By TIOL News Service

MUMBAI, MAR 07, 2014: ON the subject of classification of composite services, the Board has the following to say in its Circular No. 104/07/2008-ST dated 6th August 2008 -

'Clarification: … The contention that a single composite service should not be broken into its components and classified as separate services is a well-accepted principle of classification.  As clarified earlier vide F.No. 334/4/2006-TRU dated 28.2.2006 (para 3.2 and 3.3) and F. No. 334/1/2008-TRU dated 29.2.2008 (para 3.2 and 3.3),  a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified.   While taking a view, both the form and substance of the transaction are to be taken into account. The guiding principle is to identify the essential features of the transaction. The method of invoicing does not alter the single composite nature of the service and classification in such cases are based on essential character by applying the principle of classification enumerated in section 65 A….

In the present case, against the appellant, a service tax demand of nearly sixty lakhs along with penalties was confirmed on the ground that they did not pay Tax on the Security Agency services rendered.

Before the CESTAT while seeking Stay in the matter, the applicant submitted -

Over and above rendering security agency services, they were also rendering other services, such as management advice, group auditing, guidance on business planning, financial planning, and business guidance etc. 

However, the adjudicating authority had treated that all the services rendered by the applicants as a single service, namely that of a security agency. 

Service tax payable on the security agency service rendered by them would be approximately Rs.14 lakhs. 

They are not a commercial concern as they are operating on a no profit no loss basis, and based on CBEC Circular no. 86/4/2006-ST dated 1.11.2006 service tax cannot be levied.

The Bench noted that the Circular dated 01.11.2006 was prima facie not applicable to the applicant.

However, after considering the submission of the applicant regarding service tax liability on the security agency services rendered, the CESTAT directed the applicant to make a pre-deposit of Rs.15 lakhs for obtaining Stay. This was reported by us as (2008-TIOL-1430-CESTAT-MUM).

That was more than five years ago.

The appeal was heard recently.

The appellant reiterated their submissions and also argued on the ground of time bar.

The Revenue representative submitted that the Director of the appellant firm, in his statement had confirmed that his company was engaged in providing security services to M/s. Essel group of companies and except for 47 security personnel, one peon and five drivers, there was no other staff working in the appellant company. A similar statement was also given by the Security Officer, the Revenue representative added. Inasmuch as it was evident that the services rendered by the appellant to the group entities were only security service and nothing else. Reliance is also placed on the enquiry made with the Additional Central PF Commissioner, Maharashtra by the DGCEI and as per the enquiry report, the appellants were providing only security services and the number of personnel engaged were about forty five. From these corroborative evidences, it is clear that the appellant had rendered only security services and on such security services, the appellant is liable to discharge service tax liability and hence the appeal is liable to be dismissed.

During the course of arguments, the Bench asked the appellant if they could submit the bills raised by the appellant on the various group entities wherein the details of the services rendered were indicated and the amounts charged for various services. However, it was admitted that they do not have any records and the amounts have been collected by way of debit notes.

The Bench noted that the appellant did not have any other document to produce in support of their claims that they had rendered various services such as housekeeping, maintenance, group auditing, advices and financial planning and strategy, etc., in addition to security services and, therefore, reliance on the Board Circulars to suggest that the appellant had rendered services other than ‘security services' was not proper. Based on the statements recorded of the Director and the Security officer of the appellant firm coupled with the enquiry report of the Additional PF Commissioner, Maharashtra, the Bench held that it was clearly established that the appellant was rendering only security services.

It was further observed -

"…, the deployment chart of the various personnel as on 27/01/2004 available on record also indicate the names of 46 Nos. of security staff, who were deployed at the various premises. In the records, there is an extract of the Ledger Account of M/s. ETC Networks Ltd., one of the recipients of the services. The said ledger shows payment of a sum of Rs. 1,89,740/- per month of the appellant and the payments are shown as "towards security charges". The journal extracts of other service recipients such as Pan India, Network Infravest Ltd., also shows a monthly fixed payment to the appellant towards service charges. If the appellant had indeed rendered a multiplicity of services, the charges would have varied every month which also is a pointer towards the fact that the appellant rendered only one type of service. From the statements of the employees of the appellant firm, the service rendered was only security services and nothing else. From these documents available on record, it emerges that the appellant has rendered only security services to the group entities and not any other services as claimed by them."

In the matter of the claim of the appellant that they were operating on a no-profit no-loss basis and, therefore, cannot be considered as a commercial concern, the Bench observed that the said argument was without any merit. Inasmuch as the appellants were charging consideration from the group companies/entities for the services rendered on a monthly basis and the appellant had shown the income so received as business income in their balance sheet and the group entities which made the payments to the appellant firm had claimed these as expenditure, thereby enjoying the benefit of income tax by reducing their profits.

As regards the plea taken of the demand being hit by limitation, the CESTAT noted that the appellant had not brought on record any evidence to prove their bonafides; that there is nothing in the records to show that the appellant consulted either the department or obtained any legal opinion as their liability towards service tax.

Holding that the appellant did not obtain any registration nor follow any of the statutory procedures and had thus suppressed the facts from the department with an intention to evade service tax, confirmation of the demand along with interest and penalties was held to be proper in law and the appeal was dismissed.

(See 2014-TIOL-361-CESTAT-MUM)