Sun Microsystems (I) Pvt. Ltd vs Commissioner Of Service Tax Bangalore

[Arising out of Order-in-Appeal No. 696/2013 dated 02/12/2013 passed by the Commissioner of Central Excise and Service Tax, Bangalore-II ( Appeals) ]

For approval and signature:

HON'BLE Mr. B.S.V. MURTHY, TECHNICAL MEMBER

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes

Sun Microsystems (I) Pvt. Ltd. (Now Oracle India Pvt. Ltd.), 6th Floor, Divyashree Chambers, Off. Langford Road, Bangalore  560 025 Karnataka Appellant(s)

Versus Commissioner of Service Tax Bangalore 1st To 5th Floor, TTMC Building, Above BMTC Bus Stand, Domlur Bangalore  560 071 Karnataka Respondent(s)

Appearance:

Ms. Pallavi, Advocate World Trade Centre No.404-406, 4th Floor, South Wing Brigade Gateway Campus No.26/1, Dr. Rajkumar Road, Bangalore - 560 055 Karnataka For the Appellant

Mr. S. Teli, AR For the Respondent

Date of Hearing: 20/03/2015 Date of Decision: 20/03/2015 CORAM:

HON'BLE Mr. B.S.V. MURTHY, TECHNICAL MEMBER

Final Order No. 20840 / 2015

During the course of the audit of the records of the appellants, it was noticed that assessee are providing the facility of lease financing to their employees to purchase cars through lease finance company M/s. Lease Plan India Ltd. The amount paid to lease finance company is collected from employees from their salary by the appellants. The service is provided to employees by the lease finance company and assessee is not utilizing any input services as per Rule 2(l) of CCR 2004 either directly or indirectly in providing the output services. Hence credit not eligible. This culminated in the issue of show-cause notice demanding service tax along with interest and penalty.

After the proceedings before the original authority and the learned Commissioner (Appeals), the cenvat credit has been denied and demanded with interest and penalty under Section 78 of Finance Act 1994 has been imposed.

2. Even though the matter has been listed only for considering waiver of pre-deposit and stay against recovery, after hearing both the sides for some time, I came to the conclusion that the matter itself can be finally disposed of. Both the sides have no objection. Accordingly the requirement of pre-deposit is waived and the appeal is taken up for final decision.

3. Appellants lease cars and provide it to their employees. Lease agreement is between the assessee and the leasing company. The vehicle is in the name of the company. However the appellants recovered the EMI from the employees and paid it to the leasing company. The learned Commissioner has observed that other local taxes are also collected but in the absence of documentary evidence tax should not be considered. However the appellants take cenvat credit of the service tax paid and there is no finding that the service tax has been recovered from the employees. It is the claim of the appellants that the vehicle is in the name of the company and agreement is between the assessee and the leasing company and vehicles are used by the employees for official purpose namely, coming to the office and other company related work. Therefore it is the claim of the assessee that they are eligible for cenvat credit. It was also submitted that the period is 2008-09 when the facilities providing benefit to individual employees were excluded from the purview of input service.

4. I am unable to agree with these submissions. In the case of Outdoor Catering Service, this Tribunal has been consistently taking a stand that if amount is recovered in respect of any facility provided, to the extent of recovery, cenvat credit has to be disallowed. This was the view taken by the Honble High Court of Bombay in the case of CCE, Nagpur Vs. Ultratech Cement Ltd. reported in [2010 (260) E.L.T. 369 (Bom.)]. Paragraph 39 of the said decision is relevant and is reproduced below:

39. The Larger Bench of CESTAT in the case of GTC Industries Ltd. (supra) has also observed that the credit of service tax would be allowable to a manufacturer even in cases where the cost of the food is borne by the worker (see last para). That part of the observation made by the Larger Bench cannot be upheld, because, once the service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. Shri Shridharan, learned counsel for the assessee fairly conceded to the above position in law and in fact filed an affidavit affirmed by a responsible officer of the assessee wherein it is stated that the proportionate credit to the extent embedded in the cost of food recovered from the employee/worker has been reversed. In this case the fact that cost of EMI payable towards leased vehicle is recovered from the employees would show that this is only a ploy adopted to ensure that the benefit of depreciation of the vehicle can be availed by the company and benefit of service tax also can be availed by the company. Both these benefits would have been lost if the individuals were to purchase a vehicle or lease a vehicle. When the cost is recovered from the employee, it cannot be said that it forms part of the final cost of output service. One of the principles followed for allowing the benefit of cenvat credit is that it should form the cost of manufacture of input, output and final product or it should form cost of output service. When the cost of leasing is not borne by the company, it cannot be said that it forms pat of the output service. In such a scenario it would not be appropriate to allow the assessee to avail the benefit of cenvat credit without incurring any cost and availing only the benefits which may offer to be passed on to the employee or may not be, with which I am not concerned. Therefore I do not find any reason to interfere with the decision of the lower authorities that assessee is not eligible for cenvat credit and the credit availed should be paid back with interest.

5. As regards penalty, the learned counsel would submit that the issue is a debatable one and two views are possible. The appellant entertained a bona fide belief that the practice followed by them is correct and availed the credit. Moreover having regard to the size of the appellant and amount of credit involved which is only Rs. 1,55,755/- (Rupees One Lakh Fifty Five Thousand Seven Hundred and Fifty Five only), it cannot be said that this was done with intention to evade service tax according to the learned counsel. I am inclined to agree with these submissions. Accordingly the penalty imposed under Section 78 is waived by invoking provisions of Section 80 of Finance Act 1994.

(Order pronounced and dictated in open court)

(B.S.V. MURTHY) TECHNICAL MEMBER

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