Case Law Details

Case Name : Goldman Sachs Services Vs Commissioner of Central Tax (CESTAT Bangalore)
Appeal Number : Service Tax Appeal No. 21705 of 2016
Date of Judgement/Order : 01/10/2020
Related Assessment Year :
Courts : All CESTAT (1010) CESTAT Bangalore (127)

Goldman Sachs Services Vs Commissioner Of Central Tax (CESTAT Bangalore)

Facts-

Employees of overseas group companies have come on secondment to the assessee. The assessee has entered into separate employment contract with the seconded personnel and employer-employee relationship exists between the assessee and the seconded personnel.

It is alleged that the activity falls under Business Support Service, Online Information & Database Service and Manpower Recruitment & supply agency service.

Conclusion-

It can be understood that the global entity has created a network of computers and provided connectivity between different group entities so that information and data can be exchanged. Information flows both ways from the appellants to other global entities and vice versa. In such a case, the appellants at times become service providers and at times become service receivers. It is not coming forth either in the SCN or in the OIO that the amount paid by the appellants to the overseas entity is for the information they received, even if assuming that data retrieval is not mandatory. In view of the submission of the appellants and on perusal of the invoices for the so-called network services, the same are not for provision of online information.

Global employees working under the appellant are working as their employees and having employee-employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction.

FULL TEXT OF THE CESTAT JUDGEMENT

Brief facts of the case are that the Appellant has appointed M/s. Hewitt Associates for collating and uploading the details/ information, like name, educational qualification, designation, contact number etc, of the employees in the database. M/s. Hewitt Associates raises a monthly invoice on the Appellant for providing the said services. Appellant also entered in to a contract with M/s. Communication Services for Call Detail Processing service i.e. tracking the telephone usage of the employees of the Appellant, preparing a periodic report of the same and submitting it to the Appellant.

2.1. The Appellant also claims that they are further using the global telecommunication channel set-up by its overseas group entities for making long distance international calls, toll free calls, toll free intra location, private telephone line, dedicated point to point lines, voice mail service, Emails, messaging, internet etc. In consideration of using the said global telecommunication channel, the Appellant has made payment to overseas group entities.

2.2. During the relevant period, the employees of overseas group companies have come on secondment to the Appellant. The Appellant has entered into separate employment contract with the Seconded Personnel and employer-employee relationship exists between the Appellant and Seconded Personnel. The Seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant. The salary (including other entitlements) of Seconded Personnel, during the period of secondment, is entirely paid by the Appellant. The Seconded Personnel, as required under the Income Tax Act, 1961, files their respective returns under Section 139 of Income Tax Act, 1961 and returns the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon.

3. Revenue considered the above activity to fall under Business Support Service, Online Information & Database Service (referred as Computer Network Service) and Manpower Recruitment & Supply Agency Services. Accordingly two show cause Notices 27.10.2009 (covering the period May 2006 to Sep 2007) and dated 15.04.2013 (Oct 2007 to Dec 2012) were issued and confirmed by the impugned OIOs dated 28.09.2012 and 11.08.2016. Hence, these appeals No ST/25566/2013 and No ST/21705/2016.

4. Learned Counsel for the appellants submits that they have appointed M/s. Hewitt Associates for uploading detailed information of its employees in its data base and M/s. Communication Services for tracking the telephone usage of its employees and preparing a periodic report; the said services are administrative in nature which became taxable under the category Business Support Services only with effect from 01.05.2011 as clarified by Circular dated 28.02.2011; however, the Appellant has been paying service tax under reverse charge mechanism on the routine administrative services received from M/s. Hewitt Associates and M/s. Communication Services under reverse charge mechanism from 01.05.2011 onwards; it is further settled position in law that if a service is introduced for the first time then it is not taxable for the period prior to that; he places reliance on the decision of this Hon’ble Tribunal in Reliance Ada Group Pvt Ltd. Vs. Commissioner of S.T., Mumbai-IV [2016 (43) S.T.R. 372 (Tri. – Mumbai)] wherein it has been categorically held that amendment made to the definition Business Support Services with effect from 01.05.2011 is only prospective in operation.

4.1. The learned counsel further submits that even after admitting that the services received by the Appellant from M/s. Hewitt Associates and M/s. Communication Services are routine administrative services, the Respondent has classified the said services as Business Support Services even for the period prior 01.05.2011 on the ground that these services are in the nature of being incidental or ancillary to the main activity of the Appellant.

4.2. The learned counsel also submits that no allegation was made in the show cause notice that the said services are in the nature of being incidental or ancillary to the main activity of the Appellant and therefore, the impugned order is beyond the show cause notice and liable to be quashed and set aside on this ground itself; in any event, the said services are not incidental or ancillary to the main activity of the Appellant; the said services are used by the Appellant for the better administration and operation of its business; without prejudice to above and in any event, providing services incidental or ancillary to the main activity of the client is classified under the category “Business Auxiliary service” and not under “Business Support service”; as there is no proposal to demand service tax under the “Business Auxiliary service”, service tax cannot be demanded from the Appellant under the category “Business Support service”.

5. On the demand under the category Online Information & Database Service (referred as Computer Network Service), learned counsel submits that at the outset, the correct nomenclature of the service referred as “Computer Network Service” is “Online Information and Database Service”; global telecommunication channel set up by the overseas group provides network to the Appellant; using the said network, the Appellant can make telephone calls, browsing, Emails, messaging etc; the contention of the department is that the said network, inter alia, enables the Appellant to have access to the servers of the overseas group entities and retrieve data; providing network and giving access to server are two entirely different activities.

5.1. Learned counsel states, as an example, that using the internet of BSNL, Airtel etc. a person can browse the website of CBEC and download Notifications/ Circular etc. from there. Here, the internet facility provided by BSNL, Airtel etc. is a separate service and the access given by CBEC of its website is a separate service; what is covered under “on-line information and database access or retrieval” is providing data or information, retrievable or otherwise, in electronic form and not the computer network which falls under the category “telecommunication service”; vide Circular bearing F. No. 137/21/2011-S.T. dated 15.07.2011 read with Letter bearing F. No. 137/21/2011-S.T. dated 19.12.2011, it is clarified that International Private Leased Circuit service falls under the category “Telecommunication service”.

5.2. He further submits that even after admitting that the services received by the Appellant are network services, the department has demanded service tax from the Appellant under the category “Online Information and Database Service”; the only reason appears to be for demanding service tax under the category “Online Information and Database Service” is because overseas entities are situated outside India and hence, not telegraph authorities and accordingly, not possible to demand service tax under the category “telecommunication services”; the Appellant relies on the case of United Telecom Ltd Vs CST, Bangalore [2009 (14) S.T.R. 212 (Tri. – Bang)] and on TCS E-Serve Ltd CST, Mumbai [2014 (33) S.T.R. 641 (Tri. – Mumbai)].

6. Submitting on the demand of Service Tax under the category “Manpower Recruitment & Supply Agency Service”, the learned counsel states that the employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961, files their respective returns under Section 139 of Income Tax Act, 1961 and shows the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon.

6.1. He submits that the issue involved is no longer res integra; On the same issue, the Hon’ble Supreme Court in Commissioner Vs Nissin Brake India Pvt. Ltd. – 2019 (24) G.S.T.L. J171 (S.C.) has dismissed the civil appeal filed by the department against the order of Tribunal [2019 (24) G.S.T.L. 563 (Tri. – Del.)]; similarly, the Hon’ble Supreme Court in Commissioner Vs Krohne Marshall Pvt. Ltd. – 2016 (44) S.T.R. J153 (S.C.) has dismissed the civil appeal filed by the department against the order of Tribunal [2016 (44) S.T.R. 310 (Tri. – Mumbai)].

7. Learned Counsel submits that the entire demand is revenue neutral; the output services provided by the Appellant qualify as export of service and the Appellant would have been eligible to claim refund of service tax paid on input services in terms of Rule 5 of the Cenvat Credit Rules, 2004; therefore, even if the Appellant had paid service tax on the impugned services, the Appellant would have been eligible to claim refund of that; thus, no loss incurred to the revenue by the alleged non-payment of service tax by the Appellant and the entire exercise is revenue neutral.

8. Placing his submissions on limitation and penalty, Learned counsel submits that since the entire exercise is revenue neutral, the question of suppression of facts with intention to evade payment of service tax does not arise; in any case, the Appellant has been regular in filing ST-3 return with the department and therefore, there is no wilful suppression by the Appellant; in any event, the department was already aware of all the facts when the Show Cause Notice dated 27.10.2009 was issued for the period May 2006 to Sept. 2007 and therefore, no suppression of facts with intention to evade service tax can be alleged in respect of Show Cause Notice dated 15.04.2013 covering the period from Oct. 2007 to Dec. 2012; he places reliance on Nizam Sugar Factory Vs CCE [2006 (197) E.L.T. 465 (S.C.)]; in any event, once it is held that extended period is not invokable than demand cannot be confirmed even for the normal period; Section 73(2A) of the Act which permitted the Central Excise officer to confirm demand for the normal period if extended period is held as not invokable, came into effect only from 10.05.2013; since, both the show causes notices in the present case have been issued by invoking proviso to Section 73(1) of the Act and issued prior to 10.05.2013, demand cannot be confirmed even for the normal period as Section 73(2A); he relies on Engineers India Technical Services Vs CCEX & ST, Raipur [2017(6)GSTL 259 (Chhattisgarh)]; without prejudice to the above, the Appellant, in the present facts and circumstances namely issue being of interpretation of law and on the ground of revenue neutrality, pray for immunity from penalty provided under section 80 of the Finance Act, 1994; in view of the aforesaid submissions, penalties imposed under Section 77 and 78 of the Finance Act, 1994, are also liable to be quashed and set aside.

9. Ms D.S. Sangeetha, Joint Commissioner(A.R.), appearing for Revenue, reiterates the findings of OIO and submits that the appellants have conceded the merits of the case and have argued on legal issues; on the issue of Whether the services received by the Appellant from M/s Hewitt Associates and M/s Communication sciences for which payment has been made in foreign currency is liable to be taxed under Business Support Service, she submits that the appellants developed a global human resource database called HR Workways, where in the details of employees like Name, Educational Qualification, Designation, Contact Number and other personal details were stored; this activity of uploading the details of employees to the global database and generating reports has been outsourced to M/s Hewitt Associates, Bangalore; the appellants outsourced the activity of tracking the calls made by the various Goldman Sachs entities/divisions/sub-divisions and generating reports to M/s Communication sciences and a fee was charged by the communication sciences for tracking and generating the said reports; the Appellant argues that they are routine administration activities of the business of the assessee and that the words operational and administrative assistance had been included in the definition of business support service only from 1.5.2011.

9.1. Learned AR submits that the activity of uploading the data of employees to the global database of employees is not limited to internal Administration as it is seen that the data is not processed and sent back to the appellant but to the global database; similarly, the activity of call tracking and generation of various reports will naturally affect the decisions and improve the method of doing business and would rightly be a business support service; business is a profit -oriented endeavour; The global data base along with global mobility programme is aimed at improving the efficient utilisation of the most important resource, the human resource; similarly, for an entity dealing with financial management and asset management services ,there are not much physical units ,the nature of communication both within and outside with the customers will determine the efficiency of operations and accordingly the activity of call tracking, processing and reporting is done.

9.2. Learned AR submits that the definition of Business Support Service, as defined in section 65(104c) during the period of dispute is an inclusive definition and hence cannot be limited to only the mentioned activities in the definition and an activity could be covered as long as it supports the furtherance of business or commerce; w.e.f 1.5.2011 the scope of BSS was extended and the circular: 334/3/2011-TRU dated 28 February 2011 (at para 5.2) mentions the following

“the words operational and administrative assistance have wide connotation and can include certain services already taxed under any other head of more specific description.”

9.3. Learned AR submits that it is important to note that just because the word operational was added w.e.f 1.5.2011 doesn’t mean any business operation could be covered under business support service only from 1.5.2011.the definition which had a wide connotation was only made crystal clear with the expansion of scope; appellants are trying to derive the benefit of the Hon’ble tribunal Mumbai in the case of Reliance Ada Group (supra); the facts of the appellants in the present case are different from the one in which the Hon’ble CESTAT Mumbai has allowed the appeal.; difference lies not only in the disputed activity but also the fact that the appellant was not providing any service to the participating group companies but had only acted in the capacity of pure agent ( Para 3.2); thus, the present appeal is not covered by the judgement of Reliance Ada supra.

10. On the issue of whether the activity of networking of computers of the GSSPL (India) with the computers of group companies abroad would be classified under sec 65(75) online database access and retrieval service, Learned AR submits that the findings of the O-I-O of the order no 115/2012 at para no 4.17 brings out the following.

I find from the annexure to debit note no GSSPL/08/2006 dated 13/06/2006 (being the reimbursement claimed for IT services for the month of March 2006) that the services rendered include expenses incurred towards desktop internet access charges; internet server software distribution ,mainframe activity charges ;multi media  charges and providing real time market data services –  database access charges amongst others.

This clearly establishes the nature of activity which goes beyond infrastructural services as contended by the appellant. the main intent behind networking of computers is to enable sharing of information and networking is only incidental or ancillary to the activity of sharing of information.

10.1. Learned AR submits that by networking, there is an enablement made to access information and the payment made towards provision of this service is not only for networking but also to access the information; w.e.f 1.5.2011 the scope of BSS was extended and the circular: 334/3/2011-TRU dated 28 February 2011 (at para

5.2) mentions that “the words operational and administrative assistance have wide connotation and can include certain services already taxed under any other head of more specific description; the correct classification will continue to be governed by section 65A; in the present instance, it is a composite activity of networking and sharing of information and hence going by the section 65A of the Finance Act for the classification of services, having composite activities, the predominant character would be the determining factor. In this case networking is a one- time activity and enabling factor whereas, sharing of information, is the main purpose and intent behind the provision of this service; hence the service would clearly fall under online database access or retrieval services; she submits that the appellant’s reliance on Philips electronics Ltd 2019(21) G.S.T.L 450 (TRI CHENNAI) stating that the service to be covered under OIDAR should not only facilitate online information but access database and retrieval of data, is incorrect; in the present case the activity is not only limited to connectivity between computers but rather it is also a case where there is access to database which is not the facts in both the cases of Philips Electronics India Ltd 2019(12) TMI 183-CESTAT Bangalore and 2019(21) G.S.T.L 450 (TRI – Chennai); thus, the appellants cannot derive any benefit of both the judgements cited supra as they are distinguishable from the facts of this case.

10.2. Learned AR submits that the definition of “Online Information Database Access or Retrieval” is “Providing data or information, retrievable or otherwise in electronic form through a computer network”; it can be seen that the definition says providing data or information and not providing data and information; hence, providing only information is also covered under the definition; further, the words retrievable or otherwise indicates that it is either or and not both; hence the activity of only sharing of information through computer networks is covered under the definition of OIDAR; the word computer networks is defined under Information technology act 2000 as

The interconnection of one or more computers through

(i) The use of satellite, microwave, terrestrial line or other communication media

(ii) Terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained.

10.3. Learned AR submits that hence, it is very clear that interconnecting one or more computers for sharing of information and it will be covered under OIDAR services; since the Goldman Sachs India and the global entity are two separate legal entities registered under respective laws of the land and would clearly be service receiver and provider for the purpose of Finance Act1994. As per Rule 2(l) (d) (v), the Indian entity is liable to pay service tax on reverse charge basis; she relies upon Vishay Components India Pvt LTD Vs CCE Pune-III 2018(8) G.S.T.L 196 (Tri Mumbai). She also relies upon the following decisions to counter the arguments of appellants in respect of revenue neutrality, imposition of penalty and other issues:

  • HT Media Ltd., 2017 (7) GSTL 364 (Tri. Del.)
  • Historic Resort Hotels, 2018 (9) GSTL 422 (Tri. Del.)
  • Canvasm Technologies Ltd., 2015 (40) STR 525 (Tri. Del.)
  • Forbes Marshall Pvt. Ltd., 2015 (38) STR 843 (Tri. Mumbai)

11. Heard both sides and perused the records of the case. The brief issues that require our consideration in the instant case are (i). Whether the services received by the Appellant from M/s. Hewitt Associates and M/s. Communication Services can be qualified as “Business Support Services”;

(ii) whether the networking (telecommunication related) services received by the Appellant from overseas group entities can be classified as Online Information & Database Service (referred as “Computer Network Service”)?

(iii) Whether the Appellant can be said to have received manpower recruitment and supply agency service from overseas group entities?

(iv) whether in the facts and circumstances of the case, extended period can be invoked?

(v) whether imposition of penalties justified?

12. Coming to the first issue as to whether the services received by the appellants from M/s Hewitt Associates and M/s Communication Services can be considered as Business Support Service. The Learned Counsel for the appellants vehemently argues that the services received by them from the above entities are in the field of routine administrative functions and have nothing to do with the business of the organisation. He states that even the SCN alleges that the services obtained from the appellant from the above companies help in routine administration of the unit. CBEC vide Circular No. 334/3/2011-TRU dated 28th February 2011 have clarified that:

5. Business Support Service [Section 65 (105) (zzze)]:

5.1. The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource.

12.1. He also submits that Section 65 (104c) defines that: “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, 7[operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

The words 7[operational or administrative assistance in any manner] have been inserted by Finance Act, 2011 w.e.f. 01.05.2011. Therefore, the levy can only be prospective after that date and not before.

12.2. On the contrary, the learned AR submits that the same circular at Para 5.2. clarifies that: The words “operational and administrative assistance” have wide connotation and can include certain services already taxed under any other head of more specific description. The correct classification will continue to be governed by Section 65A.

12.3. However, we are not inclined to accept this submission in view of the insertion w.e.f. 01.05.2011, of words “operational or administrative assistance in any manner”, it goes without saying that the operation is prospective only. It is not disputed that the services are in the nature of helping the routine administration as averred in the SCN. Moreover, we find that Tribunal in the case of Reliance ADA Group Pvt. Ltd. (supra) held that:

5.13 There is no dispute on the fact that w.e.f. 1-5-2011, the words operational assistance for marketing” earlier appearing in Clause (104c) of Section 65 were substituted with “operational or administrative assistance in any manner‟, to enhance the scope of the definition of “support services of business or commerce”. This amendment is only prospective in operation. Therefore, in any event, prior to 1-5-2011 any such assistance by the appellant cannot be within the scope of the definition of “support services of business or commerce”, and consequently, neither any such assistance was a “taxable service” within the scope of Section 65(105) under sub-clause (zzzq), nor was any person providing such assistance was falling within the term “service provider” under Section 65(105).

Therefore, we find that the services availed by the appellants from M/s Hewitt Associates and M/s Communication Services cannot be categorised under “Business Support Service” before 01.05.2011.

13. Coming to the second issue as to whether networking services received by the appellants from their overseas group entities can be classified as online information and database service, we find that learned counsel for the appellants argues that what has been put in place was a global connectivity between all the entities of the group by IPLC (WAN). It is only a telecom service. Even the SCN acknowledges the same to be in relation to networking of Goldman Sachs Services Pvt. Ltd. global entities in Japan, Hongkong, London, USA, etc. and using this networking they access the servers of their overseas entities, retrieve data, process it and send back in electronic form.

13.1. Learned Counsel further states that the appellants submitted in reply to the SCN that:

3.2. The services provided by the overseas group companies do not fall under the taxable category of Computer Network Services

It is observed in Para 6 of the SCN that the overseas group companies are engaged in providing services for networking of the Company‟s computers with the servers in foreign countries. The company is using this networking to access the servers of overseas group companies, retrieve data, process and sends it back in electronic form. It is observed in the SCN that these services received by the Company are liable to tax under the category of Computer Network Service. The details of payments made to overseas group companies under this category are listed I Annexure B to the SCN.

We wish to submit that the payments referred to in Annexure B relate to payment for telecommunication services provided to the Company by the overseas group companies. The overseas group companies have set-up a global telecommunication channel for use by other group companies for services such as telephone – long distance, international calls, toll free calls, toll free intra location, private telephone lines, dedicated point to point lines, voice mail service etc. The taxable category of CNS has been defined in the Act to mean “providing data or information, retrievable or otherwise, to any person, in electronic form through a computer network.”

It is clear from the above that in order to fall under the taxable category of CNS the following conditions should be satisfied:

  • Data/information, retrievable or otherwise, should be provided.
  • The data/information should be in electronic form.
  • The data/information should be provided through a computer network.

In the instant case, the payments mentioned in Annexure B, relate to payments made for telecommunication services received by the Company and are in no way related to payment for provision of data/information in electronic form.

From the definition of CNS, it is evident that the taxable category is intended to cover services where data is provided in electronic form and the charges are levied for the provision of such data. Examples of such services would be online library, search websites, legal websites where one could pay and access/retrieve research materials/case laws etc.

In the instant case the payments are made by the Company for using the global telecommunication channel set up by the overseas group companies for services such as telephone – long distance, international calls, toll free calls, toll free intra state, private telephone lines, dedicated point to point lines, voice mail service etc. These services have nothing to do with access or retrieval of data in electronic form. In fact, the Company does not receive any data in respect of the above payments.

13.2. On the other hand, learned AR submits that from the definition of OIDAR, it can be seen that it covers not only data but information also, it need not be both; sharing information through computer networks is also covered by the definition; inter-connecting one or more computers for sharing information (and not necessarily retrievable data) will still be covered under the definition of OIDAR. She relies upon Vishay Components India Pvt. Ltd. Vs CCE, Pune-III, 2018 (8) GSTL 196 (Tri. Mumbai)

13.3. We notice that learned Commissioner finds that:

  • From the Sample Debit Notes of Goldman Sachs group entities raised on the assessee were issued for the transactions involved in respect of reimbursement claimed for telecommunication services.
  • Due to non-procurement of license, by the aforesaid overseas service provider, namely, Goldman Sachs Entities; GS & Co., New York; GSPM; London and GS Asia, LLC (GS Japan Holdings) under the first proviso to Sub-Section (1) of Section 4 of the Indian Telegraph Act, 1885, as provider of telecommunication service, I am constrained to hold that the aforesaid activity of the assessee does not fall under within the scope of telecommunication service, as defined under Section 65 (109a) of Finance Act, 1994.
  • The networking is to provide data or information either retrievable or not; it involves information or data provision in electronic form and mandatorily through a network; retrievable of data is not the prime criteria.
  • From the annexure to debit note no. GSSPL/08/2006 dated 13.06.2006 (being reimbursement claimed for IT services for the month of March 2006) that the services rendered include, expenses incurred towards desktop internet access charges; internet server software distribution, mainframe activity charges; multimedia charges; and providing real time market data services – database access charges; amongst others.

We find from the above that the learned Commissioner was not clear in his findings. He appears to come to the conclusion that the appellants are liable to pay Service Tax under Network Services as the provider of the circuit is not registered under Telegraph Act. This is not a correct proposition. Revenue requires to come to a definitive conclusion on the nature of the service in a positive manner.

13.4.  We find that the appellants submitted that the payments referred to in Annexure B relate to payment for telecommunication services provided to the Company by the overseas group companies. The overseas group companies have set-up a global telecommunication channel for use by other group companies for services such as telephone – long distance, international calls, toll free calls, toll free intra location, private telephone lines, dedicated point to point lines, voice mail service etc. Going by this, it can be understood that the global entity has created a network of computers and provided connectivity between different group entities so that information and data can be exchanged. We find that the learned AR argues that provision of information is also categorised under OIADR. In such a scenario, information flows both ways from the appellants to other global entities and vice-versa. In such a case, the appellants at times become service providers and at times service receivers. It is not coming forth either in the SCN or in the OIO that the amount paid by the appellants to the overseas entity is for the information they received, even if assuming that data retrieval is not mandatory. In view of the submission of the appellants and on perusal of the invoices for the so-called network services, we find that the same are not for provision of online information. Therefore, we are not inclined to accept the contention of the learned AR.

13.5. We find that in the case of United Telecom, 2009 (14) STR 212 (Tri. Bang.) this Bench observed that:

7. We have gone through the records of the case carefully. It is evident that the entire issue relates to APSWAN. What does it mean? It is an acronym for Andhra Pradesh State Wide Area Network (WAN). Therefore, the whole issue revolves around this Wide Area Network. In order to understand, what is Wide Area Network, we should understand the meaning of network. In any communication systems, the communications can be between various elements. There are telephonic communications between one telephone and another telephone. In these days, computers can also be used to communicate with each other. When there are several computers, they can all be interconnected to form a network. In other words, a network is a collection of resources used to establish and switch communication path between its terminals. The whole issue relates to Wide Area Network (WAN). What is the Wide Area Network? A Wide Area Network is a network with communications often over large distances. It is similar to a Local Area Network which is called LAN in computer terminology. In the case of a WAN, however, this organization may be active in commerce or industry and have plant or offices at number of widely dispersed sites. In the present case, the Andhra Pradesh Government uses the Wide Area Network because the different districts and State capital are situated far from each other. They have to be connected for communication. The ultimate aim is proper governance. For this purpose, the Andhra Pradesh State Government wanted to establish Wide Area Network. The appellants are involved with that Wide Area Network. Therefore,

APSWAN is a network providing connectivity between all Government offices in State capital and district centres.

7.1 On going through the contract, we can cull-out the responsibility of the appellant. It is seen that the entire network is not provided by the appellant. What the appellant is providing to the Andhra Pradesh Government is given in Annexure – 1 of the Contract. They are as follows:

1. Multi-services switch

2. Routers

3. Firewall

4. Network Management

5. Accounting Service.

All the equipments are placed in the physical locations called DNCs (District Networking Centres) in the districts and SNC (State Networking Centre) in Hyderabad. Annexure-1 to the Contract further gives the functional requirements and capacity requirements of the various equipments. We need not go into all that. The point is that the appellants have to provide all these equipments which are nothing but the network interfaces.

7.2 Secondly, the appellant is responsible for keeping up the uptime. Uptime means the duration when the equipments work without fail. So the responsibility of the appellant is keeping all the elements (ports, connected in the network, they have to function properly) in working condition. The standards are given in Annexure-II. It is also seen that the equipments are connected by leased line. The Andhra Pradesh Government itself has leased the lines from the BSNL. That is not the responsibility of the appellant because the Andhra Pradesh Government has leased the lines from BSNL and the appellants uptime calculations are specific to the equipment placed by them in the DNCs and SNC. The appellants receive the payment only towards upkeep of the equipments supplied by them and which belong to the appellant. From this, one thing is clear that the entire network does not belong to the appellant. Further, it is also seen that all the user terminals in the network, video conferencing terminals, computer terminals which are all connected to the various ports in the DNCs and SNC are not part of the supply requirement and they have been procured and paid for by the Andhra Pradesh Government separately. We also find that the user data is generated by the Andhra Pradesh Government and is transmitted through the leased, lines by the Andhra Pradesh Government with the help of the equipments owned by the appellant and received by users connected to the ports of APSWAN. As such, it is seen that appellant is not involved in the generation or the usage of data. In these circumstances, when part of the entire network is supplied by the appellant, who maintains the functioning of the network, we cannot simply say that the appellant provided online information and data access and retrieval services.

7.3 We do not agree with the Commissioner that the ownership of data is not relevant. It is a very relevant factor. Whenever, there is information and data retrieval, the ownership definitely becomes very relevant. Just because, the appellant provided a part of the network equipment, we cannot say that the appellant was responsible for the entire services. Again the entire wide area network has been established for better communication between the districts and the State headquarters. The information will be flowing from different centres to the headquarters and vice versa. This cannot be equated with online information and data retrieval. In any case, the appellant is not responsible for the entire network because we find that the communication lines have been leased out from the BSNL by the Andhra Pradesh Government. When they are not functioning, the appellants are not responsible and they do not lose their service charges. They are responsible only for the proper functioning of the equipment supplied by them. Moreover, the data is generated only by the Andhra Pradesh Government and the same is being used by the different wings of the Government, therefore, the appellant has also not provided any data. The responsibility of the appellant is to see that the network (WAN) functions. This cannot be equated with “Online database access/retrieval services”. Hence, we cannot understand how the Commissioner has come to the conclusion that the appellant provides this service. The Commissioner’s reference to Board’s Circular with regard to internet service provided is not at all correct. In our view, the said Circular is not relevant and the services provided by the appellant are not similar to those provided by the internet service provider. In this connection, we would like to refer to another taxable service introduced with effect from 1-7-2007, it is called “Telecommunication Service”. Ongoing through the definition of the Telecommunication Service as per Section 65(109a), it includes among other things.

  • Private network services including provision of wired or wireless telecommunication link between specified points for the exclusive use of the clients;
  • Data transmission services including provision of access to wired or wireless facilities and services specifically designed for efficient transmission of data: ans.
  • Communication through facsimile, pager, telegraph and telex.

7.4 On going through the scope of “Telecommunication Services”, it is seen that private network services including provision of wired or wireless telecommunication link between specified points for the exclusive use of the client appear to be covered under the said services. The present case also, in our view, the wide area network is only for the exclusive use of the Andhra Pradesh Government and this can only be treated as a private network service. In any case, in our opinion, the very fact that private network services form part of the telecommunication services indicate that they cannot be equated with online information database and access/retrieval service. In these circumstances, we do not find any merit in the demand of Service Tax from the appellants during the relevant period under the said service. There is no justification for demand of Service Tax, hence, no penalty can be levied. Hence, we allow the appeal with consequential relief.

13.6.We find that Tribunal has given similar decision in Philips Electronics India Ltd. Vs CCT, Bangalore, 2019 (12) TMI 183- CESTAT Bangalore; Mumbai Bench in the case of TCS E-Serve Ltd. Vs CST, Mumbai, 2014 (33) STR 641 (Tri. Mumbai) and in the case of Philips Electronics India Ltd., 2019 (21) GSTL 450 (Tri. Chennai). We also find that CBEC vide letter F. No. 137/21/2011 dated 19.10.2011 have clarified that:

2. The matter has been re-examined and it is seen that the IPLC is specifically covered by the definition of the telecommunication service given in clause 65(109a)(iv) of the Finance Act, 1994. As per the said section these services are taxable only when provided by a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1985. It is only because the foreign telecom service provider cannot constitute a telegraph authority under an Indian law that they remain outside the taxability clause of the telecommunication service.

13.7. We find that learned AR has relied upon the Tribunal’s judgment in the case of Vishay Components (supra). The issue before the Tribunal was the cost of IT facility shared by the individual entity. Therefore, as we find that the facts of the case being different, it cannot be relied upon. In view of the above, we find that the appellants are not exigible to Service Tax on OIADR (Computer Network Service).

14. Coming to the third issue of payment of salary, allowances and expenses of the personnel drawn

* from different global entities to work with the appellant, we find that learned Counsel submits that the employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961. We find that the issue is no longer res integra and is covered by decision of Volkswagen India Pvt. Ltd. Vs CCE, Pune-I, 2014 (34) STR 135 (Tri. Mumbai) [maintained by Apex Court in 2016 (42) S.T.R. J145 (S.C.)] wherein it was held that:

5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working as their employees and having employee-employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction.

15. The learned Counsel for the appellants submits that the Department was fully aware of the facts when the SCN dated 27.10.2009 was issued and therefore no suppression of facts with an intent to evade payment of duty can be alleged in the subsequent SCN dated 15.04.2013. He relies upon Nizam Sugar Factory case (supra). We find that the argument is acceptable and for this reason, the second SCN is liable to be set aside ab initio. Coming to the issue of revenue neutrality, the appellants submit that the issue is revenue neutral as being an STPI unit, the appellants would have been eligible to claim refund of Service Tax paid on input services in terms of Rule 5 of CCR, 2004. We find that the contention has force. As we have decided the issue on merits, we are not going into further arguments on this point. Having decided the issue in favour of the appellants on merits, we don’t find any reason to discuss the merits or otherwise of imposition of penalties.

16. In view of the above, Appeal No. ST/25566/2013 & Appeal No. ST/21705/2016 are allowed.

(Order pronounced in the open court on 01.10.2020)

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