Fibcom India Limited vs CE & CGST Noida
- Court
- Customs, Excise and Service Tax Appellate Tribunal
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.II
Service Tax Appeal No.70536 of 2018
(Arising out of Order-In-Original No.26/Commissioner/GBN/2017-18 dated
27.02.2018 passed by Commissioner Central Tax, GST & Central Excise, Gautam
Buddh Nagar)
M/s Fibcom India limited
(B-215, DSE Road, Phase II
Gautam Buddh Nagar, Uttar Pradesh)
...Appellant
VERSUS
Commissioner, Central Tax, CGST & Central
Excise, Noida
rd
(3 Floor,Wegmans Business Park, KP-III
Greater Noida, Uttar Pradesh 201306)
... Respondent
A PPEARANCE :
Shri Atul Gupta, Advocate for the Appellant
Shri N. K. Mohan, Authorized Representative for the Respondent
CORAM: HON’BLE MR. P.A. AUGUSTIAN, MEMBER (JUDICIAL)
HON’BLE MR SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.-70319/2026
DATE OF HEARING : 30.07.2026
DATE OF DECISION : 01.09.2026
SANJIV SRIVASTAVA:
This appeal is directed against the Order-In-Original
No.26/Commissioner/GBN/2017-18 dated 27.02.2018. By the
impugned order following has been held:-
“ORDER
a) I drop the demands raised vide SCNs. Dtd. 22.10.2014 and
18.03.2016 against provision of Intellectual Property Right
Services.
Service Tax Appeal No.70536 of 2018
2
b) I confirm the demand of Rs. 55,24,252/- on the party i.e.
M/s. FIL, raised vide SCN dtd. 22.10.2014 against various
services received by M/s FIL from out-side India for their R&D
Facility at Denmark during the period 01.04.2009 to
31.03.2013, alongwith applicable Interest payable under
Section 75 of the Finance Act, 1994.
c) I impose a penalty of Rs. 10,000/- Section 77 of the Finance
Act, 1994 on the party Le. M/s. FIL for not filing the true and
correct ST-3 Returns required to be filed by them under
Section 70 of the Finance Act, 1994,
d) I impose a penalty of Rs. 38,58,611/-on the party ie. M/s. FIL
under Section 78 of the Finance Act, 1994 with reference to
Service Tax along with Ed. Cess and Secondary and Higher
Ed. Cess not paid by M/s FIL for the period 01.04.2009 to
31.03.2011.
e) I impose a penalty of Rs. 8,32,821/- (i.e.50% of Rs.
16,65,641/-) on the party i.e. M/s. FIL under first proviso to
Section 78 of the Finance Act, 1994 with reference to Service
Tax along with Ed. Cess and Secondary and Higher Ed. Cess
not paid by M/s FIL for the period 01.04.2011 to 31.03.2015,
payable on transactions duly recorded by M/s FIL in specified
records.
f) In terms of clause (ii) of second proviso to sub-section (1) of
Section 78 ibid of Finance Act, 1994, if the amount of Service
Tax and interest is paid within a period of thirty days of the
date of receipt of this order, the above penalties payable shall
be reduced to twenty-five per cent. of the service tax subject
to the condition that such reduced penalty is also paid within
such period. This benefit of reduced penalties would also be
available subject to provisions contained in sub-section (2)
and (3) of Section 78.
g) I direct the jurisdictional Assistant Commissioner / Deputy
Commissioner to segregate the amount of Service Tax along
with Education Cess, Secondary & Higher Education Cess and
Interest paid by M/s FIL and to appropriate the relevant
Service Tax Appeal No.70536 of 2018
3
amount towards the aforesaid demand after due verification
thereof.
With this order, the Show Cause Notices issued vide C. No. V(15)
Adj/St/Noida/Fibcom/7/14/20758-60 dated 22.10.2014 and C.
No. V(30)ST/DIV-IV/Demand/Fibcom/76/2016/307 dated
18.03.2016 stands disposed off.
2.1 Appellant having Centralized Service Tax Registration No.
AAACF2237PSdoo2 is engaged in manufacture of Optic Fibre
based Transmission System and parts thereof falling under
Chapter Heading No 85176260 and also providing/ receiving
services classifiable under categories Rent a Cab Scheme
Operator Service, Manpower recruitment/ supply agency
services, Maintenance or Repair Services, Erection,
Commissioning and Installation Services, Transport of Goods by
air, Intellectual Property Rights Service other than copy right,
transport of goods by road, information technology software
services and legal consultancy services.
2.2 They entered into an agreement dated 08.03.2006 with
Tellabs A/S Denmark to provide Technical Knowhow for
manufacture and sale of the license products by using Technical
Knowhow of Tellabs under the agreement. As per agreement
dated 6th March 2006, Tellabs, Denmark, granted a non-
exclusive, non-transferable technical knowhow license right to
the assessee under the Intellectual Property Right owned and
controlled by Tellabs and received Royalty for use of technical
Knowhow provided to the assessee under the agreement for
Networking Planning, System Design and engineering
manufacturing, market sell, installation and commissioning,
operate, maintain and make improvement to the agreement
product in the territory ofIndia by acquiring a strong and
competent team from Tellabs, Denmark to carry forward R & D
activities: independently along with long term Technology
Licenses for use in its territories, through an amendment to
Technology and License Agreement (TALA) between the
assessee& Tellabs, Denmark. The assessee has acquired the
Service Tax Appeal No.70536 of 2018
4
right to apply, jointly with Tellabs. Denmark, with the Indian
Intellectual Property authorities (such as Patent, copyrights
offices etc.) for registration of Improvement developed by the
assessee based on an agreement products and through joint
development projects between the assessee and Tellabs
Denmark. In case of termination or non-renewal of Technology
and licence agreement (TALA), the assessee will have right to
the Agreement Products & to improvements developed by the
assessee for a further period of 15 years.
2.3 The Appellant opened an office in Denmark in relation to R
& D activities and training of India R&D staff and other design
support for product development. The services of these were
being used for new implementation like ASON, GMPLS for 6300
products together with India R&D.
2.4 During the course of audit of the records of the Appellant it
was observed that the Appellant had paid amounts on account of
Technical Know how charges, Royalty etc as detailed in annexure
A, B, C & D. During the period 2009-10 to 2013-14 appellant
had paid an amount of Rs 4,59,57,168/- on account of technical
Know How on accrual basis and Rs. 17,47,71,259/- on cash
basis. Appellant failed to discharge the service tax due in respect
of these amounts paid on reverse charge basis, treating these
services as import of services.
2.5 They were also transferring huge amount to their branch
office in Denmark for the services received by them at branch
office. In respect of these services appellant was also required to
pay service tax.
2.6 The demand of service tax due from the appellant was
computed on the basis of 04 Annexures A, B, C & D annexed to
the Show Cause Notice dated 22.10.2014. These annexures
are reproduced below:-
Annexure A
Expenditure in Foreign Currency (Accrual Basis) (Schedule 22/27 of BS)
Particulars 2012-13 2011-12 2010-11 2009-10 Total
Technical Know how
(IPR)
0 0 20299668 25657500 45957168
Service Tax Appeal No.70536 of 2018
5
Service Tax Leviable 0 0 2090866 2642723 4733589
R & D Cess 0 0 1014983 1282875 2297858
Service tax Payable 0 0 1075883 1359848 2435731
Annexure B
Expenditure in Foreign Currency (Cash basis): Including CWIP- R & D
Royalty 4832193 27305166 3767295 10906814 46811468
Technical Know how
(IPR)
17331200 26952089 10891200 20059600 75234089
Total 22163393 54257255 14658495 30966414 122045557
Service Tax Leviable 2739395 5588497 1509825 3189541 13027258
R & D Cess 1108170 2712863 732925 1548321 6102279
Service tax Payable 1631225 2875634 776900 1641220 6924979
Annexure C
Expenditure in Foreign Currency (Cash basis): Other than CWIP- R & D
Service Charges (BAS) 2426058 6969680 32627951 0 42023689
Repair, Maintenance,
Tooling (MMR)
86082 75706 535556 349045 1046389
Professional Fees
(MCS)
421152 1710367 1044960 0 3176479
Insurance (IAS) 193367 358144 462288 0 1013799
Bank Charges &
Commission (BFS)
0 275462 508272 165339 949073
Misc Charges 1412421 1335021 1768831 0 4516273
Total 4539080 10724380 36947858 514384 52725702
Service tax Payable 561030 1104611 3805629 52982 5524252
Annexure D
Summary/ Abstract
Service tax Payable (A) 0 0 1075883 1359848 2435731
Service tax Payable (B) 1631225 2875634 776900 1641220 6924979
Service tax Payable (C) 561030 1104611 3805629 52982 5524252
Total Service tax
Payable
2192255 3980245 5658412 3054050 14884962
ST Paid on Royalty 0 0 588207 254965 843172
ST payable (Excluding
R&D Cess)
2192255 3980245 5070205 2799085 14041790
0 0 1014983 1282875 2297858
R & D Cess on Technical
Know-how (Accrual basis)
1108170 2712863 732925 1548321 6102279
R & D Cess on Technical
Know-how (Cash basis)
Total R & D Cess 1108170 2712863 1747908 2831196 8400137
Service Tax payable
(including R & D Cess)
3300425 6693108 6818113 5630281 22441927
2.6 A show cause notice dated 22.10.2014 was issued to the
appellant asking by them to show cause as to why,-
(i) Service Tax amounting to Rs 2,24,41,927/- (Two Crore
Twenty Four Lakh Forty One Thousand Nine Hundred and
Service Tax Appeal No.70536 of 2018
6
Twenty Seven only) (inclusive of Ed.Cess & SHEC) should
not be demanded and recovered under proviso to Section
73 (1) of the Finance Act, 1994.
(ii) Interest under Section 75 of the Finance Act, 1994 should
not be demanded and recovered from them on the amount
of service tax not paid by them as discussed above.
(iii) The penalty should not be imposed on them under Section
77 of the Finance Act, 1994 for contravention of Section 70
by not following the prescribed procedure mentioned
therein regarding filing of ST-3 returns.
(iv) The penalty should not be imposed on them under Section
78 of the Finance Act, 1994 as they have willfully not
disclosed the facts narrated above to the department to
evade the payment of Service Tax .
2.7 Another show cause notice dated 18.03.2016 was issued
to the appellant for subsequent period asking them to show
cause as to why:
(i) Service Tax amounting Rs 99,461/- should not be
demanded and recovered from them under Section 73 (1)
of the Finance Act, 1994.
(ii) Interest at appropriate rate should not be demanded and
recovered from them under Section 75 of the said Act.
(iii) Penalty should not be imposed upon them under Section
76 of the Finance Act, 1994 for contravention of the
provisions of Finance Act, 1994/ Rules ibid.
(iv) The penalty should not be imposed on them under Section
77 of the Finance Act, 1994 for violation of provisions of
Section 70 of the Finance Act, 1994 read with Rule 7 of the
Service Tax Rules, 1994.
2.8 Both the Show Cause Notice have been adjudicated as per
the Order-In-Original referred in Para 1 above. The demands
made by the show cause notice dated 22.10.2024 has been
partly confirmed to the extent as per Annexure C and the
demand made by Show Cause Notice dated 13.10.2026 has
Service Tax Appeal No.70536 of 2018
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been dropped. Demand of interest to that extent has been
confirmed and penalties imposed under Section 77 and 78 of the
Finance Act, 1994.
2.9 Aggrieved, the Appellant have filed this appeal.
3.1 Heard Shri Atul Gupta, Advocate for the Appellant and Shri
N. K. Mohan, Authorized Representative for the Revenue.
3.2 Arguing for the Appellant learned Counsel submits that:-
➢ The Show Cause Notice is absolutely vague and is liable to
be set aside. Reliance is placed on the following
judgments:-
o Shilpi Enterprises [2017 (349) ELT 308 (T– All)]
o Brindavan Beverages P. Ltd. [2007 (213) ELT 487 (SC)]
o Naresh Kumar [2015 (37) STR 451 (Cal)]
o
RR Financial Consultants [2014 (33) STR 12 (Delhi)]
o
Teneron Limited [2020 (1) TMI 1165 Delhi HC]
o Sharma Fabricators & Erectors Pvt. Ltd. [2017 (5) GSTL
96 (T– All)] affirmed in 2019 (22) GSTL J166 (All.)
➢ The impugned order travels beyond the show cause notice
as well as the same is vague & perverse. Reliance is placed
on following decisions:-
o Toyo Engineering India Limited [2006 (201) ELT 513
(SC)]
o Inox Leisure Ltd. [2022 (60) G.S.T.L. 326 (T - Hyd.)}
affirmed by the Supreme Court at [2022 (61) G.S.T.L.
342 (SC)]
o Mitsui Chemicals India Pvt. Ltd. [2019 (369) E.L.T. 1291
(T-All)]
o Reckitt & Colman of India Ltd. [1996 (88) E.L.T. 641
(SC)
o
Dalmia Cements (Bharat) Limited [2017 (3) GSTL 81 (T-
Del)]
o Jitendra Kumar [2023 SCC OnLine All 2837]
o Naresh Kumar & Co. Private Limited [2014 (36) STR 271
(Cal)]
Service Tax Appeal No.70536 of 2018
8
o United Telecoms Ltd. [2011 TIOL 56 CESTAT BANG]
➢ The demand raised in the Show Cause Notice for post-
amendment period is unsustainable as the same has been
raised upon obsolete provisions. Reliance is placed on
following decisions:-
o FICCI [2014 TIOL 701 (T-Del)]
o The People’s Choice [2014 -TIOL-431-HC-KAR-ST]
➢ The expenses incurred by the appellant were in the nature
of reimbursements hence could not be subjected to service
tax. Reliance is placed on following decisions:-
o Intercontinental Consultants and Technocrats Pvt. Ltd.
[(2018) 4 SCC 669]
o KPIT Technologies Limited [2017 (7) GSTL 468 (T-Mum)
o
Kusum Healthcare Private Limited [2018 (2) TMI 1408-
CESTAT New Delhi]
o Aricent Technologies (Holding) Limited [2017 (5) TMI
521 (CESTAT-Chandigarh)]
➢ Without prejudice to the above submissions, service tax is
not leviable as services, if any, have been incorrectly
classified. Reliance is placed on following decisions:-
o Syndicate Bank [2010 (19) STR 578 (T-Mum)]
o Nirulas Corner House [2009 (14) STR 131 (T-Del)]
o Basti Sugar Mills [2007 (7) STR 431 (T-Del)]
o Arvind Mills Limited [2014 (35) STR 496 (Guj)]
o Johnson and Johnson Private Limited [2017 (52) STR
159 (T-Mum)
➢ The entire demand is revenue neutral. Reliance is placed
on following decisions:-
o Shree Rainie Gums and Chemicals Pvt. Limited [ 2017(4)
GSTL 340 (Tri.-Del)]
➢ The extended period is not invokable, thus demand up to
September 2012 is time barred. Reliance is placed on
following decisions:-
o SBI [2018-TIOL-1143-CESTAT-Madras]
o Vodafone Essar South Limited [2018-TIOL-1169-CESTAT
Bangalore]
Service Tax Appeal No.70536 of 2018
9
o Aditya College of Competitive Examinations [2009 (16)
STR 154 (T)]
o Nadiad Silicate & Chem [1995 (80) ELT 891 (T)]
o Continental Foundation Jt. Venture [2007 (216) ELT 177
(SC)]
o Ajay Mishra [2023 (386) E.L.T. 310 (T- Del)]
o Damnet Chemicals Pvt. Ltd.[2007 (216) ELT 3 (SC)]
o Padmini Products Limited [1989 (43) ELT 195 (SC)]
➢ No penalty and interest is imposable.
3.3 As directed by the Bench, the Appellant provided details of
the payments made by admitting to the Service Tax liability in
terms of various services under Annexure C as per their reply to
Show Cause Notice. The details of payment made against te
admitted liability is detailed in the table below as provided by the
appellant.
Heads Particulars Description
The Noticee has already discharged
service tax liability along with interest,
vide Challan No. 00002 dated 18.02.2013.
(Para C 14)
The Noticee has already discharged
service tax liability along with interest,
vide Challan No. 00002 dated 18.02.2013
(Para C 15)
Rs. 2,54,220/-
paid under Head
440245
+ Rs. 2,67,161/-
paid under Head
440246
Repairs,
Maintenance,
Tooling (MMR)
The Noticee has already discharged
service tax liability along with interest,
vide Challan No. 00002 dated 18.02.2013
(Para C 16)
The Noticee has already discharged
service tax liability along with interest,
vide Challan No. 00002 dated 18.02.2013
(Para C 17)
Rs. 11,532/- paid
under Head
440480;
Rs. 12,119/- paid
under Head
440483
The Noticee has paid service tax of Rs.
11,532/- along with interest of Rs:
12,119/- vide Challan No. 00002 dated
18.02.2013 (Para C 31)
Professional Fees
(MCS)
Rs. 75,435/- paid
under Head
440169
Rs. 37,717/- paid
under Head
440170
The Noticee again paid service tax for the
period upto 2011, along with interest
through Challan No. 00002 dated
18.02.2013 (Para C 45)
Insurance + Bank
Charges &
Commission
3.4 Learned Authorized Representative for the Revenue
reiterates the findings recorded in the impugned order.
Service Tax Appeal No.70536 of 2018
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3.5 We have considered the impugned order and submissions
made in the appeal and during the course of argument.
4.1 The Appellant have heavily relied upon Para 34 of the
Order of the Commissioner to argue that Commissioner has
himself held that the demand made is vague and could not have
been confirmed. Para 34 of the Order-In-Original is reproduced
below:-
“34 The defence has contended that the SCN has picked up
foreign currency expenditures from the balance sheet of M/s
FIL and demanded service tax on 'service charges' under
Business Auxiliary Service', on Repair, Maintenance, Tooling
under Management, Maintenance or Repair Service', on
Professional Fees' under "Management Consultant Service',
on Insurance' under Insurance Auxiliary Service', on Bank
Charges & Commission' under Banking & Other Financial
Service'. However, the SCN is silent as to under which
category service tax is payable on Misc. charges. It has
been further pleaded that the SCN has not gone into the
nature of these foreign currency expenditure and proposed
service tax demand under respective categories. I agree
with the defence contention that generally the SCN should
have gone into the nature of foreign currency expenditures
and should have established the proposed service tax
demand under the respective categories, however in the
present SCN not much has been mentioned to establish
taxability under the category of service mentioned against
the concerned expenditure. At the same time I note at the
material time i.e. during the course of Internal Audit, or
when they were asked by the jurisdictional authorities to
comply with the audit objection they too failed to come
forward with relevant clarification and information to enable
the jurisdictional authorities to appraise such clarifications
and to disseminate information to analyse the applicability
of appropriate statutory provisions thus leaving them no
option but to issue SCN on the basis of available
Service Tax Appeal No.70536 of 2018
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information. I am already of the view that up to 30.06.2012
revenue has to discharge onus to establish taxability
whereas after 30.06.2012 it was assessees turn to establish
exemption or non-taxability of any transaction of service.
have carefully gone through the show cause notice
dtd.22.10.2014, and I find that there is not even single
assertion whatsoever as to which particular or specific
taxable service had been received by M/s FIL from Foreign
Service Provider except mention of taxable services in a
cryptically manner against the head of expenditure shown in
the Annexure D to the SCN. In the absence of an allegation
of having provided a specific taxable service in the show
cause notice, the show cause notice nor the consequent
adjudication order may stand before judicial scrutiny.
Nothing hasbeen placed on record that the department was
handicapped and crippled, by the total non-cooperative
attitude of M/s FIL, if any, who failed to furnish the relevant
transactional documents to enable identification of the
specific taxable service received by them, in order to justify
the failure of department to properly investigate the matter
and issuance of a vague and incoherent show cause notice.
There is no classification in the body of SCN only
quantification has been mentioned in the Annexure of the
SCN that too happens to be flawed. No corroboratory
evidence has been referred to in the body of the SCN.
Certain heading such as 'Business Auxiliary Service',
'Management Consultant Service', 'Management,
Maintenance or Repair Service', Insurance Auxiliary
Service', 'Banking & Financial Service', which have been
mentioned in the annexure, seems to pertain to
classification under that service. In the case of
miscellaneous expenses not even that has been mentioned.
I observe that it is a settled principle of law that
adjudicating authority should not traverse beyond Show
cause notice. Also settle legal principle is that the show
cause notice shall not be generic demand and mention of
Service Tax Appeal No.70536 of 2018
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specific clarification is a must for SCN to survive the scrutiny
of law as held in the case of Shubham Electricals Vs. CCE
Rohtak 2015 (40) S.T.R. 1034 (Tri. Del.). Taking cues from
the above decision of the tribunal and with the objective of
ensuring that justice is not derailed, I proceed to examine
the entire issues on merit on the basis of facts and records
available before me either divulged by M/s FIL through their
defence submission or by the department in the SCN and
relied upon documents.”
4.2 We find that demand in respect of all other Annexure
except Annexure ‘C’ have been dropped which can be evidenced
from the Para 35 of the Order. In Annexure ‘C’ the demand has
been made clearly indicating the nature of service received and
expenditure incurred for which money was transferred to their
branch office opened in Denmark. Pare 35 of the Order is
reproduced below for ready reference:-
“35 I have noted that in the SCN foreign currency
expenditures incurred by M/s FIL have been tabulated as
follows:-
I have noted that M/s FIL has opened an office in Denmark
to carry out R&D activities and training of Indian R&D staff
for the development of other designs support for the
products manufactured by them in India. The office in
Denmark has also been used for new implementation like
ASON, GMPLS for 6300 products together with Indian R&D.
The R&D Facility has been interalia engaged to advance the
6300 technology; to complete the SAP6 development; to
develop new products as per up-coming technology
changes. Thus the R&D office in Denmark is liable to be
Service Tax Appeal No.70536 of 2018
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treated as a fixed establishment of M/s FIL. I find that
Section 66A of the Finance Act-1994, the enabling provision
up to 30.06.2012, (Section 66 A not applicable w.e.f. 1-7-
2012 vide Notification No 23/2012-ST dated 5-6-2012) to
charge Service Tax on services received from outside India,
reads as follows:
SECTION [66A. Charge of service tax on services received
from outside India. (1)
Where any service specified in clause (105) of section 65 is,
-
(a) provided or to be provided by a person who has
established a business or has a fixed establishment from
which the service is provided or to be provided or has his
permanent address or usual place of residence, in a country
other than India, and
(b) received by person (hereinafter referred to as the
recipient) who has his place of business, fixed
establishment, permanent address or usual place of
residence, in India,
such service shall, for the purposes of this section, be
taxable service, and such taxable service shall be treated as
if the recipient had himself provided the service in India,
and accordingly all the provisions of this Chapter shall
apply:
Provided that where the recipient of the service is an
individual and such service received by him is otherwise
than for the purpose of use in any business or commerce,
the provisions of this sub-section shall not apply:
Provided further that where the provider of the service has
his business establishment both in that country and
elsewhere, the country, where the establishment of the
provider of service directly concerned with the provision of
service is located, shall be treated as the country from
which the service is provided or to be provided.
Service Tax Appeal No.70536 of 2018
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(2) Where a person is carrying on a business through a
permanent establishment in India and through another
permanent establishment in a country other than India,
such permanent establishments shall be treated as separate
persons for the purposes of this section.
Explanation 1. A person carrying on a business through a
branch or agency in any country shall be treated as having
a business establishment in that country.
Explanation 2. Usual place of residence, in relation to a body
corporate, means the place where it is incorporated or
otherwise legally constituted.]
4.3 We also note that the claim of the Appellant before us that
the demand made is vague is not supported by their own reply
to the Show Cause Notice before the Adjudicating Authority. The
reply given by the appellant is reproduced below:-
“C. T HAT SERVICE TAX IS NOT PAYABLE ON FOREIGN
CURRENCY EXPENDITURE INCURRED BY THE N OTICEE .
C.1. The SCN in Annexure-C, has picked up foreign
currency expenditures from the balance sheet of the
Noticee and demanded service tax on ‘service charges’
under ‘Business Auxiliary Service’, on ‘Repair,
Maintenance, Tooling’ under ‘Management, Maintenance or
Repair Service’, on ‘Professional Fees’ under ‘Management
Consultant Service’, on ‘Insurance’ under ‘Insurance
Auxiliary Service’, on ‘Bank Charges & Commission’ under
‘Banking & Other Financial Service’. However, the SCN is
silent as to under which category service tax is payable on
Misc. charges.
C.2. The Noticee submits that the SCN has not gone into
the nature of these foreign currency expenditure and
proposed service tax demand under respective categories.
These foreign currency expenditures are discussed herein-
below in detail:
Annexure-C
Expenditure in Foreign Currency (Cash Basis): Other than CWIP-R&D
2012-13 2011-12 2010-11 2009-10 Total
Particulars
Service Tax Appeal No.70536 of 2018
15
2426058 6969680 32627951 0
42023689
Service Charges
(BAS)
86082 75706 535556 349045
1046389
Repairs,
Maintenance,
Tooling (MMR)
421152 1710367 1044960 0
3176479
Professional
Fees (MCS)
193367 358144 462288 0
Insurance (IAS) 1013799
0 275462 508272 165339
949073
Bank Charges &
Commission
(BFS)
1412421 1335021 1768831 0
Misc. Charges 4516273
Total 4539080 10724380 36947858 514384 52725702
ST payable (C) 561030 1104611 3805629 52982 5524252
C.3. Copies of excel sheet providing for the bifurcation of
these charges for each year, are enclosed herein as
Annexure-17 .
(I) Service Charges – ‘Business Auxiliary Service’ (Rs.
4,20,23,689/-):
C.4. The SCN has proposed service tax on ‘Service
Charges’ under ‘Business Auxiliary Service’. The Noticee
submits that these service charges are not taxable at all.
In this regard it is submitted that the SCN has failed to
justify as to how these charges are taxable under ‘Business
Auxiliary Service’. It is submitted that the definition of
‘Business Auxiliary Service’ as given under Section 65(19)
of the Finance Act, 1994, provides various sub-clauses. For
a service to get covered under this category, it should fall
under any of these sub-clauses. However, the SCN has
failed to provide, under which sub-clause these service
charges are covered. Therefore, service tax liability to this
extent is liable to be dropped on this ground alone.
C.5. Year-wise detail of service charges is given herein-
below:
Year Amount
2009-10 0/-
2010-11 3,26,27,951/-
2011-12 69,69,680/-
2012-13 24,26,058/-
Total 4,20,23,689/-
C.6. For the year 2009-10, there was no foreign currency
expenditure as ‘Service Charges’. For the year 2010-11
Service Tax Appeal No.70536 of 2018
16
and 2011-12, the Noticee has booked Rs. 3,26,27,951/-
and Rs. 69,69,680/- respectively as ‘Service Charges’
under ‘Expenditure in Foreign Currency (Cash Basis)’. The
Noticee submits that the SCN has not gone into the nature
of these expenses and proposed service tax demand under
‘Business Auxiliary Service’. It is submitted that these
service charges pertain to expenses in foreign currency
incurred by the Noticee in respect of its R&D Facility at
Denmark. As submitted earlier, as per Article-2 of
Addendum to Amendment Agreement No. 2 & 3 to TALA,
the Noticee has established R&D Facility in Denmark to
undertake certain research and development activities in
terms of TALA. Further, Amendment Agreement No. 2 & 3
of TALA provided that Tellabs has committed to provide
resources to help the Noticee in facilitating a development
environment. For this, the Noticee has identified specified
resources of Tellabs and the Noticee was required to
compensate Tellabs for providing the specified resources to
the Noticee for its R&D facility. Relevant portion of the
Amendment Agreement No. 3 of TALA is reproduced
herein-below:
Article 1.
1.1 For continuing the development Fibcom have
identified specific resources (“Named Resources”).
Fibcom will compensate Tellabs for the fully loaded
costs of the Named Resources. For these Named
Resources and for any other additional manpower
resources made available from Tellabs Denmark
Fibcom can issue the appointment letters/ contract
as and when they are released by Tellabs and these
resources shall work as per Fibcom requirements and
the negotiated terms & conditions between Fibcom
and those resources.
…
3. Monthly settlement of R&D cost
Service Tax Appeal No.70536 of 2018
17
3.1 Fibcom will pay all direct and fully allocated costs
for the cost center associated with the Named
Resources. Tellabs will raise an invoice to Fibcom
every month. The invoice has to be paid within thirty
(30) calendar days from the date of invoice.
Details on calculation of direct allocations are given
in Chapter V- Details of cost calculations.
C.7. From the bare perusal of the above and ‘Chapter V –
Details of cost calculations’ of Amendment No. 3 to TALA,
it is evident that Tellabs was raising invoices on the
Noticee for payroll, bonus, incentive, compensation
expense, travel & Entertainment, Education & Training,
Computing Equipment, etc. and the Noticee was making
payment of the same in foreign exchange to Tellabs.
C.8. In this regard, reliance is also placed on the Facility
Services Agreement dated 01.09.2010 wherein Article 3, 4,
7 etc. provided that Tellabs will provide space and
additional service to the Noticee. Relevant portion of the
Facility Services Agreement is reproduced herein-below:
3. Service Fee. The Service Fee for the Services
specified in Exhibit A shall be DKK 85,000 per month
for up to 10 Fibcom related headcount, and DKK
105,000 per month for 11 to 15 Fibcom related
headcount. Additionally, if Tellabs becomes subject
to any future price increase for rent or services,
either based upon an index increase or a service
provider increase, the Service Fee will be increased
proportionately for the same increase. If Fibcom
related headcount increase above 15, both parties
will review and agree upon a new revised Service
Fee.
4. Additional Services. In case of provision by
Tellabs of any other services outside of Exhibit A
(e.g. meals to Fibcom personnel and/ or guest), or in
case of modification of Services, such changes are
subject to mutual written agreement thereof. Tellabs
Service Tax Appeal No.70536 of 2018
18
shall be entitled to be reimbursed fully for the cost
attributable to the performance of such additional
and/ or modified services.
C.9. The Noticee places reliance on the invoices raised by
Tellabs. Representative copies of the invoices raised by
Tellabs on the Noticee for the year 2010-2011 and 2011-
12 are enclosed herein as Annexure-18 . The Noticee
submits that from the narrations in the invoices it is
evident that these charges are paid by the Noticee to
Tellabs, in lieu of the specified resources provided by
Tellabs. The Noticee submits that these service charges
also include expenses incurred on the specified resources
as their meals cost, etc.
C.10. For the year 2012-13, the Noticee has shown Rs.
24,26,058/- as ‘Service Charges’ under ‘Expenditure in
Foreign Currency (Cash Basis)’. It is submitted that this
amount pertains to rent of R&D Facility charged by Tellabs
under Article 3 of the Facility Services Agreement dated
01.09.2010. In this regard reliance is placed on the
invoices raised by Tellabs for charging rent with respect to
R&D Facility of the Noticee. Representative copies of
invoices raised by Tellabs on the Noticee for recovery of
rent under Article 3 of the Facility Services Agreement are
enclosed herein as Annexure-19 .
C.11. In the light of the above, it is submitted that these
charges in no way are covered under any of the clauses of
‘Business Auxiliary Service’. Therefore, the SCN deserves
to be dropped to this extent.
(II) Repairs, Maintenance, Tooling Expenses –
‘Management, Maintenance or Repair Service’ (Rs.
10,46,389/-)
C.12. The SCN has proposed service tax on repair,
maintenance tooling expenses under ‘Management,
Maintenance or Repair Service’. In this regard it is
submitted that the SCN has failed to justify as to how
Service Tax Appeal No.70536 of 2018
19
these charges are taxable. Therefore, service tax liability
to this extent is liable to be dropped on this ground alone.
C.13. Year-wise detail of Repair, Maintenance, Tooling
Expenses, is given herein-below:
Year Amount
2009-10 3,49,045
2010-11 5,35,556
2011-12 75,706
2012-13 86,082
Total 10,46,389
C.14. In the year 2009-10, the Noticee has shown Rs.
3,49,045/- as ‘Repairs, Maintenance, Tooling expenses
etc.’ under ‘Expenditure in Foreign Currency (Cash Basis)’
in its balance sheet. It is submitted that the Noticee has
received maintenance service from service providers
situated outside India. In lieu of the maintenance service
received from outside India, the Noticee has paid an
amount of Rs. 2,08,640/- (3,200 Euro) and Rs. 1,40,405/-
(2,600/- Euro) to the foreign service providers. It is
submitted that the maintenance service has been received
by the Noticee for its Indian operations. Copies of the
invoices raised by the foreign service providers for the
year 2009-2010 are enclosed herein as Annexure-20 .
The Noticee submits that these maintenance and repair
services are received by the Noticee in India. On these
amounts, the Noticee has already discharged service tax
liability along with interest, vide Challan No. 00002 dated
18.02.2013. Copy of Challan No. 00002 dated 18.02.2013
along with calculation of service tax and interest, is
enclosed herein as Annexure-21 .
C.15. In the year 2010-11, the Noticee has shown Rs.
5,35,556/- as ‘Repairs, Maintenance, Tooling expenses
etc.’ under ‘Expenditure in Foreign Currency (Cash Basis)’
in its balance sheet. It is submitted that the Noticee has
received maintenance service from service providers
situated outside India. In lieu of the maintenance service
received from outside India, the Noticee has paid an
amount of Rs. 1,57,150/- (3,500 Euros) and Rs.
Service Tax Appeal No.70536 of 2018
20
3,78,406/- (i.e. 6,133/- Euros, the same is included in
Invoice No. 1060581-1021148 dated 16.07.2010) to the
foreign service providers. It is submitted that the
maintenance service has been received by the Noticee for
its Indian operations. Copies of the invoices raised by the
foreign service providers for the year 2010-2011 are
enclosed herein as Annexure-20 . The Noticee submits
that these maintenance and repair services are received by
the Noticee in India. On these amounts, the Noticee has
already discharged service tax liability along with interest,
vide Challan No. 00002 dated 18.02.2013. Copy of Challan
No. 00002 dated 18.02.2013 along with calculation of
service tax and interest, is enclosed herein as Annexure-
21 .
C.16. In the year 2011-12, the Noticee has shown Rs.
75,706/- as ‘Repairs, Maintenance, Tooling expenses etc.’
under ‘Expenditure in Foreign Currency (Cash Basis)’ in its
balance sheet. It is submitted that the Noticee has
received maintenance service from service providers
situated outside India. In lieu of the maintenance service
received from outside India, the Noticee has paid an
amount of Rs. 75,706/- (i.e. 1,227/- Euros, the same is
included in Invoice No. 1060581-1021148 dated
16.07.2010) to the foreign service providers. It is
submitted that the maintenance service has been received
by the Noticee for its Indian operations. Copy of the
invoices raised by the foreign service providers for the
year 2011-2012 is enclosed herein as Annexure-22 . The
Noticee submits that these maintenance and repair
services are received by the Noticee in India. On this
amount, the Noticee has discharged service tax liability
along with interest, vide Challan No. 00002 dated
18.02.2013 Copy of Challan No. 00002 dated 18.02.2013
along with calculation of service tax and interest, is
enclosed herein as Annexure-21 .
Service Tax Appeal No.70536 of 2018
21
C.17. In the year 2012-13, the Noticee has shown Rs.
86,082/- as ‘Repairs, Maintenance, Tooling expenses etc.’
under ‘Expenditure in Foreign Currency (Cash Basis)’ in its
balance sheet. It is submitted that the Noticee has
received maintenance service from service providers
situated outside India. In lieu of the maintenance service
received from outside India, the Noticee has paid an
amount of Rs. 43,776/- (i.e. 600/- Euros) and Rs.
42,306/- (I.e. 600/- Euros) to the foreign service
providers. It is submitted that the maintenance service has
been received by the Noticee for its Indian operations.
Copy of the invoices raised by the foreign service providers
for the year 2012-2013 is enclosed herein as Annexure-
23 . The Noticee submits that these maintenance and
repair services are received by the Noticee in India. On this
amount, the Noticee has discharged service tax liability
along with interest, vide Challan No. 00002 dated
18.02.2013 Copy of Challan No. 00002 dated 18.02.2013
along with calculation of service tax and interest, is
enclosed herein as Annexure-21 .
C.18. In the light of the above, it is submitted that the SCN
did not even go into the nature of repair and maintenance
services received by the Noticee. The SCN not even
considered if the services are received in by the Noticee for
its Indian operations for the R&D Facility at Denmark. The
Noticee submits that since these charges are incurred by
the Noticee for its Indian operations, it has correctly
discharged service tax liability along with interest. This
demonstrates that the SCN has been issued without
understanding or appreciating facts. Therefore, the SCN to
this extent is liable to be dropped.
(III) Professional Fees – ‘Management Consultant
Service’ (Rs. 31,76,479/-)
C.19. The SCN has proposed service tax on professional
fees under ‘Management, Consultant Service’. In this
regard it is submitted that the SCN has failed to justify as
Service Tax Appeal No.70536 of 2018
22
to how these charges are taxable. Therefore, service tax
liability to this extent is liable to be dropped on this ground
alone.
C.20. Year-wise detail of professional fees, is given herein-
below:
Year Amount
2009-10 0
2010-11 10,44,960
2011-12 17,10,367
2012-13 4,21,152
Total 31,76,479
C.21. For the year 2009-10, there was no foreign currency
expenditure as ‘Professional Fees’. For the year 2010-11,
the Noticee has shown Rs. 10,44,960/- as ‘Professional
Fees’ under ‘Expenditure in Foreign Currency (Cash Basis)’.
The Noticee submits that the amount of Rs. 10,44,960/- is
paid by the Noticee to Tellabs for providing training to its
employees in India and at Denmark. Detail of amount paid
by the Noticee to Tellabs for providing training is given
herein-below:
Training Fee in India
Particulars Bill No. Date Value in
Less
Net
Payment
Value in
INR
DKK
TDS
Remote
91462724 15.10.2009 3,000 600 2,400 1,11,960
site
Training,
Location,
start fee
Training Fee in Denmark
Prof. SVCS,
91462724 15.10.2009 22,000 4,400 17,600 8,21,040
General,
Daily Rate,
Denmark
Prof. SVCS,
91462724 15.10.2009 3,000 600 2,400 1,11,960
General,
Customized
Training,
Denmark
Total 28,000 5,600 22,400 10,44,96
0
C.22. Copy of the Invoice No. 91462724 dated 15.10.2009
is enclosed herein as Annexure-24 . From the bare
perusal of the above table and the invoice, it is evident
that the Noticee has received training from Tellabs and
Service Tax Appeal No.70536 of 2018
23
paid Rs. 10,44,960/- out of which Rs. 1,11,960/- pertain
to training received by the Noticee in India and Rs.
9,33,000/- pertain to training received in Denmark.
C.23. It is submitted that the SCN has wrongly classified
training provided by Tellabs under ‘Management or
Business Consultant Service’ as Tellabs is not providing
any consultancy to the Noticee. The training service
provided by Tellabs is executory in nature and therefore,
the same is not classifiable under ‘Management or
Business Consultancy Service’. For ease of reference
relevant provisions of ‘Management or Business
Consultancy Service’ are reproduced herein-below:
Section 65(65) “management or business
consultant” means any person who is
engaged in providing any service, either
directly or indirectly, in connection with the
management of any organisation or business in
any manner and includes any person who
renders any advice, consultancy or technical
assistance, in relation to financial
management, human resources management,
marketing management, production
management, logistics management,
procurement and management of information
technology resources or other similar areas of
management;
Section 65(105)(r) to any person, by a
management or business consultant in
connection with the management of any
organisation or business, in any manner;
C.24. From a bare perusal of the above definition it is
evident that the definition of ‘Management or Business
Consultant Service’ covers activities which are advisory in
nature. However, in the present case, Tellabs is actually
providing training to the employees of the Noticee, in India
and in Denmark, as the case may be. It is submitted that
Service Tax Appeal No.70536 of 2018
24
the nature of work undertaken by the Noticee is nothing
but executory in nature and in no way there is any
reference to ‘advise’, ‘consultancy’, or ‘technical assistance’
which are the imperatives of ‘Management or Business
Consultant Service’.
C.25. Therefore, it is submitted that the same is not
classifiable under ‘Management or Business Consultant
Service’. In this regard reliance is placed on the following
case laws wherein it has been held that ‘Management or
Business Consultancy Service’ covers only advisory
services and not executory services:
➢ Syndicate Bank v. CCE, Mangalore, 2010 (19)
STR 578 (Tri - Bang).
➢ Nirulas Corner House Pvt. Ltd. v. Commr. of
S.T., New Delhi – 2009 (14) STR 131 (Tri - Del).
➢ CCE, Vadodara v. Arvind Narayan Prasad
Nopany, 2008 (11) STR 353 (Tri-Ahmd)
➢ Basti Sugar Mills Co. Ltd. v. CCE, Allahabad,
2007 (7) STR 431 ( Tri - Del).
C.26. In the light of the above, it is submitted that the
Professional Fees paid by the Noticee to Tellabs is not
classifiable under ‘Management or Business Consultant
Service’ and hence not taxable.
C.27. Presuming without admitting, it is submitted that if
at all classifiable, training provided by Tellabs, will be
classifiable under ‘Commercial Training or Coaching
Service’. Relevant provisions relating to ‘Commercial
Training or Coaching Service’ are reproduced herein-
below:
Section 65(26) “commercial training or
coaching” means any training or coaching provided
by a commercial training or coaching centre;
Section 65(27) “commercial training or
coaching centre” means any institute or
establishment providing commercial training or
coaching for imparting skill or knowledge or lessons
Service Tax Appeal No.70536 of 2018
25
on any subject or field other than the sports, with or
without issuance of a certificate and includes
coaching or tutorial classes;
Section 65(105)(zzc) to any person, by a
commercial training or coaching centre in relation to
commercial training or coaching;
Explanation . — For the removal of doubts, it is
hereby declared that the expression “commercial
training or coaching centre” occurring in this sub-
clause and in clauses (26), (27) and (90a) shall
include any centre or institute, by whatever name
called, where training or coaching is imparted for
consideration, whether or not such centre or institute
is registered as a trust or a society or similar other
organisation under any law for the time being in
force and carrying on its activity with or without
profit motive and the expression “commercial
training or coaching” shall be construed accordingly;
[Explanation inserted by the Finance Act, 2010,
w.e.f. 01.07.2003]
C.28. Thus, on a plain reading of the provisions it can be
seen that the basic conditions for a service to be taxable
under ‘Commercial Training or Coaching Service’ are:
(i) The service must be for imparting training or
coaching.
(ii) Training or coaching must be provided by an institute
or establishment.
(iii) Such training or coaching must be for imparting skill
or knowledge or lessons on any subject or field.
(iv) Such training or coaching may be with or without
issuance of a certificate.
(v) It includes coaching or tutorial classes.
C.29. The following are expressly excluded from the
purview of ‘Commercial Training or Coaching Service’:
(i) Training or coaching in the field of sports.
(ii) Pre-school coaching and training centre.
Service Tax Appeal No.70536 of 2018
26
(iii) Any institute or establishment, which issues any
certificate or diploma or degree or any educational
qualification recognized by law.
C.30. From the perusal of the above provisions, it is
evident that to be classifiable under ‘Commercial Training
or Coaching Service’, there must be any ‘training’ or
‘coaching’. In the present case, Tellabs provided ‘training’
to the employees of the Noticee in India and in Denmark.
Therefore, the same is more appropriately classifiable
under ‘Commercial Training or Coaching Service’ in terms
of Section 65A of the Finance Act, 1994. However, the
Noticee submits that ‘Commercial Training or Coaching
Service’ is category-II service as provided under Rule 3(ii)
of the Taxation of Services (Provided from Outside India
and Received in India) Rules, 2006, taxability of the which
is based on the location of its performance. Therefore,
training to employees of the Noticee provided in India is
only liable to service tax and training provided outside
India i.e. in Denmark is not taxable.
C.31. Without prejudice to the above, the Noticee has paid
service tax of Rs. 11,532/- along with interest of Rs.
12,119/- vide Challan No. 00002 dated 18.02.2013 on Rs.
1,11,960/- pertaining to training received by the Noticee in
India. Copy of Challan No. 00002 dated 18.02.2013 is
enclosed as Annexure-21 .
C.32. For the year 2011-12, the Noticee has incurred Rs.
17,10,367/- as ‘Professional Fees’ in foreign exchange.
Detail of Professional Fees of Rs. 17,10,367/- is given
herein-below:
Invoice No. &
Value in
Value in
Remarks
date
FC
INR
2200001171
NA 2,50,000/- The Noticee has received services
dated
05.09.2011
from Deloitte Haskins & Sells for
preparing and filing Income Tax
Returns for five inbound assignees.
On this invoice, service provider has
charged service tax and the Noticee
has paid the same. The same is
evident from the invoice enclosed as
annexure. Therefore, service tax on
the same is not payable again.
Service Tax Appeal No.70536 of 2018
27
2200000423
NA 3,75,000/- The Noticee has received services
dated
05.07.2011
from Deloitte Haskins & Sells for
preparing Withholding Tax
Computations of five inbound
assignees. On this invoice, service
provider has charged service tax and
the Noticee has paid the same. The
same is evident from the invoice
enclosed as annexure. Therefore,
service tax on the same is not
payable again.
1350686
93,750 7,71,588/- The Noticee has received following
dated
29.10.2010
services for its R&D Facility at
Denmark:
• Assistance untill week 43
(exclusive payroll)
• Legal advice concerning
employment law
Meetings and discussions
•
with Danske Bank concerning
bank
• Memo to employees
concerning tax and work in India
• Discussions concerning
Withholding Tax in India
The above mentioned services were
provided by Deloitte, Silkeborg to
R&D Facility of the Noticee at
Denmark. Further, Deloitte has
charged VAT on the said invoice and
the Noticee has paid the same. The
same is evident from the perusal of
the invoice. The Noticee submits that
since these services were provided
and received outside India, the same
are not taxable under the Finance
Act, 1994.
80047129
38,125 3,13,779/- The Noticee has received following
dated
09.08.2011
services for its R&D Facility at
Denmark:
• Statement to Audit in India
• Assistance concerning
termination of Danish Employees
• Different tax issues pension
treatment etc.
The above mentioned services were
provided by Deloitte, Silkeborg to
R&D Facility of the Noticee at
Denmark. Further, Deloitte has
charged VAT on the said invoice and
the Noticee has paid the same. The
same is evident from the perusal of
the invoice. The Noticee submits that
since these services were provided
and received outside India, the same
are not taxable under the Finance
Act, 1994.
Total 17,10,367/
-
C.33. Copies of invoices pertaining to Professional Fees for
the year 2011-12 are enclosed herein as Annexure-25 .
Service Tax Appeal No.70536 of 2018
28
C.34. From the bare perusal of the above, it is submitted
that the Noticee is not liable to pay service tax on these
professional fees.
C.35. For the year 2012-13, the Noticee has incurred Rs.
4,21,152/- as Professional Fees. These charges pertain to
services provided by Deloitte at the Noticee’s R&D Facility
at Denmark. The Noticee submits that since the service
provider is situated outside India and the services are
provided outside India, the same is not taxable under the
Finance Act, 1994. Copies of payment made to Deloitte
through bank for providing professional services at
Denmark for the year 2012-13 are enclosed herein as
Annexure-26 .
C.36. In the light of the above, it is submitted that the SCN
to this extent is liable to be dropped.
(IV) Insurance – ‘Insurance Auxiliary Service’ (Rs.
10,13,799/-)
C.37. The SCN has proposed service tax on insurance
expenses under ‘Insurance Auxiliary Service’. In this
regard it is submitted that the SCN has failed to justify as
to how these charges are taxable. Therefore, service tax
liability to this extent is liable to be dropped on this ground
alone.
C.38. Year-wise detail of insurance expense is given
herein-below:
Year Amount
2009-10 0
2010-11 4,62,288
2011-12 3,58,144
2012-13 1,93,367
Total 10,13,799
C.39. It is submitted that the Noticee has taken insurance
policies from Willis Insurance Pool, for its R&D Facility at
Denmark and the employees working at its R&D Facility at
Denmark. The Noticee was paying the premium to Willis
Service Tax Appeal No.70536 of 2018
29
Insurance in foreign currency. Copy of the insurance policy
taken by the Noticee from Willis Insurance is enclosed
herein as Annexure-27 . Copies of Payment made to Willis
Insurance through bank are enclosed herein as Annexure-
28 . The SCN has picked these charges and alleges that the
premium paid by the Noticee is taxable under ‘Insurance
Auxiliary Service’. For ease of reference, relevant
provisions of ‘Insurance Auxiliary Service’ are reproduced
herein-below:
Section 65(55) “insurance auxiliary service”
means any service provided by an actuary, an
intermediary or insurance intermediary or an
insurance agent in relation to general insurance
business or life insurance business and includes risk
assessment, claim settlement, survey and loss
assessment;
Section 65(105)(zl) to a policy holder or any
person or [insurer, including re-insurer], by an
actuary, or intermediary or insurance intermediary or
insurance agent, in relation to insurance auxiliary
services concerning general insurance business;
Section 65(105)(zy) to a [policyholder or any
person] or [insurer, including re-insurer] by an
actuary, or intermediary or insurance intermediary or
insurance agent, in relation to insurance auxiliary
services concerning life insurance business;
C.40. From the perusal of the above, it is clear that the
essential ingredients of the definition are as below:
a. That the service must be provided by an actuary, or an
intermediary or insurance intermediary or an insurance
agent;
b. That the service must relate to general insurance
business of life insurance business;
c. That the business includes risk assessment, claim
settlement, survey, loss assessment.
Service Tax Appeal No.70536 of 2018
30
C.41. The scope of taxable service was clarified vide
Ministry’s Letter No. B-II/1/2000-TRU dated
09.07.2001 , relevant portion of the same is reproduced
herein-below:
2. Services covered in this category are the
services provided by the insurance agents to
the insurance company in relation to marketing
of insurance policies. They also provide service to
the policy holder by providing information/advice on
the types of insurance policies, processing of
documentation, remitting of insurance premium, etc.
Actuarial services are provided by the actuaries to
the insurance companies. They cover diverse fields
such as calculating insurance risks and premia,
insurance claims adjustment services such as
services of investigating claims, determining the
amount of loss or damages covered by the insurance
policies and negotiating settlements, services of
examining claims which have been investigated and
authorisation of payments and damage assessment
services, administration of insurance including
salvage administration and insurance consultancy
services. It may be emphasized that only such
services are taxable which are in relation to general
insurance business such as motor vehicle insurance,
insurance of buildings and other properties, marine
insurance, fire insurance and other miscellaneous
insurance. Services provided in relation to life
insurance are not taxable.
C.42. Form the perusal of the above, it is submitted that
the services provided by agents or middlemen in relation
to general insurance only are covered under ‘Insurance
Auxiliary Service’. Therefore, service tax demand to this
extent is liable to be dropped.
(V) Bank Charges & Commission – ‘Banking or
Other Financial Service’ (Rs. 9,49,073/-)
Service Tax Appeal No.70536 of 2018
31
C.43. The SCN has proposed service tax on bank charges &
commission under ‘Banking or Other Financial Service’. In
this regard it is submitted that the SCN has failed to justify
as to how these charges are taxable under ‘Banking or
Other Financial Service’. Therefore, service tax liability to
this extent is liable to be dropped on this ground alone.
C.44. Year-wise detail of bank charges and commission, is
given herein-below:
Year Amount
2009-10 1,65,339
2010-11 5,08,272
2011-12 2,75,462
2012-13 0
Total 9,49,073
C.45. It is submitted that the Noticee has shown above
amounts as ‘Foreign Bank Charges’ under ‘Expenditure in
Foreign Currency (Cash Basis)’, in its balance sheet. It is
submitted that the Noticee has purchased goods from
foreign suppliers, for which it has paid for the cost of
goods and bank charges. It is submitted that these bank
charges relates to buyer’s credit taken from Banks and LC
negotiation charges. On the invoice value i.e. cost of the
goods plus bank charges, the Noticee has paid custom
duty. In this regard reliance is placed on invoices raised by
the foreign suppliers and corresponding Bills of Entry.
Representative copies of invoices raised by foreign
suppliers and corresponding Bills of Entry are enclosed
herein as Annexure-29 . Further it is submitted that the
Noticee again paid service tax for the period upto 2011, on
Bank charges along with interest through Challan No.
00002 dated 18.02.2013. Copy of Challan No. 00002 dated
18.02.2013 along with calculation of service tax and
interest, is enclosed herein as Annexure-21 .
C.46. Therefore, it is submitted that the Noticee is not
liable to pay service tax on bank charges.
(VI) Misc. Charges (Rs. 45,16,273/-)
Service Tax Appeal No.70536 of 2018
32
C.47. The SCN has proposed service tax on Misc. charges
without specifying the category under which the same is
taxable. In this regard it is submitted that the SCN has
failed to justify as to how these charges are taxable.
Further, the SCN failed to provide under which category
service tax is payable. Therefore, service tax liability to
this extent is liable to be dropped on this ground alone.
C.48. Year-wise detail of Misc. charges is given herein-
below:
Year Amount
2009-10 0
2010-11 17,68,831
2011-12 13,35,021
2012-13 14,12,421
Total 45,16,273
C.49. The Noticee submits that these expenses in foreign
currency are incurred by the Noticee for running its R&D
Facility at Denmark. During the operation of R&D Facility at
Denmark, the employees working at the facility were
receiving certain services like internet, electricity, canteen,
etc. for day-to-day working of the facility and making
contributions to the government funds like ATP, maternity,
etc. The Noticee released payment of such charges from its
account at Danske Bank, Denmark. Reliance in this regard
is placed on the bank statement of Danske Bank,
Denmark, which is enclosed herein as Annexure-30 . The
Noticee submits that these expenses are not taxable as the
same were incurred in relation to the Noticee’s R&D Facility
situated at Denmark. Presuming without admitting that the
expenses incurred at R&D Facility, Denmark are for receipt
of service, it is submitted that the same are not taxable as
the service provider and service recipient are situated
outside India and the services are provided and consumed
outside India. in this regard reliance is placed on Section
64 of the Finance Act, 1994, relevant portion is reproduced
herein-below:
Service Tax Appeal No.70536 of 2018
33
Section 64. Extent, commencement and
application . — (1) This Chapter extends to the
whole of India except the State of Jammu and
Kashmir.
C.50. The provisions contained in Section 64 of the Finance
Act, 1994 extend to the whole of India and not beyond
India. From the perusal of Section 64 of the Finance Act,
1994, it is clear that service tax is leviable only on
specified services as defined in the Finance Act, 1994 and
that the Act extends to whole of India, excluding the State
of Jammu and Kashmir. The above section does not make
any specific mention about the Finance Act having extra
territorial applications. In this regard reliance is also placed
on the decision in the case of M/s. Cox & Kings India
Ltd. and Others v. Commissioner of Service Tax,
Delhi, 2013-TIOL-1907-CESTAT-DEL . Therefore,
service tax on these expenses is not payable.
C.51. Further it is submitted that major part of these
charges paid by the Noticee pertains to reimbursements to
its employees working at its R&D Facility at Denmark.
Therefore, the same are not taxable. In this regard, the
Noticee places reliance on the decision of the Hon’ble Delhi
High Court in the case of Intercontinental Consultants
and Technocrats Pvt Ltd v. Union of India and Anr,
2012-TIOL-966-HC-DEL-ST wherein the petitioner has
filed the writ petition inter-alia with these prayers: (i)
quashing Rule 5 in its entirety of the Service Tax
(Determination of Value) Rules, 2006 to the extent it
includes the reimbursement of expenses in the value of
taxable service for the purpose of charging service tax and
(ii) declaring the Rule to be unconstitutional and ultra vires
Sections 66 and 67 of the Finance Act, 1994. The relevant
portion of the decision is reproduced herein-below:
18. Section 66 levies service tax at a particular rate on
the value of taxable services. Section 67 (1) makes
Service Tax Appeal No.70536 of 2018
34
the provisions of the section subject to the provisions
of Chapter V, which includes Section 66. This is a clear
mandate that the value of taxable services for
charging service tax has to be in consonance with
Section 66 which levies a tax only on the taxable
service and nothing else. There is thus in built
mechanism to ensure that only the taxable service
shall be evaluated under the provisions of 67. Clause
(i) of sub-section (1) of Section 67 provides that the
value of the taxable service shall be the gross amount
charged by the service provider “for such service”.
Reading Section 66 and Section 67 (1) (i) together
and harmoniously, it seems clear to us that in the
valuation of the taxable service, nothing more and
nothing less than the consideration paid as quid pro
quo for the service can be brought to charge. Sub-
section (4) of Section 67 which enables the
determination of the value of the taxable service “in
such manner as may be prescribed” is expressly made
subject to the provisions of sub-section (1). The
thread which runs through Sections 66, 67 and
Section 94, which empowers the Central Government
to make rules for carrying out the provisions of
Chapter V of the Act is manifest, in the sense that only
the service actually provided by the service provider
can be valued and assessed to service tax. We are,
therefore, undoubtedly of the opinion that Rule 5 (1)
of the Rules runs counter and is repugnant to Sections
66 and 67 of the Act and to that extent it is ultra
vires. It purports to tax not what is due from the
service provider under the charging Section, but it
seeks to extract something more from him by
including in the valuation of the taxable service the
other expenditure and costs which are incurred by the
service provider “in the course of providing taxable
service”. What is brought to charge under the relevant
Service Tax Appeal No.70536 of 2018
35
Sections is only the consideration for the taxable
service. By including the expenditure and costs, Rule
5(1) goes far beyond the charging provisions and
cannot be upheld. It is no answer to say that under
sub-section (4) of Section 94 of the Act, every rule
framed by the Central Government shall be laid before
each House of Parliament and that the House has the
power to modify the rule. As pointed out by the
Supreme Court in Hukam Chand v. Union of India, AIR
1972 SC 2427: -
“The fact that the rules framed under the Act have
to be laid before each House of Parliament would
not confer validity on a rule if it is made not in
conformity with Section 40 of the Act.”
Thus Section 94 (4) does not add any greater force to
the Rules than what they ordinarily have as species of
subordinate legislation.
19. For the above reasons we quash the impugned
show-cause notice and allow the writ petition with no
order as to costs.
(Emphasis Supplied)
C.52. From the bare perusal of the above decision it is
clear that the Hon’ble Delhi High Court was please to hold
that Rule 5(1) of the Service Tax (Determination of Value)
Rules, 2006 which provides for inclusion of the expenditure
or costs incurred by the service provider in the course of
providing the taxable service in the value for the purpose
of charging service tax is ultra vires Section 66 and 67 of
the Finance Act, 1994 and travels much beyond the scope
of those sections.
C.53. The Noticee submits that the above decision is
squarely applicable in the present case. It is therefore
submitted that the demand of service tax on the amounts
reimbursed by the Noticee to its employees working at its
R&D Facility at Denmark, are not taxable.
Service Tax Appeal No.70536 of 2018
36
C.54. Reliance is also placed on the decision in the case of
Reliance Industries Ltd. v. CCE, Rajkot, 2008 (12)
STR 345 (Tri.-Ahmd.) affirmed by Hon’ble Supreme
Court in 2011 (23) STR J226 (S.C.) wherein it is held
that the expenses incurred on account of reimbursable
expenses shall not form part of the value of the taxable
services. Thus, the service tax demand to this extent is not
sustainable and deserves to be dropped.
C.55. In the light of the above, it is submitted that the SCN
is liable to be dropped.”
4.4 The detail in which the Appellant has made the reply
makes it evident that they have fully understood the Show
Cause Notice. Hence the same cannot be said to be vague in
respect of Annexure ‘C’. They have provided all the necessary
invoices while making reply admitting to the payments made
also. They have also contended in the reply that in certain case
they have paid the Service Tax due in respect of the Services
received from outside India through their Branch Office in
Denmark. In case of Keshavlal Lallubhai Patel v. Lalbhai
Trikumlal Mills Ltd. [AIR 1958 SC 512] and held as follows:
“10. There is one more point which must be considered. It
was strongly urged before us by the appellants that, in the
trial court, no plea had been taken by the respondent that
the agreement for the extension of time was vague and
uncertain. No such plea appears to have been taken even
in the grounds of appeal preferred by the respondent in
the High Court at Bombay; but apparently the plea was
allowed to be raised in the High Court and the appellants
took no objection to it at that stage. It cannot be said that
it was not open to the High Court to allow such a plea to
be raised even for the first time in appeal. After all, the
plea raised is a plea of law based solely upon the
construction of the letter which is the basis of the case for
the extension of time for the performance of the contract
and so it was competent to the appeal court to allow such
Service Tax Appeal No.70536 of 2018
37
a plea to be raised under Order 41 Rule 2 of the Code of
Civil Procedure. If, on a fair construction, the, condition
mentioned in the document is held to be vague or
uncertain, no evidence can be admitted to remove the said
vagueness or uncertainty. The provisions of Section 93 of
the Indian Evidence Act are clear on this point. It is the
language of the document alone that will decide the
question. It would not be open to the parties or to the
court to attempt to remove the defect of vagueness or
uncertainty by relying upon any extrinsic evidence. Such
an attempt would really mean the making of a new
contract between the parties. That is why we do not think
that the appellants can now effectively raise the point that
the plea of vagueness should not have been entertained in
the High Court.”
Appellant had raised the plea of vagueness before the
adjudicating authority, who had after consideration of the plea
set aside the demands which he conclude were vague in nature.
Based on the submissions made he concluded that demand in
respect of Annexure C was no vague and proceeded to
adjudicate the same after taking note of the detailed
submissions made by the appellant giving the details of entire
transactions covered under the said Annexure, Financial Year
wise and invoice wise. In our view appellant having made
detailed submissions on each and every transaction highlighted
in the said annexure cannot take the plea of vagueness at this
stage. Hence we do not find much merits in the plea of
vagueness raised by the appellant, and proceed to decide upon
the merits of the case.
4.5 We are also of the view that expenditure incurred are not
in nature of reimbursable expenses which could have been
extended the benefit of the judgement of the Hon’ble Supreme
Court in the case of Union of India V/s Intercontinental
Consultants and Technocrats Pvt. Ltd. reported at 2018
(10) G.S.T.L. 401 (S.C.). The reimbursable expenses and the
expenses which are incurred by the service provider over and
Service Tax Appeal No.70536 of 2018
38
above the value of the service provided, as per the transaction
agreement between the service provider and service recipient. In
the present case Appellant has received these services against
the payment of these charges. The same were paid to the
foreign service provider either directly or through their branch
office. Such charges do not fall under the category of
reimbursable expenses to get the benefit of the said decision of
the Hon’ble Supreme Court. (Reference be made to the decision
of larger bench in the case of Bhagwathy Traders [2011 (24)
STR 290 (T-LB)]. Impugned order in para 36 records as follows:
“36 Thus I note that in terms of Section 66A(2)up to
30.06.2012 permanent establishment of a company in
India and permanent establishment of that company out
side India are to be treated as separate persons for the
purpose of Section 66A. I have noted from the offer of
employment of Danish nationals by M/s FIL that all of
them are technocrat i.e. Engineers whose designations
read as Engineer, Manager Engineer, Staff Engineer,
Principal Engineer, Senior Engineer etc. Since the Denmark
establishment of M/s FIL is centered around these
assigned personnel of M/s Tellabs who are undoubtedly are
technical persons capable of providing Scientific and
Technical Consultancy relevant for providing Research and
Development Facility for Indian operations of M/s FIL,
hence they had been acting as service provider to their
Indian Head office. Due to this deeming fiction created by
Section 66A (2), all the reimbursement of expenses for
functioning of that branch would liable to be construed as
consideration of the services being rendered by that
branch to its head quarter as laid down in Rule 7 of Service
Tax (Determination Of Value) Rules, 2006 which at
material times reads as follows-
7. Actual consideration to be the value of taxable service
provided from outside India. (1) The value of taxable
service received under the provisions of section 66A, shall
Service Tax Appeal No.70536 of 2018
39
be such amount as is equal to the actual consideration
charged for the services provided or to be provided.
(2) Notwithstanding anything contained in sub-rule (1),
the value of taxable services specified in clause (ii) of rule
3 of Taxation of Services (Provided from Outside India and
Received in India) Rules, 2006, as are partly performed in
India, shall be the total consideration paid by the recipient
for such services including the value of service partly
performed outside India.
37 As such I find that there is no need to vivisect the
expenditures incurred by M/s FIL India, in relation to
expenses of its R& D centre stationed at Denmark, in to
further respective category of service covering each head
of expenditure independently. Moreover the defence has
not forwarded any tenable plea as to how these expenses
were not taxable after 01.07.2012 i.e. after the
introduction of negative services based tax regime. Now
proceed to examine the defence plea with reference to
each of the head of expenditure incurred in foreign
currency.”
4.6 From the above we find that though the impugned order
itself identifies that demand is made for two distinct period pre
and post 01.07.20212, it fails to make any observations in
respect of the demand made for period prior to 01.07.2012.
During the period prior to 01.07.2012, the Finance Act, 1994 did
not provided the definition of service but provided for taxation in
respect of the services which were defined to be taxable
services. It is settled law that during the period prior to
01.07.2012, the show cause notice issued had to contain the
details of the services which were to be taxed and under the
category in which they were taxed. Notice, do not provide any
such details nor do the impugned order discuss so. Without
establishing the category in which the services were required to
be taxed during this period the demand confirmed by treating
the amount paid as consideration, to any foreign recipient,
Service Tax Appeal No.70536 of 2018
40
against the invoices issued by him cannot directly mean that the
same was to be subjected to service tax. The demand for the
period prior to 01.07.2012 fails on this account as being made
without establishing the taxability of the transactions. For period
post 01.07.2012 the scheme of taxation of services have
changed, and any consideration received/ paid for any activity
undertaken by a person for another becomes taxable (Section 65
B (44) read with Section 66 of the Finance Act, 1994 as
amended with effect from 01.07.2012). We do not find any fault
in the approach adopted by the impugned order for the period
post 01.07.2012.
4.7 Appellant have claimed that the demand should be worked
out by treating the payment made by them to the foreign
entities as cum tax as per Section 67 (2) of the Finance Act,
1994. They have relied upon the decisions in the case of
➢ Sri Chakra Tyres [1999 (108) ELT 361 (T)] affirmed by
Hon’ble Supreme Court has reported at [2002 (142) ELT A
279];
➢ Maruti Udyog Ltd. [2002 (49) RLT 1 (SC)]
In the present case undisputedly the demand has been worked
out treating the entire amount paid to the foreign entity as
towards consideration for the provision of service. In this case
appellant was required to pay the service tax on reverse charge
basis in respect of services received from outside India. The
provisions of section 67 (2) of the Finance Act, 1994 are
reproduced below:
67. Valuation of taxable services for charging service tax:
(1) ……
(2) Where the gross amount charged by the service
provider, for the service provided is inclusive of service tax
payable, the value of such taxable service shall be the
amount as, as with the addition of tax payable, is equal to
the gross charged.
(3) ……..”
Service Tax Appeal No.70536 of 2018
41
In the present case the demand of service tax is made from the
appellant on the payments made by the appellant to the service
provider on reverse charge basis. From the reading of the
Section 67 (2) it is evident that the said section applies to the
cases where the service tax is demanded from the service
provider on the forward charge basis. Even the cases referred by
the appellant were also in respect of the demand of central
excise duty on the forward charge basis. We do not find
applicability of the said section in the cases where the service
tax is demanded from the service recipient on the reverse
charge basis.
4.8 We are in agreement with the statements made by the
Appellant that there has been no mala fide intention in not
paying the Service Tax as the demand in respect of the services
received from outside India paid on reverse charge basis would
have been available to them as credits and the entire demand is
Revenue neutral. In absence of any mala fide intention the
demand made by invoking extended period of limitation could
not survive.
4.9 We note that the Appellant admitted in their reply to the
Show Cause Notice and before us that they have made payment
on Service Tax as detailed earlier in Para 3.3 above prior to
adjudication of the Show Cause Notice/Issuance of Show Cause
Notice. We make it clear that what so ever amount has already
been deposited admitting the demand would not get the benefit
of observation made in earlier paras.
4.10 As we hold that the demand for the period prior to
01.07.2012 is barred by limitation in absence of any mala fide
intention, we do not find any merits in the penalty imposed
under Section 78. In view of the decision of Hon’ble Supreme
Court in the case of Rajasthan Spinning and Weaving Mills Ltd.
[2009 (238) ELT 3 (SC)] wherein following has been held:
“17. The main body of sub-section 1 lays down the
conditions and circumstances that would attract penalty
and the various provisos enumerate the conditions, subject
Service Tax Appeal No.70536 of 2018
42
to which and the extent to which the penalty may be
reduced.
18. One cannot fail to notice that both the proviso to sub
section 1 of section 11A and section 11AC use the same
expressions: "....by reasons of fraud, collusion or any wilful
mis-statement or suppression of facts, or contravention of
any of the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty,...". In
other words the conditions that would extend the normal
period of one year to five years would also attract the
imposition of penalty. It, therefore, follows that if the
notice under section 11A (1) states that the escaped duty
was the result of any conscious and deliberate wrong doing
and in the order passed under section 11A (2) there is a
legally tenable finding to that effect then the provision of
section 11AC would also get attracted. The converse of
this, equally true, is that in the absence of such an
allegation in the notice the period for which the escaped
duty may be reclaimed would be confined to one year and
in the absence of such a finding in the order passed under
section 11A (2) there would be no application of the
penalty provision in section 11AC of the Act. On behalf of
the assessees it was also submitted that sections 11A and
11AC not only operate in different fields but the two
provisions are also separated by time. The penalty
provision of section 11AC would come into play only after
an order is passed under section 11A(2) with the finding
that the escaped duty was the result of deception by the
assessee by adopting a means as indicated in section
11AC.
19. From the aforesaid discussion it is clear that penalty
under section 11AC, as the word suggests, is punishment
for an act of deliberate deception by the assessee with the
intent to evade duty by adopting any of the means
mentioned in the section.”
Service Tax Appeal No.70536 of 2018
43
4.11 Further as we find that appellant during the entire period
was filing the Service Tax returns (ST-3), the penalty imposed
under Section 77 for the contravention of provisions of Section
70 cannot be upheld.
4.12 Summarizing our findings we note that :-
(i) The impugned order needs to be modified to
➢ the extent of the amount already deposited Rs. 6,58,184/-
being confirmed along with interest, if any due.
➢ demand for the period within the normal period of
limitation is upheld and for the period prior to 01.07.2012
is set aside.
(ii) Penalties imposed under Section 78 & 77 are set aside.
5.1 Appeal is partly allowed as indicated in Para 4.9 above.
(Pronounced in open court on 01.09.2026)
Sd/-
(P. A. AUGUSTIAN)
MEMBER (JUDICIAL)
Sd/-
(SANJIV SRIVASTAVA)
MEMBER (TECHNICAL)
Nihal