P. Anjani Kumar, Member (T)
1. The appellants, M/s Fazilka Co-Op Sugar Mills Ltd, are engaged in the manufacture of sugar and are registered under service tax under the category of “Goods Transport Agency”. The appellants signed a memorandum of understanding-cum-agreement (MOU) with M/s a2z Infrastructure Pvt. Ltd. for setting up clean development mechanism electricity (CDM) Co-generation plant of 20 MW on Build, Own, Operate and Transfer (BOOT) basis to improve energy efficiency and to reduce steam consumption. In terms of the MOU M/s a2z were to supply free power and steam to the appellants and the appellants were required to provide 5 acres of vacant land, water and bagasse free of cost; M/s a2z were free to sell balance electricity, after supplying to the appellant, to other third parties. In terms of the MOU M/s a2z deposited 50,00,000/-(in place of Rs. 2,00,00,000/- deposit as per MOU). Thereafter M/s a2z backed out and no activity was done and the appellants-initiated arbitration proceedings on 28/11/2011. Revenue was of the opinion that the appellants have provided infrastructural support service, falling under “Business Support Service”, to M/s a2z Ltd. and have not paid the applicable service tax. A show cause notice demanding service tax of Rs.5,15,000/-, was issued. The original authority confirmed the demand and Commissioner (appeals) has upheld the demand after allowing cum-duty benefit and imposing equal penalty under Section 78 and penalty of Rs.5000/- under Section 77 of Finance Act, 1994. Hence, this appeal.
2. Shri Sudeep Singh Bhangoo, advocate appearing for the appellants submits that as per the MOU both the appellant and M/s a2z were to make joint efforts for setting up the plant; the understanding was in the nature of “Joint venture”; there is no service provide and service recipient relationship; No tax is payable in view of the boards secular F.No.B1/6/2005-TRU dt. 27/07/2005. Learned Advocate further takes us through the statutory definitions and submits that in terms of the MOU the appellants were required to provide vacant land, water and bagasse; while bagasse and water are goods, supply of which cannot be considered as service, provision of vacant land does not constitute infrastructural service.
3. Ld. Advocate further submits that business support service means outsourcing of certain activity of the business as clarified by board circular 334/4/2006-TRU dated 28/02/2006. He relies on the following cases;
• Mundra Port and SEZ Ltd. Vs CCE, Rajkot 2012(27) STR 171(Tri. Ahmd.)
• M/s Goodyear South Asia Tyres Pvt Ltd, Vs CCE 2020-TIOL-597-CESTAT- Mum.
• Air Liquide North India Pvt Ltd Vs CCE 2017(4) GSTL 230.
4. Ld. Advocate also submits that Rs. 50,00,000/-, paid by M/s a2z Ltd, was as per Clause 2.3 of the agreement which was to be paid within 4 months of signing of MOU; this deposit cannot be seen as a consideration for the service provided and was meant for modernisation of the mill; Ld. Commissioner did not appreciate the board circular dt.27/07/2005; The amount was refundable; if refunded no service tax would have been payable even if it was a service; be rendered and even then no service tax is payable; moreover, it was a mere deposit, as per MOU, for modernization of the mill and not as a consideration for any service.
5. Shri Yashpal Singh, Learned Authorised Representative of the Revenue takes us through the scope of the project; rights and obligations of both the parties and the definition of taxable service submits that advance received by the appellant constitutes advance for rendering a service. He submits that the adjudicating authority has considered the submission, of the appellant, on the agreement being in the nature of a “Joint Venture” and has given detailed findings. He submits that as per the agreement, it is evident that the modernization of the mill was only for the purpose of energy saving and the energy saved could be sold by M/s a2z; therefore the appellants are supporting the business of M/s a2z and hence have been correctly held to be liable to pay service tax.
6. Heard both sides and perused the records of the case. We find that the appellants have entered into an agreement with M/s a2z for installation of a power generating unit. The appellants were to provide land, water and bagasse free of cost and in return M/s a2z were to supply electricity and steam free of cost to the appellant and could sell the balance of electricity to third parties. In terms of the agreement M/s a2z were to deposit Rs.2,00,00,000/- with the appellants and the sum was to be used for modernization of the plant; however, M/s a2z have only deposited Rs.50,00,000/-; the envisaged project did not take off; the appellants submit that M/s a2z defaulted; appellants-initiated arbitration proceedings against M/s a2z. This sum of Rs.50,00,000/- deposited with the appellants is being viewed, by the Revenue, as the advance for consideration of infrastructure service to be provided by the appellant.
7. We find that it would be beneficial to have a look at the definition of “Business Support Service”. Section 65(104c) defines and explains the scope of service is as follows.
"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, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing."
Explanation -For the purposes of this clause, the expression "infrastructural support services" includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;
"Taxable Service" means any service provided or to be provided to any person, by any other person, in relation to support services of business or commerce, in any manner;
7.1. We further find that board circular dt. 28/02/2006 clarifies at para 3.13 that; Business Support Services: Business entities outsource a number of services for use in business or commerce. These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as"Business Centre Services". It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under Business Auxiliary Service. Definition of support services of business or commerce gives an indicative list of outsourced services.
8. On going through the definition of the taxable service it appears that the term “Infrastructure Support Service” includes providing of office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services etc. A clear takeaway from the definition of “Business Support Service” is that it is in the nature of outsourced work which necessarily presupposes deployment of services as well as personnel to help the business of the other person. In the instant case, no such outsourcing of work by M/s a2z Ltd to the appellant is visible. It is clear from the wordings of the definition that one party, the provider of the service should render service to support the business of the other party, that is the recipient of the service. However, in the instant case, we find that no such arrangement is visible. The benefit is mutual; while the appellants help the business of M/s a2z by providing free space, water and bagasse, M/s a2z in turn contribute to the modernisation of the sugar plant and growth of the business of the appellant. Hence, the agreement is mutually beneficial. Contrary to the stand by the Ld. authorised representative, the advance paid by M/s a2z is specially for the purpose of the modernization of the sugar plant of the appellant, as per the agreement, and not at all a consideration towards any service that was rendered/was to be rendered by the appellant to M/s a2z. The spirit of the MOU is certainly in the nature of a “Joint Venture''. To view the advance paid by M/s a2z as a consideration to some service as the modernisation of the plant would ultimately benefit M/s a2z is a farfetched imagination. Even to a layman’s understanding modernization of the factory would help the cause of the appellants immediately rather than M/s a2z. Therefore, we are of the considered opinion that the MOU between the appellants and the M/s a2z is on a principal-to-principal basis and not on the basis of a service provider and the client. We find that while rendering a service may result in the payment of a consideration, monetary or otherwise, the vice versa is not true. Department seriously erred in viewing every consideration to be necessarily for rendering a service.
9. On going through the provisions of the statute, board’s clarification and the terms of the MOU we are of the considered opinion that deposit of Rs. 50,00,000/- received by the appellants from M/s a2z is not any consideration for the provision of any service. The nature of relationship between the appellant and M/s a2z is on the principal-to-principal basis and therefore, similar to a “Joint Venture”. The arrangement is mutually beneficial. In view of our discussions, we find that the impugned order does not stand the scrutiny of law and therefore is not legally maintainable and requires to be set aside.
10. In view of the above, the appeal is allowed.
