research Unit (TRU) of CBEC on 20/06/2012, in support of the merits of the case. She prayed that the impugned order may be set aside and pass such other orders as this Tribunal may deem fit.
4.2 The learned counsel Smt. Radhika Chandrasekar appeared on behalf of the respondent. She stated that the respondent viz., Chemplast Samar Ltd., along with Cabot Sanmar Ltd, Sanmar Foundries Ltd. all belong to one group i.e. Samar Group. The Group companies availed the services of employees of Chemplast and the proportional cost of salaries is borne by the respective companies based on their turnover by way of ‘reimbursement‘ to the respondent. She stated that the entire transaction is only a cost sharing arrangement between the Group Companies and there is no mark up or element of profit or consideration out of the said arrangement. Only service charges received for the taxable services rendered is subject to Service tax. The Hon’ble High Court of Delhi in the case of Intercontinental Consultant and Technocrats Pt Ltd Vs. Union of India (2012-TIOL-966-HC-DEL-ST) has held Section 67 is supreme and refers to only the consideration for the services provided and anything other than consideration cannot be taxed. Revenue’s appeal against the said judgment was dismissed by the Hon’ble Supreme Court in Union of India vs Intercontinental Consultant and Technocrats Pt Ltd (2018-TIOL-76-SC-ST). As regards limitation she said that the Show Cause Notice is time barred, as none of the ingredients that are required for invoking the extended period of 5 years are present. She relied on the following judgments in this regard:
a) Commissioner of Central Excise, Nagpur Vs Ballarpur Industries [(2007) 8 SCC 89]
b) Continental Foundation Joint Venture Holdings Vs Commissioner of Central Excise [(2007) 10 SCC 337] She hence prayed that the impugned order be upheld.
5. Having heard the learned AR and Counsel for the contesting parties and having perused the Appeal Papers, we find that the following issue have been raised in the appeal;
i) whether the respondents sharing of services of their corporate staff with the Sanmar group of companies can be treated as a service of “manpower recruitment or supply agent” as defined in section 65(105)(k) of the Finance Act, 1994 (FA 1994), read with section 65(68) ibid.
ii) whether the payment of proportional cost of salaries of these staff borne by the respective companies to the respondent can be stated to be a ‘consideration’ as per Explanation (a) to Section 67 of the FA 1994 or has to be treated as ‘reimbursement’ and found not taxable in the light of the Hon’ble High Court of Delhi’s judgment in the case of ‘Interccontinental Consultant’ (supra).
iii) whether the show cause notice is hit by the limitation of time.
6. We find that the first challenge made by the respondent is to the exigiblity of the activity of sharing services of their corporate staff with group companies under the definition of “manpower recruitment or supply agent”. Since classification and valuation are two different matters, the nature of the service is not to be confused with the measure by which the consideration is paid, it would hence be useful to examine the definition of the service independently. Relevant portions of section’s 65(105)(k) and section 65(68) of FA, 1994 and extracted below for a better understanding of the issue;
Section 65(68) – “Manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person.
Hence the definition requires that to fall within its description, a service activity has to satisfy the following conditions;
(a) a person
(b) provides service
(c) directly or indirectly,
(d) in any manner for recruitment or supply of manpower,
(e) temporarily or otherwise
(f) to any other person.
It is seen that the definition is very broad and takes within its ambit the activities performed by the Respondent. There is no definition of the word “person” in FA 1994 however the impugned order at para 10 refers to the definition of ‘person’ as found in the ‘The General Clauses Act, 1897’. The Hon’ble Apex Court in its judgment in Dulichand Lakshminarayan Vs The Commissioner of Income Tax, Nagpur [1956 AIR 354] faced with a similar situation, held that;
“There is no definition of the word “person” in the Partnership Act. The General Clauses Act, 1897, however, by section 3 (42) provides that “person shall include any company or association or body of individuals whether incorporated or not”.
The impugned order also records that the respondent have in their additional submissions dated 16/05/2013, admitted that they and their group companies are distinct legal entities. This being so the respondent being a company, is covered by the term ‘any person’ and since they render service directly or indirectly, for supply of manpower, temporarily or otherwise to any other person, who happens to be a distinct company of their group, they are covered by the definition of “manpower recruitment agency”. There is no confusion on this score.
6.1 A look at the section as it stood prior to the impugned period and after would be informative. The comparative table is shown below;
Section 65(68) of FA 1994
