The Ahmedabad bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on staff training expenditure is paid to foreign principal.
The bench of Ramesh Nair (Judicial Member) and C L Mahar (Technical Member) has observed that the service tax demand was confirmed on the expenditure paid by the appellant to their foreign principal towards the training of their staff and related expenses. However, the service tax demand was confirmed treating the activity as consulting engineers’ services. The department’s claim is prima facie wrong as taking training for the staff cannot be classified as consulting engineers’ services.
Background
The appellant/assessee is the manufacturer of Rubber Injection Moulding Machines and parts thereof falling under Central Excise Tariff Heading 84. The appellant are also engaged in providing taxable services, falling under the category of Maintenance and Repair Services, Erection, Commissioning & Installation services and are also receiving taxable services. It falls under the category of consulting engineers, intellectual property, business auxiliary services, transportation of goods by road services and are holding service tax registration.
The appellant has shown expenditure in foreign currency related to training of their staff in the foreign country by the appellant’s principal company and there are some expenditures related to the training of their staff.
The case of the department is that the expenditure towards training received by their staff is towards consulting engineers services, hence the same is taxable in the hands of the appellant being the recipient of service under reverse charge mechanism.
In the adjudication order part amount of the demand raised in the show cause notice has been set aside. However, on the training reimbursement expenses, the service tax was confirmed treating the same as Consulting Engineers’ Services as per Section 65(105)(g) of the Finance Act, 1994.
Service tax was confirmed along with the interest thereon and penalties under Section 77(2) and Section 78 of Finance Act, 1994, therefore present appeal was filed by the appellant.
Arguments
The assessee contended that expense was made towards the training of the appellant’s staff in foreign country with the principal of appellant company. Therefore, the training and related miscellaneous expense does not fall under the Consulting Engineers’ Services. Therefore the demand raised under the said category will not sustain.
The assessee argued that the show cause notice is barred by the limitation as for the period 01.04.2008 to 31.02.2010 the show cause notice was issued on 26.12.2013. The appellant was assessee not only under Central Excise but also service tax and they were filing their periodical return. The value of training expenses was not declared under a bonafide belief that the same are not taxable. However, it cannot be the reason to allege the suppression of facts. Hence the demand is barred by the limitation, for the same reason penalty is not imposable.
Conclusion
The tribunal held that even if the appellant is liable to pay the service tax the same is available as Cenvat credit to the appellant as they are provider of service as well as manufacturer and they are discharging service tax in respect of various service and payment of excise duty on their excisable final product. Therefore, the entire exercise of payment of service tax as demanded by the department and availability of the Cenvat credit of the same amounts to the situation of Revenue neutrality. The suppression of fact cannot be alleged against the appellant with intention to evade the payment of service tax for a meager amount of Rs.1,75,024. Therefore, for the demand which is during the period 2009- 2010 the show cause notice issued on 12.03.2014 is clearly time barred.
The tribunal concluded that the demand of service tax and consequential interest and penalty is not sustainable only on the ground of time bar.
Case Title: Kloeckner Desma Machinery Pvt Ltd v/s Commissioner of C.E.
Citation: Service Tax Appeal No. 10081 of 2018 – DB
Counsel for the Petitioner: Shri Hitesh Jagetiya, Deputy General Manager (Finance)
Counsel for the Respondent: Shri Anand Kumar, Superintendent (AR)
