Commissioner Of Service Tax-I, Mumbai vs M/S Datamatics Financial Services Ltd

(Arising out of Order-in-Original No. 50/STC-I/BR/10-11 dated 28.3.2011 passed by the Commissioner of Service Tax-I, Mumbai).

For approval and signature:

Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy : Seen of the order?

4. Whether order is to be circulated to the Departmental : Yes authorities? ======================================================

Commissioner of Service Tax-I, Mumbai M/s Datamatics Financial Services Ltd. Appellant

Vs.

M/s Datamatics Financial Services Ltd. Commissioner of Service Tax-I, Mumbai

Respondent

Appearance: Shri A.K. Goswami, Addl. Commissioner (AR) Shri A.R. Krishnan, C.A. for Appellant

Shri A.R. Krishnan, C.A. Shri A.K. Goswami, Addl. Commissioner (AR) for Respondent

CORAM: SHRI M.V. RAVINDRAN, MEMBER (JUDICIAL) SHRI C.J. MATHEW, MEMBER (TECHNICAL)

Date of Hearing: 29.09.2015

Date of Decision: 29.09.2015

ORDER NO.

Per: M.V. Ravindran

These two appeals are filed against Order-in-Original No. 50/STC-I/BR/10-11 dated 28.3.2011 passed by the Commissioner of Service Tax-I, Mumbai.

2. The appellant assessee has contested the confirmation of demand of Service Tax along with interest thereof and imposition of penalties under Sections 77 & 78 of the Finance Act, 1994, while Revenue is aggrieved by the impugned order on the ground that the adjudicating authority has wrongly failed to impose penalty under Section 76 of the Finance Act, 1994.

3. The relevant facts that arise for consideration are that the appellant herein are engaged in providing services of Share Transfer Agency and Registrar to an Issue to their clients. They were registered with the jurisdictional Service Tax authority w.e.f. 24.9.2003 under the category of Business Auxiliary Services from 1.5.2006 on introduction of specific category of services i.e. Share Transfer Agency and Registrar to an Issue. Investigations were initiated on the basis of intelligence that the appellants were not discharging Service Tax liability by incorrectly computing the taxable value. After an investigation, show-cause notice was issued to the appellant for short payment of Service Tax, interest thereof and penalties to be imposed for the period 1.5.2006 to 31.12.2007. The appellant contested the show-cause notice on merits as well as on limitation. The adjudicating authority did not agree with the contentions raised and confirmed the demand.

4. Learned C.A. appearing on behalf of the assessee submits that the entire demand of the Service Tax liability arises for non-inclusion of the reimbursement of postage and other expenses in the gross value for discharge of Service Tax liability under the category of Share Transfer Agency and Registrar to an Issue. He would submit that the postage and the actual expenses are incurred by the appellant on behalf of the various companies on whose behalf they arranged posting of various shares allotted, share certificate, balance-sheet and notice for the AGM etc. It is his submission that they are functioning as an Agent of the Client and Registrar under SEBI Act for getting his share transfer agency and Registrar to an issue. He would submit that on this very same issue, this Bench of the Tribunal in the case of Link Intime Pvt. Ltd. Vs. Commissioner of Service Tax  2015-TIOL-1406-CESTAT-MUM has held that the actual expenses incurred for postages and reimbursement of other expenses are not to be included in the value for discharge of Service Tax liability. Alternatively, it is his submission that postage which is paid by the appellant is duty and cannot be a part of the taxable value. It is also his further submission that reimbursement of expenses which is sought to be included in the gross value is again a non-starter, as this provision has been struck down by the Hon'ble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd.  2013 (29) STR 9 (Del).

5. The learned AR, on the other hand, reiterates the findings of the adjudicating authority and submits that the expenses incurred for postage and other expenses are for the purpose of rendering the services of Share Transfer Agency and Registrar to an Issue. It is his submission that in departments appeal, it is the contention that the adjudicating authority has imposed penalties under Sections 77 and 78 and has not imposed further penalty under Section 76 of the Finance Act, 1994.

6. We have considered the submissions made at length by both sides and perused the records.

6.1 The issue involved in this case is whether the appellant needs to be deposited an additional Service Tax liability by directing them to discharge Service Tax liability on the reimbursement of expenses incurred by him towards the postage and other expenses while functioning as Share Transfer Agent and Registrar to an Issue or otherwise.

6.2 Undisputedly, the appellant is a Share Transfer Agent and Registrar to an Issue and registered with the SEBI for other purposes. He functioned as an agent of the company, those are intending to issue share certificate and other related activities, when such companies are coming to the market for raising the capital.

6.3 On perusal of the records, we find that there is no dispute as to the fact that the amount of Service Tax that is sought to be demanded, the amount collected by the appellant and reimbursement of postage charge and reimbursement of the expenses incurred for printing of Annual Reports for UTI issue and expenses incurred for mailing, printing share and binding charges, Telephone, Envelopes, Xerox etc. It is also undisputed that the amounts which have not been included by the appellant for discharge of Service Tax liability are actual expenses incurred by him.

6.4 We find that the learned C.A. was correct in stating that the issue is now squarely covered by the judgment of this Tribunal in the case of Link Intime Pvt. Ltd. (supra). We reproduce the relevant paragraphs from the said judgment: -

2. The learned Chartered Accountant appearing for the appellant submits that the appellant is a Share Transfer Agent (STA in short) and Registrar to an Issue (RTI in short). As a RTI, it acts as an agent of a company in processing application for shares, dispatching allotment letters, refund orders, certificates and other related documents in respect of the issue. As an STA, it acts as an agent of the company to process share transfers and dispatch the transfer certificates to the transferees within the mandatory time period. In respect of these services, the appellant is liable to service tax w.e.f. 01/05/2006 under the category of RTI/STA services. For the services rendered, the appellant collects fees, reimbursement of postage paid to the post office on the companys behalf on actuals basis and reimbursement of certain additional expenses like printing, travelling, telephones, etc. from the company on actual basis. Service tax was paid by the appellant w.e.f. 10/09/2004 under the category of Business Auxiliary Service though not payable and subsequently under the category of RTI/STA services. Service tax was also paid on the reimbursement of other expenses for the period post 01/04/2006. However, service tax on reimbursement of postage for the period 10/09/2004 to 31/07/2007 was not paid in regular course. Therefore, the department issued a show cause notice dated 24/04/2008 alleging short-payment of service tax during 10/09/2004 to 31/05/2006 and on reimbursement of postage for the period 10/09/2004 to 31/07/2007 received from their clients, namely, M/s. MRPL and M/s. TV Today Network Ltd., the total demand raised amounting to ` 4,62,27,547/-.

4.1. As regards the demand for the period prior to 01/05/2006, the appellant herein is rendering services of a Share Transfer Agent and Registrar to an Issue under the Securities and Exchange Board of India (Registrar to an Issue and Share Transfer Agents) Rules, 1993 and the connected regulations. The said service came under the tax net for the first time on 01/05/2006. Therefore, the question of demanding any service tax on reimbursement of expenditure would not arise at all prior to 01/05/2006, even though the appellant might have paid service tax wrongly under the category of Business Auxiliary Service.

4.2. As regards the demand towards service tax on reimbursement of postage and other stationary expenditure, it is not in dispute that the said expenses have been reimbursed on actual basis. Further under Section 2(f) of The Indian Post Office Act, 1898, the expression postage means the duty chargeable for the transmission by post of postal articles and therefore, postage is in the nature of a duty/tax. It is a settled position in law that service tax cannot be levied on an amount charged as tax, since the same is not a consideration for rendering any service. Postage is an amount received by the postal department for transmission by post and cannot be considered as a consideration received by the person who is the sender of the postal article. Further, when the postage is recovered from the service receiver on actual basis by a service provider, he acts as a pure-agent and, therefore, the reimbursements made to a pure-agent is not includible in the value of taxable service rendered, as what is provided under Section 67 of the Finance Act, 1994 is only the consideration received for the value of services rendered. Same is the position with respect to the cost incurred towards stationary articles used for sending various items by post. Therefore, these reimbursements on actual basis cannot form the value of taxable service at all. Therefore, the service tax demand by including cost of such expenditure in the value of taxable service is clearly unsustainable in law. Further, Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 has been declared ultra vires and has been set aside by the honble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. (supra). Therefore, there is no authority provided for in the law for subjecting the reimbursement of expenses to service tax. There is also no stay against the Delhi High Courts order and therefore, ratio of the said decision has to be followed by all subordinate forums, including this Tribunal.

5. In view of the above factual and legal analysis, we find that the impugned order is clearly unsustainable in law. Accordingly, we set aside the same and allow the appeal with consequential relief, if any, in accordance with law.

It can be seen from the above reproduced relevant paragraphs of the said judgment of this Tribunal (wherein one of us, M.V. Ravindran, Member (J) was sitting Member in the said Bench while delivering the judgment) is squarely applicable and in favour of the appellant, we do not find any reason to deviate from the view already taken.

7. Accordingly, in the facts and circumstances of the case, we hold that the impugned order is unsustainable and liable to be set aside and we do so. The impugned order is set aside and the appeal filed by the assessee is allowed with consequential relief, if any. The appeal filed by the Revenue is dismissed.

(Operative portion of the order pronounced in Court)

(C.J. Mathew) (M.V. Ravindran) Member (Technical) Member (Judicial)

Sinha

6 Appeal No. ST/378 & 430/11