Cost-Sharing Among Group Entities for Events Outside India Does Not Amount to Taxable Service: CESTAT [Read Order]
The Bench held that even if it were accepted that services were received, they were performance-based services performed outside India and could not be subjected to Service Tax
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has ruled that the sharing of expenses between group companies for events organized outside India did not amount to the provision of service, and therefore not liable to Service Tax.
Boston Scientific India Pvt Ltd (appellant) is registered with the department for providing various services including management consultant and information technology services. The appellant reimbursed expenses to its foreign group company for their share of expenses for events and conferences held outside India.
These events were organized to train the appellant's employees and keep them updated with technological know-how. The associated enterprises charged these expenses on a cost-to-cost basis.
Following an audit, the Revenue Department took the view that the appellant was liable to pay service tax under 'BusinessSupport Services'. Consequently, a demand of Rs. 1,81,78,060 was confirmed for advertisement, legal, and recruitment expenses under 'Business Support Services' for the period up to 01.07.2012 and as a 'service' thereafter.
The appellant argued that expenses were shared for the common benefit of all entities involved, and no service was provided by one entity to another. Furthermore, they contended that reimbursements made prior to the 2015 amendment to Section 67 could not be treated as 'consideration'.
The Bench comprising Mr. S. S. Garg (Judicial Member) and Mr. P. Anjani Kumar (Technical Member) observed that the expenses were shared on a cost-to-cost basis for the common benefit of all group entities.
The Tribunal relied on the Supreme Court judgment in Gujarat State Fertilizers & Chemicals Ltd, which held that sharing of expenses between group companies does not result in the provision of any service. The Bench stated that "by no stretch of imagination," such an arrangement can be treated as a common service provided by one entity to another.
Regarding the nature of the payment, the Tribunal noted that reimbursable expenses were included in the definition of 'consideration' only w.e.f. 14.05.2015. Since the period in dispute was prior to this amendment, the confirmation of demand was held unsustainable.
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The Tribunal also addressed the location of the service, noting that the events were organized and performed outside India. The Bench held that even if it were accepted that services were received, they were performance-based services performed outside India and could not be subjected to Service Tax.
Additionally, the Tribunal found the entire exercise to be revenue-neutral as the appellant would have been entitled to CENVAT credit if the tax were payable. The tribunal set aside the order. The appellant's appeal was allowed.
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