OIO NO. 60/STC-AHD/ADC(MKR)/2011-12 Page 1 of 29
BRIEF FACTS OF THE CASE:-
M/s Pinnacle Shares Registry Private Ltd., having their registered office at Arvind Asoka Aruna Hospital Premises Near Asoka Mils, Naroda, Road, Ahmedabad -380 025 ( here-in after referred as M/s Pinnacle for the sake of brevity) is a private limited company and is engaged in the business of share transfer service. M/s Pinnacle are registered with the department vide Service Tax Registration No. AACCP17479QST001 Dated 28.10.2004 at Service Tax Commissionerate, Ahmedabad.
1.2 An intelligence was gathered by the Directorate General of Central Excise Intelligence, Ahmedabad Zonal Unit (AZU) that M/s Pinnacle was engaged in provision of Share Transfer Agent’s Services and were evading Service Tax on the said services and were not paying Service Tax on the charges collected under the heading “Reimbursement of Expenses” “out of pocket expenses”, “Postage expenses”, etc., towards providing the said share transfer Agent’s services. Accordingly, investigations were initiated against M/s Pinnacle by the office of the DGCEI, AZU, Ahmedabad and Show Cause Notice for the period 01.05.2006 to 31.03.2008 was issued vide F.No. DGCEI/AZU/ 12(4)28/2008-Pinnacle dated 22.06.2009 by the Additional Director, DGCEI, AZU, and Ahmedabad.
1.3. The Jurisdictional Range Superintendent vide letter F.No. SD 03/R-XIII/SCN-Pinnacle/DGCEI/09-10 dated 17.07.2009, 1.02.2010, 29.09.2010 had requested the said party for providing the information for the further period. The said party had not provided the requisite information in regard of the above mentioned letters. The said party had not submitted the requisite information, a Summon was issued vide F.No.SD03/R-XIII/SCN-Pinnacle/09-10 dated 12.10.2010, then also the said party failed to provide the requisite information. Further a Summon dated 01.04.2011 was issued to the said party to provide the requisite information and for recording the statement under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1944. Accordingly his statement was recorded on 05.04.2011.
1.4 Statement of Shri Sunil Shah of M/s Pinnacle Shares Registry Private Limited, Ahmedabad.
On being asked regarding the activities of M/s Pinnacle he stated that he had already given in his statement dated 28.03.2007 recorded by the Superintendent, DGCEI, AZU, Ahmedabad. He further stated that they had been issued the SCN vide F.No. DGCEI/AZU/12(4)28/2008-Pinnacle dated 22.06.2009 by the Additional Director, DGCEI, AZU, Ahmedabad. The said SCN was issued in regard short payment of service tax which they had not paid on the Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses for the period 2007-08. The said SCN was confirmed vide OIO No 08/STC-Ahd/ADC (MKR) 2010 dated 25.10.2010 against which they had filed Appeal with CESTAT.
1.5 On being asked whether the Service Tax in respect of Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses are paid by them, in this regard he stated that as they had filed appeal in CESTAT, they were of the opinion that the Service Tax is not liable on Reimbursement Expenses i.e. Out of Pocket Expenses and Postage Expenses. On being asked whether Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses were declared in the ST-3 returns filed with the department or has he submitted time to time the receipts of the Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses to the department, in this regard he stated that neither they had declared the same in their ST-3 returns nor they had intimated to the department. On being asked whether they had received the letter F.No.SD03/R-XIII/SCN-Pinnacle/DGCEI/09-10 dated 17.07.2009, 01.02.2010, 29.03.2010, summon dated 12.10.2010 for furnishing of Information in regard of the year April, 2009 onwards, in this regard he stated that they had received the said letters but as their company had discontinued the activities there were no persons who could comply the same. On being asked regarding the gross amount received as reimbursement for the period 01.04.2008 to 31.03.2011, the details of the same month-wise are submitted herewith duly signed by him. He further stated that the consolidated amount received as reimbursement charges for the period 01.04.2008 to 24.02.2009 and 24.02.2009 to 31.03.2011 are as under:
Period / Gross Amount received as reimbursable expenses. (Rs)1 / 2
01.04.2008 to 23.02.2009 / 70,78,961/-
24.02.2009 to 31.03.2011 / 41,82,964/-
Total / 1,12,61,925/-
1.6 On perusal of the details submitted by them, it was noticed that the details of Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses were for the period 2008 to 2010 (upto March), the same does not reflects the details for the period 2010-11 (March), in this regard he stated that they had not received any amount on account of Reimbursement Expenses, Out of Pocket Expenses and Postage Expenses as their company has discontinued all the activities.
1.7 Service tax on “Share transfer agent service” was introduced with effect from 1-5-2006.The definition of the said Service as per section 65(95a) of the Finance Act, 1994, read as under:
“Share transfer agent” means any person who maintains the record of holders of securities and deals with all matters connected with the transfer or redemption of securities or activities incidental thereto.
1.8 The taxable service as per section 65(105)(zzzj), is defined as “any service provided or to be provided; to any person, by a share transfer agent, in relation to securities, is a ‘taxable service’”
1.9 The value of taxable service under “Share transfer Agents service” shall be the gross amount charged by the service provider of such service provided or to be provided by him.
1.10 TRU D.O. letter No. 334/4/2006-TRU dated 28-2-2006 have given the following clarification in respect of this service “Share transfer Agent” is a person who provides service to a body corporate. The services include maintenance of the record of holders of securities and dealing with all matters connected with transactions or redemption of securities. The service providers are required to be registered under SEBI Rules”.
1.11 Under Rule 5(2) of the Determination of Value Rules, 2006, the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity aspure agent of the recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorizes the service provider to make payment on his behalf;
(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;
(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.
1.12 Aforesaid facts discussed and evidences appearing narrated above; the show Cause issued vide F. No. DGCEI/AZU/12(4)28/2008-Pinnacle dated 22.06.2009; and statement dated 05.04.2011 of Shri Sunil Shah of M/s Pinnacle Shares Registry Private Limited, Ahmedabad recorded wherein he had stated that in his statement dated 28.03.2007 given in detail reveals that M/s Pinnacle are providing services to various clients under a written agreement. The scope of services is elaborated in these agreements. As a share transfer agent, the dispatch of all information by their clients to the shareholders is to be done by them. The expenditure incurred on such work will form part of their services. Under Rule 5 (1) of the Service Tax (Determination of Value) Rules, 2006, where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.
1.13 M/s Pinnacle is a service provider providing taxable Services to their clients as “share transfer agent” which is taxable with effect from 01.05.2006 and hence M/s Pinnacle are liable to pay Service Tax and Education Cess on the entire value of service charges realized by them from 01.05.2006 onwards. The Show Cause Notice for the period 12.04.2007 to 31.03.2008 has already been issued vide F.No. DGCEI/AZU/12(4)28/2008-Pinnacle dated 22.06.2009 by the Additional Director, DGCEI, AZU, Ahmedabad.
1.14 M/s Pinnacle charged and received the following amounts from their clients as reimbursable expenses for providing “Share transfer agent’s services”. The year wise details are as under:-
Period / Nature of reimbursable expense / Gross amount charged( In Rupees)
01.04.2008 to 31.03.2009 / Postal expenses / 87,63,666/-
Stationary Charges / 500/-
Total / 87,64,166/-
01.04.2009 to 31.03.2010 / Postal expenses / 24,94,759/-
Stationary Charges / 3,000/-
Total / 24.97,759/-
Grand Total / 1,12,61,925
The Service Tax and Education Cess payable by them on the above service charges works out to Rs. 13,83,479/- (Thirteen Lakhs eighty three thousand four hundred and seventy nine only) as detailed in Annexure- A to this show cause notice. M/s Pinnacle did not pay any service tax on said services and thus not paid Service Tax, Education Cess and Higher Education Cess amounting to Rs.13,83,479/- The said amount is recoverable from M/s Pinnacle under Section 73 of the Finance Act, 1994.
1.15 M/s Pinnacle are registered with Service Tax Commissionerate for discharging of their service tax liability. They have not declared the taxable service charges recovered by them as expenses in their periodical ST-3 returns, which are to be filed by them under Section 70 of the Finance Act, 1994 and neither they have submitted any figures separately to the Department that they are collecting the reimbursement charges from their clients inspite of various letters were written to them demanding the requisite information for the period 2008-09 onwards. M/s Pinnacle was fully aware that Service Tax is leviable on the entire value realized against “Share Transfer Agent’s Service” rendered by them. Thus, Service Tax and Education Cess amounting to Rs. 13,83,479/- was not paid by them intentionally with full knowledge that the said service is taxable and Service Tax and Education Cess has to be paid on the gross amount recovered by them. It is thus evident that M/s Pinnacle did not pay Service Tax and Education Cess by way of willful suppression of facts, and in contravention of provisions of Finance Act, 1994 relating to levy and collection of Service Tax and the Rules made thereunder with intent to evade payment of Service Tax. The Service Tax is therefore recoverable from them by invoking extended period of five years as per first proviso to sub-section (1) of Section 73 of the Finance Act, 1994. They are also liable to pay interest at appropriate rate for the period from due date of payment of Service Tax and Education Cess till the date of actual payment, as per provisions of Section 75 of the Finance Act, 1994.
1.16 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such manner and within such period as may be prescribed. Rule 6 of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of the Central Govt., by the 5th of the month immediately following the calendar month, in which the payments are received, towards the value of taxable services.
1.17 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax, shall himself assess the tax due on the services provided by him and shall furnish to the superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in form ST-3 or ST-3A, as the case may be, alongwith a copy of the form TR-6 challan, in triplicate for the months covered in the half-yearly return. Further sub-rule [2] thereto also states that “every assessee shall submit the half yearly return by the 25th of the month following the particular half-year.
1.18 In view of the above, it appeared that M/s. Pinnacle has contravened the provisions of:-
Ø Section 68 of the Finance Act, 1994, read with Rule 6 of the Service Tax Rules, 1994, in-as-much as they have failed to make the payment of service tax as detailed in Annexure 'A’, to the credit of the Government account;
Ø Section 70 of the Finance Act, 1994, read with rule 7 of the Service Tax Rules, 1994, in as much as they had not declared the correct amount of charges received by them in lieu of taxable services, from their clients and is liable to penalty as provided under section 77 of the Finance Act,1994.