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By Vinay Jain, Chartered Accountant, & Sachin Mishra, Advocate

1. Whether service tax can be demanded under ‘Works Contract Services’ for construction of a parking facility for Commonwealth Games? Whether deputation of employees to group company can be considered as supply of manpower for the purposes of service tax?

Facts & Pleadings: M/s. Punj Lloyd Ltd. (hereinafter referred to as “the Appellant”) entered into an agreement with Municipal Corporation of Delhi (MCD) for construction of a parking facility for Commonwealth Games-2010. The said parking facility was constructed for the vehicles used for transporting sports persons and other connected personnel. After the Commonwealth Games-2010, the parking facility was used for parking of City Bus Services under the control of Delhi Government.

According to the department, the activity of construction of parking facility is leviable to service tax under ‘works contract service’ as both during and post Commonwealth Games-2010, the parking facilities constructed by the Appellant were used for commercial purpose by the MCD.

The Appellant argued that the said facility was created only with reference to Commonwealth Games and there was no commercial usage of the said infrastructure. The ‘works contract service’ covers only civil structures primarily used for the purpose of commerce or industry. In the present case, the parking facility was constructed to cater to the vehicles used for transporting sports persons and other connected personnel only. Thus, the facility created by the Appellant is not for the purposes of commerce or industry.

Judgment: The Honorable CESTAT inter alia held that the Appellant has constructed the parking facility for Commonwealth Games-2010 only. Such sport event and any infrastructure constructed for such sports event cannot be considered as civil structures primarily used for the purpose of commerce or industry. Therefore, the ultimate use of the infrastructure is relevant. Thus, the service tax demand has been set aside. Further, the Hon’ble Tribunal has also held that the subsequent use of the facility is not relevant for the determination of tax liability in the present case. However, on the facts of the present case the subsequent use is also for the parking of the City Bus and non-commercials activities only. Therefore not leviable to service tax.

M/s Punj Lloyd Ltd. vs. CST, Delhi, CESTAT New Delhi, decided on 14.3.2018 in the appeal no. ST/53362/2014

M/s Punj Lloyd Ltd.

2. Whether there can be rendition of service inter-se between two parties to a joint-venture? Whether a demand of service tax on ‘Development and Supply of Contents’ under ‘Business Support Service’ is valid for a period prior to introduction of tax entry ‘Development and Supply of Contents’ w.e.f. 1.6.2007?

Facts & pleadings: M/s ACL Mobile Ltd., India (hereinafter referred to as “Appellant”) entered into a joint venture arrangement with M/s. Technology Aided System, Kuwait to develop and provide contents like SMS, Games, Ring-tones etc. for telecom operator M/s. Mobile Telecommunication Co. Network, Kuwait. In terms of the said arrangement, they are jointly rendering the services to M/s. Mobile Telecommunication Co. Network, Kuwait. The arrangement provides roles and responsibilities of each of the parties. The consideration received from the customers is credited in a common bank account and thereafter, it is shared between both the parties.

The case of the department was that the Appellant paid a consideration to M/s. Technology Aided System, Kuwait in pursuance of the said arrangement and the same amounts to ‘commission’ and is thus leviable to service tax under reverse charge mechanism. On the second issue, the Department claimed that the supply of content like news, ring tone, games, SMS, alerts etc. to telecom operators who provided it to the subscribers is liable to be taxed under the ‘Support of Business and Commerce’ prior to introduction of tax entry for ‘Development and Supply of Contents’ w.e.f. 1.6.2007.

On the first issue, the Appellants submitted that there could be no tax liability inter-se between two parties of joint venture arrangement as it not only involves sharing of the responsibilities and obligations but also the income is shared on a pre-determined proportion. On the second issue, the Appellants submitted that the said service was more specifically covered under the category of development and supply of content as per the ratio laid down by Hon’ble Andhra Pradesh High Court in BSNL case, 2012 (25) STR 321(A.P.). Relying on the decision of the Tribunal in Diebold System (P) Ltd., 2008 (9) STR 546, the Appellant submitted that the ‘Business Support Services’ tax entry continued to remain without amendment, when the new tax entry for ‘Development and Supply of Contents’ was introduced. Hence, no service tax can be levied on the aforesaid transaction under ‘Business Support Services’.

Judgment:  In the facts and circumstances of the present case, the Hon’ble CESTAT arrived at a conclusion that the Appellant and M/s. Technology Aided System, Kuwait is jointly rendering services to the customer. The transaction involved in the present case is one of the joint venture and there cannot be rendition of service inter se between parties to a joint venture. The Hon’ble Tribunal also relied on the decision of Mormugao Port Trust – 2017 (48) STR 69 (Tri.-Mum) to held that in a joint venture arrangement whatever activity a member of the joint venture does in furtherance of the business of the joint venture cannot be treated as rendition of service from one member of joint venture to another. The Hon’ble CESTAT also accepted the contention of the Appellant on the second issue that the said service was more specifically covered under the category of development and supply of content as per the ratio laid down by Hon’ble Andhra Pradesh High Court in BSNL case, 2012 (25) STR 321(A.P.) and service tax cannot be levied on the aforesaid transaction under ‘Business Support Services’.

ACL Mobile Ltd. vs. CCE, Delhi, CESTAT, New Delhi, decided on 20.2.2018 in Service Tax Appeal No. ST/56171/2013-ST(DB)

ACL Mobile Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

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