The Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that sourcing of services for group companies cannot be considered as “business support service” in absence of any consideration.
The bench of S.K. Mohanty (Judicial Member) and C J Mathew (Technical Member) has observed that the mode of operation undertaken by the appellants in making payment for the services and getting the same reimbursed are not for provision of any service, but are only reimbursement for the services procured for their group companies. Thus, the reimbursement of the cost/expenses incurred by the appellants as per actual, cannot be regarded as consideration.
The appellant/assessee undertake works contracts. It has group entities. As part of the group policy, for maximising cost effectiveness, it incurs expenditure and gets reimbursement based on debit notes issued. This act was construed as provision of “business support service” by the department. Tax demand was confirmed along with interest and penalties.
The tribunal noted that the amount claimed in the debit notes are for the simple reimbursement of the cost/expenses incurred by the appellants in terms of the cost sharing arrangements with the group entities, with the only purpose of cost effectiveness, having no service element involved therein.
Therefore, the CESTAT held that in absence of any provision of service by the appellants to their group companies, mere claim of reimbursement of actual cost and expenses should not form a part of provision of any taxable service, for payment of service tax.
The tribunal allowed the appeal in favour of the appellants.
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Case Details
Case Title: Hindustan Construction Company Ltd. Versus Commissioner of Central Goods and Service Tax, Navi Mumbai
Case No.: Service Tax Appeal No. 87430 of 2019
Date: 06.01.2023
Counsel For Appellant: Adv. Bharat Raichandani a/w Adv. Mahesh Raichandani
Counsel For Respondent: Anand Kumar
