Relief to HSBC Electronic Data Processing India: CESTAT quashes Service Tax Demand on Back-Office Support Services [Read Order]

In a major relief to HSBC Electronic Date Processing India, the Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed service tax demand on back-office support services.

The Commissioner has confirmed the proposals in the show cause notice with respect to appellant providing accommodation and travel services to the personnel of their customers, after dropping the demand in respect of accommodation service for the period upto 30.06.2012, holding that ‘short-term accommodation service can be taxed only when it is provided by hotels, etc. or entities engaged in provision of such services.

HEDPI ( HSBC Electronic Data Processing India Pvt Ltd., ), the appellant has entered into a sub-contracting agreement with a Group entity, HGRL ( HSBC Global Resourcing ( UK ) Ltd ), UK. The services to be rendered by the appellant in terms of the said agreement are those which HGRL UK have agreed to provide to Business Partners in terms of ‘Master Services Agreement ( Intra-Group Services Agreement ).

The counsel for the appellants submitted that there is no allegation in the show cause notice as observed in the First Order that the addition of profit margin to the cost indicates that the appellants are acting as principal service provider, but sub-contracted the services provided by them.

It was also submitted that with regard to accommodation services, the same is identically worded in terms of Rule 5 of the POPS as in the case of short-term accommodation for the period prior to 01.07.2012 and therefore the demand in respect of the same, post 01-07-2012 ought to have been dropped.

 A Two-Member Bench comprising Anil Choudhary, Judicial Member and AK Jyotishi, Technical Member observed that “With regard to accommodation services, which is sought to be roped in post 01.07.2012, under Rule 5 of POPS, the same is identically worded as in the case of short-term accommodation for the period prior to 01.07.2012, where the Commissioner vide First Order ( Para 23 ) for the previous period up to 30-6-2012 has dropped the demand. On the same basis, the demand for the subsequent period also ought to have been dropped.”

“In view of the fact that, it is clearly established that there is connection between the visits of the foreign customers and the back-office support services provided by the appellant, in terms of the sub-contracting arrangement, these expenses should qualify as export turnover and be allowed the benefit of export without payment of taxes since the same would be covered in terms of Rule 3 of the POPS, which says that the place of provision of service, would be the location of the recipient, in this case, HGRL, UK” the Bench noted.

To Read the full text of the Order CLICK HERE

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