Welspun Syntex Ltd. vs Commissioner of Central Excise and Customs

This appeal by the assessee arises from an order of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) on an application for waiver of pre-deposit of the Service Tax dues which are in the amount of Rs. 55,95,977/- on which interest and penalty has been levied. The period to which the dispute relates is March, 2006 to May, 2007. The appeal is admitted on the following substantial question of law:-

Whether in the facts and circumstances of the case the Hon''ble CESTAT was justified in holding that the Appellants failed to make out a prima facie case that the agreement is for providing business support services?

The appeal is taken up for hearing and final disposal by consent.

The appellant entered into a conducting agreement on 25 August, 2004 by which it allowed the use of its plant, machinery and equipment by a company called International Synthfabs Private Ltd. (ISPL) for a period of eleven months from September, 2004 to July, 2005. The issue is whether the agreement involved the rendering of support services of business or commerce within the meaning of Section 65(104c) of the Finance Act as amended. The relevant clause is as follows:-

(104c) "support service of business or commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation of customer service and pricing policies, infra-structural support services and other transaction processing. Explanation.- For that purposes of this clause, the expression "infrastructural support services" includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.

With effect from 1 June, 2007, Clause (90a) has been introduced so as to include the service of renting of immovable property. Clause (90a) reads as follows:-

(90a) "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or poaching centre.

Explanation. 1 - For the purposes of this clause, "for use in the course or furtherance of business or commerce" includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings.

Clause (90a) is not material to the period in question to which the dispute relates, which is 2006-2007. The Adjudicating Authority has confirmed the demand of duty in pursuance of a notice to show cause. The Commissioner of Central Excise has by an order of adjudication dated 20 April 2012 confirmed the demand of duty of Rs. 55.95 lakhs on the ground that the petitioner was providing a business support service.

The petitioner has relied upon a circular of the C.B.E. & C. dated 23 February, 2009 which explains the clause in the following terms:-

By definition ''Business Support service'' is a generic service of providing ''support to the business or commerce of the service receiver''. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provider.

The petitioner has also adverted to the decision of the Tribunal on an application for stay in 2012 (25) S.T.R. 443 , in which it was held that "where a new entry has been carved out subsequently for the purpose of Service Tax, it has to be held that the same was not covered by any prior existing category of service." The petitioner has also relied on a decision of the Tribunal on another application for stay in 2012 (27) S.T.R. 295 . In the second case, the Tribunal has held as follows:-

5.3 We are of prima facie view that the ratio of the above mentioned judgment of the Apex Court is applicable to this case, and therefore, the expression "Services in relation to business or commerce" in the definition of "support service, of business or commerce" in Section 65(104c) would get its colour from the inclusive portion of the definition. On this basis we are of prima facie view that the expression "support service of business or commerce" would cover only the services of supporting nature for the main business - manufacture, trading and service like services relating to marketing, customer relationship, distribution and logistics, accounting and transaction processing, office infrastructure, etc. and would not include service of renting of machinery and equipment for production or manufacture which being services relating to manufacturing activity are of altogether different nature.

In our view, having regard to these facts, it must be held that the petitioner would be entitled to a complete waiver of pre-deposit. The petitioner has made out a prima facie case on merits raising a serious triable issue. The Court has been informed that for the subsequent period after the insertion of clause (90a), the petitioner has been paying Service Tax. The dispute as noted earlier relates to the period prior to insertion of clause (90a). The issue as to whether the petitioner was providing a support service of business or commerce under the terms of the agreement involves a serious triable question.

In these circumstances, we allow the appeal and direct that the petitioner would be entitled to a waiver of pre-deposit. However, we clarify that all our observations are confined to the disposal of the stay application and shall not come in the way of disposal of the appeal as the question of law is answered to the aforesaid extent confined to the disposal of the stay application. Since the appellant has been granted a waiver of pre-deposit, necessary consequences shall now follow. The appeal is accordingly disposed of. There shall be no order as to costs.