Relief for BPL Ltd: CESTAT Rules Payment Received from JVA as Pure Reimbursement for Business Transfer Delay, Not Manpower Supply [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the payments received by BPL Ltd from its joint venture partner were pure reimbursements for salaries and rent during a business transfer delay and were not liable to service tax under the category of manpower supply.

BPL Ltd entered into a business transfer agreement with Sanyo BPL Pvt Ltd (SBPL) on 14 December 2005 for transferring its colour television business, including employees, to the joint venture. The transfer, which was supposed to happen in June 2005, was delayed until 15 December 2005 due to reasons beyond BPL’s control. During this period, BPL paid salaries and rent and raised debit notes to SBPL to recover these costs.

The department issued a show cause notice in October 2010, demanding service tax on Rs 5.27 crore received by BPL, claiming that it was payment for manpower supply. The adjudicating authority confirmed the demand and imposed penalties. Aggrieved by this, BPL Ltd approached the CESTAT.

The appellant’s counsel argued that the payments were reimbursements for the expenses incurred during the transition period and not for manpower supply services. They argued that BPL was not in the business of providing manpower services but was only recovering costs incurred on behalf of the joint venture.

They relied on the Supreme Court’s decision in Intercontinental Consultants, which held that reimbursements are not taxable, and also cited decisions in Spirax Marshall and UTI Asset Management, which held that deputation reimbursements do not fall under manpower supply service.

The revenue counsel argued that since the transfer was delayed, BPL had provided manpower to SBPL during the period, making the reimbursement taxable under manpower supply services. The revenue argued that payments, even if called reimbursements, are taxable if they relate to services provided and referred to tribunal decisions in Chemplast Sanmar and Fuji Furukawa, supporting their position. They argued that the extended limitation period applied as BPL had not paid service tax on these amounts.

The two-member bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) observed that the joint venture agreement included employee transfer as part of the business sale, and the payments made were reimbursements for the expenses incurred during the transition period.

The tribunal observed that BPL was not engaged in manpower supply services and that genuine reimbursements are not taxable, following the Supreme Court’s ruling in Intercontinental Consultants. The tribunal further observed that the transactions were reflected in BPL’s audited accounts and there was no suppression or intent to evade tax, making the extended limitation period inapplicable.

The tribunal explained that the consideration received was for reimbursement of salaries and rent and could not be taxed under manpower supply services. The tribunal allowed BPL’s appeal and set aside the demand, interest, and penalties, granting consequential relief as per law.

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