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I-26(494)ST/ADT./GR.

A1/AMR-008/2010

OFFICE OF THE
COMMISSIONER OF
SERVICE TAX
17-B, IAEA HOUSE,
MAHATMA GANDHI MARG,
I.P. ESTATE,
NEW DELHI 110 002
C.No. I-26(494)ST/ADT./Gr.A1/AMR-008/2010

Dated:

Demand cum- Show Cause Notice No. 24 /Audit/2011-12


M/s Huwaei Telecommunication (India) Company Pvt. Ltd. 14 TH Floor, Tower C, Unitech
Cyber Park, Sector-39, Gurgaon -122002, Haryana (hereinafter referred to as the assessee)
are registered with the Service Tax Commissionerate, Delhi vide STC No. AABCH1376EST001
dated 03.03.2008 for Erection, Commissioning or Installation services falling under Section
65(105)(zzd), Management, Maintenance or Repair services falling under Section 65(105)(zzg),
Technical, Inspection and Certification services falling under Section 65(105)(zzi) and Market
Research Agency services falling under Section 65(105)(y) of the Finance Act, 1994 as amended
(hereinafter referred to as the Act ). The assessee is obliged to comply with the provisions of the
Finance Act, 1994 as amended and Rules and notifications issued there under. The audit of the
assessee was conducted by the officers of Service Tax Commissionerate, New Delhi from
25.10.2010 to 27.10.2010 for the period 2005-06 to 2009-10 under Rule 5A of the Service Tax
Rules, 1994 (hereinafter referred to as the Rules).
2
Whereas, during the course of audit, it was observed that the assessee had incurred
certain expenditure in foreign currency against the head equipment rental on which no service
tax was paid. It was further observed that they have not paid any service tax on the
reimbursements which they were receiving from their fellow subsidiary M/s Huawei International
Pte. Ltd., Singapore under the head reimbursement on account of warranty. The assessee also
claimed exemption for the services of Market Support Services provided by them during 2005-06
to their holding company, at the relevant time, i.e. M/s Huawei Tech Investment Co. Ltd, Hong
Kong by treating the services to be export. The assessee was asked to explain the exact nature
of all these transactions and why the same were considered as non taxable by them. These
issues are discussed in succeeding paras.

Non-payment of Service Tax on Equipment Rental payments:


3.1 Whereas as per their financials for the period 2005-06 to 2009-10 (collectively marked as
RUD-1), it was observed that they had incurred expenditure in foreign currency amounting to Rs.
3,92,16,320/- during the period 2008-09 to 2009-10 as Equipment Rental expenses. The
assessee vide a note submitted during the course of audit (RUD-2) has informed that they import
equipment on operating lease from outside India for testing purposes and pay rent on the same to
the foreign lessor; that on import of these goods, customs duty, as applicable, is paid; that since
the equipment rental do not involve any service, no taxability arises in terms of Taxation of
Services (Provided from outside India and received in India) Rules, 2006 at their end. They further
explained the transaction as under

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I-26(494)ST/ADT./GR.A1/AMR-008/2010

They as lessee procure certain equipment from the third party vendors located outside
India (lessor) and such equipment is used for testing of equipments installed by them
at the telecommunication sites;
The equipment is imported from outside India for a stipulated lease period and as and
when the lease period expires, the equipment is re-exported to the lessor;
They pay periodical rentals to the lessor for using the equipment;
During the lease period, they exclusively use the equipment and exercise control over
the same and they are free to use the equipment as per their convenience and
methods;
There is no supervision by the lessor over the usage of the equipment while the
equipment is on lease with them.

3.2
Whereas the assessee further provided their view point that the activity is not taxable
under Supply of Tangible Goods Services as defined under Section 65(105)(zzzzj) of the Finance
Act. They also relied upon the following to contend that the transaction is not a service but a sale
transaction

Definition of the supply of tangible goods services;

Circular No. 334/1/2008-TRU dated 29.02.2008;

Decision in the case of BSNL Vs. UOI and decision of Andhra High Court in the case of
Rashtriya Ispat Nigam ;

Examples of transactions which have been held to be that of transfer of right to use as
deemed sale and thus leviable to Sales Tax/VAT;

Notification No. 12/2003-ST;

Section 2(h) of the Central Excise Act, 1944


They also contended that in their case

they have the exclusive right to use the equipment during the agreed lease period and
during such period, no one else can use the same;

they are free to use the equipment in any manner for business without any restriction
on its usage;

the lessor does not exercise any supervision over the equipment while the equipment
is on lease with them;

they have paid customs duty on Importation of these goods into India;

Import of goods does not attract any sales tax/VAT, however that does not mean that
the transaction involves transfer to right of use goods and hence is a sale;

The status of such sales under VAT law is of exempt sales i.e. sale of goods not liable
to VAT/Sales Tax.
3.3
On being asked they also provided a copy of Purchase Order (Rental Extension) dated
June 10, 2010 placed by them on M/s Livingston UK Ltd. and a bill of entry filed for such imports
(collectively marked as RUD-3). Whereas from the perusal of the said PO with M/s Livingston
UK Ltd. dated 10.06.2010 , it was observed that the PO does not speak anything except delivery
of the goods and that other terms and conditions remains same as per contract no. MPSCHNI
IWo8021401BNA. The assessee was asked to provide the copy of the said contract but the same
has not been supplied by them till date.
3.4.1 Whereas the amount of rental paid by the assessee for the equipments received by them
on lease basis as per the agreement from M/s Livingston UK Ltd. appears to be taxable under
service category of Supply of Tangible goods Services falling under Section 65(105) (zzzzj) of the

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
Act and the said service was brought under the Service Tax net w.e.f.16.5.2008 vide Notification
No. 18/2008 dtd.10.5.2008. The definition of the said taxable service reads as under:"taxable service" means any service provided or to be provided to any person, by any
other person in relation to supply of tangible goods including machinery, equipment
and appliances for use, without transferring right of possession and effective
control of such machinery, equipment and appliances
3.4.2 According to the above definition, a service becomes taxable as Supply of Tangible
goods Services, when
1.
2.
3.

the service is provided in relation to supply of tangible goods;


the supply is without transferring right of possession and effective control of
goods;
the service may be provided by any person to any other person.

3.4.3 Whereas Boards Circular No. 334/1/2008-TRU dated 29.2.2008 has clarified that the
transfer of right to use any goods is leviable to sales tax/ VAT as deemed sale of goods where
such transfer involves transfer of both possession and control of the goods to user of the goods. It
has further been clarified that the transaction of allowing another person to use the goods without
giving legal right of possession and effective control, is not treated as sale of goods, but it is
treated as a service.
3.4.4 Whereas as per the aforesaid agreement (RUD-3 supra), the equipments were leased to
the assessee by the vendor on a rental basis without transferring the legal right to possess and
effective control thereon, the agreement specifies that throughout the Lease period all the rights
will remain with the Lessor i.e. the associate company, and not with the assessee. Further, the
assessee has explained that they have not paid Sales Tax/VAT on the imported goods on rental
basis, hence it can not be deemed as sale of goods.
3.5
From the foregoing, it appears that the amount paid by the assessee towards Equipment
Rental appears to be covered under Section 65(105) (zzzzj) of the Act under the taxable service
category of Supply of Tangible goods Services which was brought under the Service Tax net
w.e.f.16.5.2008 vide Notification No. 18/2008 dtd.10.5.2008. The taxable services were provided
by M/s Livingston UK Ltd., non-resident service providers, from countries other than India to the
assessee in India.
3.6.1
Whereas the assessee being recipient of such services appears to be liable to pay
service tax on the amount paid to service providers having fixed establishment outside India
against the services of Supply of Tangible goods received by them in terms of provisions of
Section 66 A of the Finance Act,1994 read with Taxation of Services (Provided from Outside
India and Received in India) Rules, 2006.
3.6.2
The liability to pay Service Tax under reverse charge by the service recipient was
introduced, for the first time, vide Rule 2(1)(d)(iv) of Service Tax Rules, 1994 as was
inserted by the Service Tax (Amendment) Rules, 2002 vide Notification No. 12/2002 dated
01.08.2002 w.e.f. 16.08.2002.
3.6.3 Section 66 A has been inserted in the Finance Act, 1994 w.e.f. 18.04.2006 which reads as
under:

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I-26(494)ST/ADT./GR.A1/AMR-008/2010

66 A (1) Where any service specified in clause (105) of Section 65 is,(a) Provided or to be provided by a person who has established a business or has a
fixed establishment from which the service is provided or to be provided or has his
permanent address or usual place of residence, in a country other than India, and
(b) Received by a person (hereinafter referred to as the recipient) who has his place of
business, fixed establishment, permanent address or usual place of residence, in
India,
Such service shall, for the purposes of this section, be the taxable service, and such
taxable service shall be treated as if the recipient had himself provided the service in
India, and accordingly all the provisions of this Chapter shall apply:
Provided that where the recipient of the service is a individual and such service
received by him is otherwise than for the purpose of use in any business or commerce,
the provisions of this sub-section shall not apply:
Provided further that where the provider of the service has his business
establishment both in that country and elsewhere, the country, where the
establishment of the provider of service directly concerned with the provision of service
is located, shall be treated as the country from which the service is provided or to be
provided.
(2) Where a person is carrying on a business through a permanent establishment in
India and through another permanent establishment in a country other than India, such
permanent establishments shall be treated as separate persons for the purposes of
this section.
3.6.4
The Taxation of Service (Provided from Outside India and Received in India) Rules,
2006 were also notified w.e.f. 19.04.06 vide Notification No. 11/2006-ST dated 19.04.2006.
On examining the provisions contained in Rule 3 of the said Rules, it could be seen that all
taxable services under Service Tax statue have been organized under three categories,
for the purpose of their taxability under Section 66 A ibid.
(i)
sub-rule (i) under Rule 3 ibid prescribes that services specified in sub-clauses (d),
(p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz), (zzzzza) and
(zzzzm) of clause (105) of Section 65 of the Act, shall be taxable only if the services
are provided or to be provided in relation to an immovable property situated in
India ;
(ii)
sub-rule (ii) under Rule 3 ibid prescribes that services specified in sub-clauses (a),
(f), (h), (i), (j), (I), (n), (o), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv),
(zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt),
(zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzp), (zzzzg), (zzzzh) and (zzzzi) of
clause (105) of Section 65 of the Act, shall be taxable only when the said services are
performed in India; provided that where such taxable service is partly
performed in India, it shall also be treated as having performed in India.
Provided that where such taxable service is partly performed in India, it shall be treated as
performed in India and the value of such taxable service shall be determined under Section
67 of the Act and the rules made there under.

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I-26(494)ST/ADT./GR.A1/AMR-008/2010

(iii)
sub-rule (iii) under Rule 3 ibid prescribes that all other services other than the above
specified in clause (105) of Section 65 of the Act, but excluding the services mentioned in
sub-clauses (zzzo) and (zzzv) and those specified in Rule 3 (i) except when the provision of
taxable service specified in clauses (zzzzh), (zzzzi), (zzzzzk) and (zzzzl) in so far as they do
not relate to immovable property, shall be taxable if the said services are received by a
recipient located in India for use in relation to business or commerce.
3.6.5
In view of above provisions, it appears that import of all the taxable services has been
categorized in three categories i.e. i) services for which import criteria is based on location of
immovable property; ii) services for which import criteria is based on location of performance of
services; and iii) services for which import criteria is based on location of recipient of services. The
services of Supply of Tangible goods Services are taxable service specified under Section
65(105)(zzzzj) of the Finance Act,1994 received by the assessee are Category Three services.
Based on the location of service recipient in case of category three, the legislature has shifted the
liability to pay the Service Tax from provider of service to the recipient of service.
3.6.6 Therefore, from the above it appears that Supply of Tangible goods Services are
taxable service specified under Section 65 (105)(zzzzj) of the Finance Act,1994 and in
terms of provisions of Section 66A of the Finance Act,1994 as amended read with Rule 3 of
Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, the
assesse, being recipient of the service in India, appears to be liable to pay service tax
payable thereon. As per the details supplied by the assessee during the audit (RUD-4), the
total amount paid in foreign currency by the assessee as Equipment Rental to the foreign entities
during the period 2008-09 to 2009-10 is Rs. 3,92,16,320/-. It appears that the assessee is liable
to pay Service Tax alongwith E. Cess and S.H.E Cess amounting to Rs. 45,42,543/- as detailed
below:Year

Amount
paid (Rs.)

2008-09

24,430,187/-

12%

29,31,622/-

58,632/-

29,316/-

30,19,571/-

2009-10

14,786,133/3,92,16,320/
-

10%

14,78,613/-

29,572/-

14,786/-

15,22,972/-

44,10,236/-

88,205/-

44,102/-

45,42,543/-

Total

Service
Tax Rate

Service Tax
Amount (Rs.)

E. Cess @
2% (Rs.)

SHEC @ 1%
(Rs.)

Total Tax
(Rs.)

3.6.7 From the foregoing it appears that the assesse is liable to pay service tax amounting to
Rs.45,42,543/- as detailed above and the same is recoverable from the assesse in terms of
Section 73 of the Act alongwith interest under Section 75 of the Act ibid.
Non-payment of Service Tax on warranty reimbursement expenses:
4.1
Whereas, during the course of audit it was further observed that the assessee has been
receiving reimbursements of expenses from M/s Huawei International Pte. Ltd., Singapore (herein-after called as Huawei Singapore). On being asked, the party submitted a write up (RUD-5)
regarding warranty expenses as detailed below
Huwaei Singapores warranty
As per the letter dated 22.03.2011 (RUD-6), the assesse has submitted that they have entered
into contracts with its customers in India for sale of telecom equipments which are procured by the
assessee from Huawei Singapore under a separate purchase contract. The assesse is

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
contractually obligated to provide warranty for these equipments for a limited period of time to its
customers. Similarly, Huawei Singapore is also contractually obligated to provide warranty for the
equipment/goods to the assessee. In case of any defect in the telecom equipment, the assesse is
liable to provide warranty of the equipment to its customer. Huawei Singapore in turn is liable to
provide warranty to the assesse. In case Huawei Singapore fails to provide warranty to the
assesse, the assesse claims damages from Huawei Singapore. To pay the damages to the
assesse, Huawei Singapore reimburses the assessee [in lieu of the failure to discharge this
contractual liability for the costs actually incurred by the assessee to remedy the defect as per the
warranty clause of Standard Terms and Conditions for supply of goods between assessee and
Huawei Singapore(RUD-7)].
Huawei India is the party contractually liable to provide the warranty services to the Indian
customers in case of any default in the equipment supplied (Relevant clause of the contract
between Huawei India and the customer reproduced below):
The Supplier shall warrant that the Equipment/System to be supplied shall be new and free from
all defects and faults in materials used, workmanship and manufacture and consistent with the
scope and specifications of this Contract. The supplier shall be responsible for any defects that
may develop under the conditions provided by the contract, under proper use, arising from faulty
material, design or workmanship such as corrosion of Equipment, inadequate quantity of material
to meet the Equipments scope and specifications, inadequate contract protection, deficiencies in
current design and / or otherwise and shall remedy such defects at its own cost when called upon
to do so by the Buyer who shall state in writing in what respects the Equipment is faulty. This
warranty shall survive payment for/ and Acceptance of Equipment, but shall expire (except in
respect of complaints notified prior to such date) tweleve(12) months from the date of Take-Over
of the System of which the Equipment is a part or 18 months from the date of delivery at
warehouse / site, whichever is earlier. However, any equipment which could not have been
installed due to non availability of sites or any other reasons attributable to the Buyer within the
project implementation schedule warranty for such Equipment shall start along with the
Equipments for which Take-over has taken place
-

The Indian customer does not have any contract with Huawei Singapore and in no case
the Customer can approach Huawei Singapore for enforcing the warranty claim.
Huawei Singapore is contractually liable for providing the warranty services to Huawei
India in case of any default in the equipment supplied by it.
In case Huawei Singapore fails to provide the warranty services, it is liable to pay
damages to Huawei India. These damages are paid by way of re-imbursing Huawei India
for the costs incurred by Huawei India for rectifying the default in the equipment.

Considering the fact that the re-imbursements are in the nature of damages for not discharging a
contractual liability on party of Huawei Singapore, it can be concluded that there is no service
involved between Huawei India and Huawei Singapore.
These reimbursements can be viewed from the perspective that the goods supplied have not
performed to the committed quality level and also the supplier Huawei Singapore has not
discharged its warranty obligation to that extent. Therefore, the assesse is not paying Huawei
Singapore for the goods purchased to the extent of the amount so incurred in meeting the
warranty obligation. Therefore, there is no provision of services from the assessee to Huawei
Singapore. Rather it is in the nature of price reduction or compensation due to defects arising in
the product during the warranty period. Therefore, there is no service tax liability on the warranty
reimbursement by Huawei Singapore.

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
4.2.1 Whereas from the perusal of the submissions made by the assessee it appears that
original equipment supplier, M/s Huawei Singapore is selling the equipments in India either to the
Indian customers directly or through the assessee. The original equipment supplier i.e. M/s
Huawei Singapore is under an obligation to extend the warranty on such equipments. Based on
such assurances by the original equipment supplier i.e. M/s Huawei Singapore to the assessee,
the assessee has extended similar warranty to its customers. While it may be true that the
assessees customers cannot approach the original equipment supplier i.e. M/s Huawei Singapore
directly but such ultimate customers are aware about the benefit of warranty available to them
from the assessee. It is common practice that warranties are extended by the manufacturer
against any manufacturing defects. The intermediaries (i.e. the dealers) do not provide such
warranties on their own but such warranties are provided by them on behalf of the manufacturers
only and the cost of such warranties is always borne by the manufacturers only. Accordingly, the
assessee is meeting the warranty obligations extended by M/s Huawei Singapore, who, in turn are
meeting the same as extended by the manufacturer, and in the event of any defect within the
warranty period, the assessee undertake the activities to remedy the defects in the equipment by
employing its manpower.
4.2.2 It thus appears that the assessee is carrying out the warranty obligation of the original
equipment supplier of goods i.e M/s Huawei Singapore who have been authorized by them for this
purpose. The warranties may be provided in two ways. Firstly, the defective equipments may be
sent to suppliers premises who remove the defects and return the equipments. Alternatively, the
assessee may be asked to carry out warranties at assessees premises and recover the costs
from the supplier of the equipments. The second alternative is cost effective particularly when the
supplier is located abroad but in either situation, the cost of warranty is borne by the supplier only
and not by the ultimate customer (i.e. buyer of equipments in India) or by the intermediary (i.e.
dealers like assessee in India). It is under this arrangement that to carry out such obligations,
various costs are incurred by the assesse which are recovered by them under the head
reimbursements for the supplier of the equipments i.e. M/s Huawei Singapore.
4.2.3 Whereas, the assessee has contended that the payments received by them is in the
nature of price reduction or damages. It appears that the nomenclature/heading under which the
amount is received is not relevant for determining the nature of activity. Rather what is important
is the nature of activity itself. As stated above, the assessee is carrying out repairs and
maintenance of equipments by employing its own manpower. Since this is done during warranty
period, the costs thereof are recovered from M/s Huawei Singapore, the equipment supplier, and if
similar activity is carried out after the warranty period is over, the amount would be received from
the customer. Accordingly, these activities appears to be covered under the taxable services
category of Management, maintenance or repair services as defined under Section 65(105)(zzg)
of the Act ibid.
4.3 Whereas Management, maintenance or repair is defined under Section 65(64) of the Finance
Act, 1994, as under:
Section 65(64) management, maintenance or repair means any service provided by
(i) any person under a contract or agreement; or
(ii) a manufacturer or any person authorized by him,
in relation to, (a)
(b)

management of properties, whether immovable or not;


maintenance or repair of properties, whether immovable or not, or

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
(c)

maintenance or repair including reconditioning or restoration, or servicing of any goods,


excluding a motor vehicle.

Explanation For the removal of doubts, it is hereby declared that for the purposes of this clause,
(a)
goods includes computer software;
(b)
properties includes information technology software
4.3.1 Section 65(105) (zzg) of the Act defines the taxable service as any service provided or to
be provided, to any person, by any other person in relation to management, maintenance or
repair.
4.4
Whereas CBEC Circular No. 96/7/2007-ST dated 23.08.2007 clarified the technical issues
relating to taxation of services under Finance Act, 1994 and the reference code no.
036.01/23.08.2007 appears to be relevant and the same is reproduced as under -

Reference
Code

Issue

Classification

036.01 /
23.08.07

Authorized dealers of motor vehicles provide to


customers free servicing of motor vehicles without
charging any amount as service charge from the
customers. The vehicle manufacturer promises such
a facility to attract customers and reimburses the
service charges to the authorised dealers, who
provide to customers free servicing of motor vehicles.
However, as per agreement, consideration for the
service provider is not directly paid by the customer
but by the vehicle manufacturer.

In this case, service is provided


by an authorised service station
to a customer and the service
provider
receives
the
consideration for the services
provided from the manufacturer.
Service tax is liable on the
amount received from the vehicle
manufacturer for the purpose of
servicing of vehicles.

Whether such free services given to the customer


free of cost by the authorized dealers (for which they
are reimbursed by the vehicle manufacturers) are
liable to service tax under authorised service station
service [section 65(105) (zo)]?

Whereas, it appears that the said clarification has been issued in respect of taxable
service, Authorised Service Station but the ratio of this clarification appears equally applicable in
the case of Management, Maintenance on repair services.
4.4.1 Whereas, as stated above, it appears that in the instant case the assesse has been
undertaking the warranty obligations on behalf of Huawei Singapore. The services are being
provided by the assesse to the Indian customers but the payment for such services is being
received by the assessee from Huawei Singapore. Hence, the services rendered by the assessee
appear to be taxable under Management, maintenance or repair services.
4.5
Whereas, as stated above, during the Financial Years 2008-09 and 2009-10 as per the
details received from the party during the audit and as per schedule 17 note 12 (balance sheet for
the year 2009-10) and schedule 17 note 14 (balance sheet for the year 2008-09) (collectively
marked as RUD-8), the assessee has received a sum of Rs.4,24,93,007/- on account of such
services from M/s Huawei Singapore. It appears that the assessee is liable to pay Service Tax
alongwith Education Cess and Secondary & Higher Education Cess amounting to Rs.
49,82,169/- as detailed below which is recoverable from the assessee under Section 73 of

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
the Finance Act,1994 alongwith applicable interest under Section 75 of the Finance
Act,1994:-

Year

Amount
received
(Rs.)

2008-09

2,93,87,875

12%

3526545

70530

35265

3632340

2009-10

1,31,05,132
4,24,93,0
07/-

10%

1310513

26210

13105

1349828

48,37,058/-

96,740/-

48,370/-

49,82,169/-

Total

Service
Tax
Rate

Service Tax
Amount
(Rs.)

E. Cess @
2% (Rs.) of
S.T.

SHEC @
1% (Rs.) of
S.T.

Total Tax (Rs.)

Non-payment / short payment of Service Tax on Market Research Agency services


5.1
Whereas during the audit, it was observed that the assessee has recognized income
under the head Marketing Service Agreement mentioned in FDSS (RUD-9) as under :
Information as per FDSS TABLE A
Year

Value as per
P/L Account

Amount
Received

Total amount
received

(3)
23,30,73,275

Amount
received
as
advances
(4)
19,91,05,603

(5) = (3+4)
43,21,78,878

Taxable
amount as
per ST-3
(6)
Nil

(1)
200506

(2)
28,89,60,870

200607

36,10,53,964

36,10,53,964

36,49,43,974

72,59,97,938

72,59,97,938

200708

54,77,68,814

86,93,89,556

Nil

86,93,89,556

86,93,89,556

200809

61,65,48,577

Nil

Nil

Nil

200910

122,16,27,168

122,16,27,168

Nil

122,16,27,168

122,16,27,168

Total

303,59,59,393

268,51,43,963

56,40,49,577

324,91,93,540

281,70,14,662

Nil

Comments
(7)
The entire amount of Rs.
43,21,78,878/- has been
claimed as export of
services.
The service tax has
been paid on the entire
amount
of
Rs.72,59,97,938/remitted during the year
The service tax has
been paid on the entire
amount
of
Rs.86,93,89,556
remitted during the year
The amount has been
adjusted from advances
received in previous
years.
The service tax has
been paid on the entire
amount
of
Rs.
122,16,27,168/- remitted
during the year

From the column 5 of the above table, it appears that the assessee has received a total amount of
Rs.324,91,93,540/- (including advances) for rendering services against Market Research
Agencys Services during the period 2005-06 to 2009-10. However, the taxable value declared in
ST-3 returns filed during the said period of 2005-06 to 2009-10 was only Rs.281,70,14,662/(column 6 of the above table). Hence, during the said period, no service tax has been paid by the

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
assessee on differential value of Rs.43,21,78,878/- [Rs.324,91,93,540 (-) Rs.281,70,14,662]. It is
also observed that the said amount of Rs. 43,21,78,878/- was received by the assessee during
the period 2005-06 [Rs.23,30,73,275/- against bills issued (column 3 of above table) (+)
Rs.19,91,05,603/- (column 4 of above table) as advances received]. Further, whatever amount
has been received by the assessee after 2005-06 i.e. during 2006-07 to 2009-10, they have
discharged their service tax liability on such amount and it is only in this year that they claimed
that the service tax is not payable as services were export of services while there is no change
either in the nature of services rendered by them or in the legal provisions.
5.1.1 It further appears that the assesse has been receiving running advances and issuing
running invoices in respect of actual services without any correlation whatsoever in the invoices
and in the receipt of advances. The differential amount of receipts (including advances) and billing
is being shown as opening and closing balances of the advances received for rendering of
services in the Annual Accounts.
5.1.2 Whereas it appears that as on 01.04.2005 the assessee had opening balance of
Rs.5,58,87,595/- as advances received before 01.04.2005, for which the services were rendered
during the year 2005-06. The details of opening balances of advances as on 01.04.2005, details
of invoices issued during the year 2005-06, details of amount received during the year 2005-06
and closing balances of advances as on 01.04.2006 as culled out from the information submitted
by the assessee (RUD - 10 ) are as under :
TABLE B
S.No.

Description

Opening balance
of advances as on
01.04.2005
Billing done during During 01.04.2005
2005-06
30.09.2005
During 01.10.2005
31.03.2006
Amount received During 01.04.2005
during 2005-06
30.09.2005
During 01.10.2005
31.03.2006
Closing balances
as on 31.03.2006

2(a)
2(b)
3(a)
3(b)
4

Period

Amount
(in Total (in Rs.)
Rs.)
5,58,87,595/5,58,87,595/to 8,56,32,421/to 20,33,28,449/-

(-)28,89,60,870/-

to 16,71,66,067/to 26,50,12,811/19,91,05,603/-

(+)43,21,78,878/19,91,05,603/-

The said closing balance of advances of Rs.19,91,05,603/- was mentioned by the assessee as
amount received as Advances during the year 2005-06 in the FDSS (RUD -9 infra) as mentioned
in para 5.1 above.
5.1.3 Whereas it appears that the assessee had not paid any service tax on the services
rendered during 2005-06 amounting to Rs.28,89,60,870/- for which they had received a sum of
Rs.5,58,87,595/- as advances during the year 2004-05 (and shown as opening balance as on
01.04.2005) and a sum of Rs.23,30,73,275/- during the year 2005-06. They had also not paid
service tax on the amount of Rs.19,91,05,603/- [Rs.43,21,78,878 (-) Rs.23,30,73,275/-] received
during the year 2005-06 as advances for which services were rendered during the year 2006-07.
This information alongwith the service tax liability thereon is depicted in the table below:-

Page 10 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010

TABLE C
Period
during which
Service
Rendered
1
2
2005-06
Advance
received upto
31.03.2005
i.e.
during
2004-05
Amount
received
during 200506
2006-07
Advance
received
during
the
year 2005-06
but services
rendered
after
31.03.2006
Total

Amount (in Rs.)

Total (in Rs.)

3
5,58,87,595/-

Service
Tax Rate

Service Tax (in


Rs.)

5
10.2 %

6
2,94,74,008/-

12.24%

2,43,70,525/-

Rs.28,89,60,870/23,30,73,275/-

19,91,05,603/-

19,91,05,603/-

48,80,66,473/-

48,80,66,473/-

5,38,44,534/-

5.1.4 However, the assessee has explained vide their note explaining the receipts against
service rendered under Marketing Service Agreement in the year 2005-06 (RUD 11 )that against
the amount received of Rs. 48,80,66,473/- (as per column 4 of above table) they have partially
discharged their service tax liability and the payments of service tax made by them are as under
TABLE D
S.No.
1
2
3

TOTAL

Tax Paid
2,43,70,526/14,42,034/15,90,265/-

Interest paid
18,90,196/paid
vide
challan dated
05.02.2011
11,15,947/paid vide
challan dated
31.03.2011

Date of payment
31.10.2007
06.01.2011

Comments
Paid during Audit

31.03.2011

Paid during Audit

2,74,02,825/-

Hence, out of service tax liability of Rs.5,38,44,534/- as mentioned in para-5.1.3, the assessee
has discharged service tax liability of Rs.2,74,02,825/- as mentioned above. However, the

Page 11 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010
assessee has not agreed to pay balance amount of Rs.2,64,41,709/- of service tax, for the
reasons as under:
(i)

Rs.40,61,754/-: claimed that service tax of Rs.2,03,08,771/- @ 10.2% is applicable on


amount of Rs.19,91,05,603/- which was received as advance during the year whereas
they had by mistake paid service tax @ 12.24% i.e. Rs.2,43,70,525/-. Hence, an
amount of Rs.40,61,754/- has been paid in excess by them.

(ii)

Rs.2,23,79,955/-: Hit by limitation of 5 years.

It has been informed by the assessee (RUD-12) that the payment of Service Tax of Rs.
2,43,70,526/- was made by them by calculating the service tax @ 12.24% on the closing balances
of advances of Rs. 19,91,05,603/- as on 31.03.2006. It was further informed that they have
treated the services to be export earlier but on the basis of opinion taken by them they took a
stand that the services were not exports 2006-07 onwards and hence they deposited the said
service tax on the closing balances of the advances as on 31.03.2006 and started paying service
tax on such services thereafter.
5.1.5 The agreement supplied by the assessee (RUD-13) interalia defined the scope of services
as under
A-

Market Development
The service provider shall assist in the procurement of the following
Development of qualitative and quantitative market research
Development of a market plan
Design of a communication strategy

B-

Liaising with customers for obtaining feedback on behalf of the company


The service provider shall liaise with the customers of the Company on an ongoing basis
to obtain their inputs on the quantity and efficiency of the Companys products as
compared to its competitors in India. The service provider shall analyse the information so
collected and forward the same along with its comments to the company.

C.

Exploring new service lines/ventures for the Company in India


The service provider shall conduct studies to explore and identity new ventures/lines of
business plans for India. It shall also undertake studies for analyzing the feasibility and financial
viability of the identified businesses in light of the prevalent market conditions, government
policies, legal framework etc.
D.

Providing information on potential customers


The service provider shall conduct surveys/studies on the Indian telecommunications
market with a focus on the demand for the Companys services. The service provider shall also
conduct studies on potential customers, identified by the Company, with due consideration of the
following
Market standing;
Consultancy and advisory service;
Past performance and profitability;
Foreign collaborations;
Proposed business plans; and
Licenses/approval granted for undertaking telecommunications services

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
E.
Conducting study on the viability of sourcing parts and components from India and its
neighbouring countries
The service provider shall assist the company in identifying the parts and components which may
be sourced from India and neighbouring countries in light of cost efficiency, quality value of the
parts and components as a percentage of value of the entire period, prevalent regulatory policies
relating to imports and exports, etc.
The service provider shall also assist in the company in identifying and selecting suppliers for
parts and components in light of
Market standing;
Manufacturing technology employed;
Adherence to quality standards followed by the company; and
Foreign collaborations.
5.1.6 Whereas from the perusal of the above, it appears that the services are classifiable under
Market Research Services, which is a service falling under Rule 3(ii) of the Export of Services
Rules, 2005 and thus for such services to be export at least part performance of the services is a
condition for their qualification for export under Export of Services Rules, 2005.
5.1.7 Whereas from the perusal of the provisions of contract it appears that the services are
being performed in India and the fact was also not disputed by the assessee during the course of
audit. They rather tried to classify the services under Business Auxiliary Services. Further, the fact
that they themselves classified the services under Market Research Agency services w.e.f.
01.04.2006 and paid the service tax on the same and the fact that there was no change in
activity / nature of services and in legal provisions in this regard during 2005-06 and
subsequent periods indicate that the said services are rightly classifiable under Market
Research Services and thus the assessee was liable to pay service tax on the same as the
services did not meet the criterion laid down in the Export of Services Rules, 2005 for exports as
the services were performed wholly in India.
5.2
The assesse agreed with the audit objection inasmuch as the classification of the services
under Market Research services is concerned. However, they did not agree that the service tax
payable is Rs. 5,38,44,534/- (as detailed in para 5.1.3 above).
It appears that the assesse has not paid differential service tax of Rs 2,64,41,709/- (Rs.
5,38,44,534/- as detailed in para 5.1.2 Rs.2,74,02,825/- as detailed in para 5.1.4), on the
amount of Rs.48,80,66,473/- (column 4 of the Table C above) received during 2005-06 on the
following grounds as per their note received on 31.03.2011(RUD-11 supra):(i)

Rate of service tax applicable in case of advance against services The


assesse made the following contentions (a) It was contended by the assesse that from conjoint reading of Section 66 and
Section 68 of Finance Act, 1994 it emerges that Section 66 is the charging
section which provides that service tax is payable on the provision of taxable
service at the rate specified and Section 68 provides a mechanism for payment
of service tax.
(b) That a collective reading of Section 66 and Section 65(105) provides that the
taxable event of the service tax legislation gets triggered when any amount is
received for the service provided or to be provided. The taxable event gets
triggered on provision of services except in cases of receipt of advances
against services and on receipt of advances in case where service is yet to be
provided.

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
(c) In case of services yet to be provided the event of receipt of advances has
been deemed to be the taxable event and service tax needs to be paid as and
when the advances are received and consequently the rate of service tax
applicable would be the rate prevailing at the time of receipt of advances.
(d) In their case since the prevailing rate of service tax at the time of receipt of
advances was 10.2%, they were liable to pay service tax at the rate of 10.2%
and 12.24% i.e. the rate of service tax prevailing at the time of provision of
services.
(ii)

Taxability of advance against services to be provided The assesse made the


following contentions
(a) That the taxable event being the receipt of advances, in the light of limitation of
5 years prescribed under Section 73 of the Finance Act, the demand of service
tax for the period prior to 01.10.2005 is not legally justified. The receipts which
are not barred by limitation can only be made liable to tax.
(b) They provided a reconciliation sheet of tax payable (RUD-14) as under
TABLE E

S.No.
1
2
3
4
5

Particulars
Opening balance of advances as on 01.04.2005
Add : Advances received from 1.04.05 to 15.6.05
Total advances as on 15.6.2005
Less : Invoicing during 1.4.05 to 30.9.05
Net additional amount liable to tax

Amount
55887595
45335658
101223253
(85632421)
15590832

Comments
They paid service tax
on this amount along
with
interest
on
31.3.2011
Barred by limitation
of 5 years

Advances received after 15.6.05 to 30.09.05

121830411

7
8

Advances received after 30.09.05 to 31.3.06


Less : Closing balance of advances as on
31.03.2006

Net amount liable to tax

253064309
(199105603) Tax paid by them on
this amount during
October 2007
53958705
Tax paid by them on
this
amount
on
6.01.2011 along with
interest

(c) The relevant date as defined in clause (i)(a) of Section 73(6) of the Finance Act,
1994 provides that in cases where the receipts in dispute were required to be
reported in the Service Tax Return filed by them the relevant date would be the
date on which return pertaining to the period in dispute was filed/required to be
filed.
(d) That prior to 16.06.2005, the taxable event was rendering of services and
advances received till 15.06.2005 against which services were provided on or
after 01.10.2005 were liable to tax and they have paid service tax along with
interest on such advances on the basis of date of providing the services.

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I-26(494)ST/ADT./GR.A1/AMR-008/2010
(e) That w.e.f. 16.06.2005, in case of receipt of advances the taxable event was
receipt of advances and whatever amount has been received between
16.06.2005 to 30.09.2005 is barred by limitation.
5.3
Whereas, both the contentions of the assessee appear to be untenable for reasons stated
here-in-below .
5.3.1 Whereas the contention that after the introduction of the words services to be provided in
the definition of taxable services there are two taxable events does not appear to be tenable
inasmuch as the taxable event is the date of rendering service. It is an established law that
taxable event is the rendering of services (and not receipt of amount ) and the rate of service tax
applicable is the rate as in force on the date on which services were rendered. This position has
remained un-changed before and after 16.06.2005 when Section 65(105) of the Finance Act, 2004
was amended as follows :Before 16.06.2005
Section 65(105)-taxable service means any service provided
After 16.06.2005
Section 65 (105)- taxable service means any service provided or to be provided.
5.3.2 Whereas Section 68 of the Act ibid provides that every person providing taxable service to
any person shall pay service tax at the rate specified in Section 66 in such manner and within
such period as may be prescribed. In some specified cases, however, the liability to pay service
tax is on service recipient also. Section 66 of the Act is the charging section and it deals with the
levy and collection of Service Tax. It prescribes the applicable rate of service tax which is to be
levied on the value of taxable services and it also provides that the prescribed manner is to be
followed for collection of service tax. The manner of collection has been prescribed in Rule 6 of
the Rules ibid wherein it has been prescribed that the service tax is required to be paid by 5 th of
the month following the month in which the payments are received. Second proviso to Rule 6(1)
of the Rules ibid read with Boards circular no. 65/14/2003-ST dated 05.11.2009 and instruction F.
No. B1/6/2005-TR4 dated 27.07.2005 also provides that if the service was not taxable when
advance was received but became taxable thereafter, the service tax shall have be paid on that
portion of advance which is attributable to the service, to be provided after the levy of service tax.
The Board instructions F.No. B1/6/2005-TR4 dated 27.7.2005 also clarifies that when the payment
has been received in advance for services to be provided but subsequently the services are not
actually provided, then in such cases service tax paid is liable to be refunded.
5.3.3. From the foregoing, it appears that the taxable event is date of rendering of service and
service tax is liable to be paid at the rate as in force as on date of rendering such service. The
service tax, however, is required to be paid at the time of receipt of payments either after or before
rendering of service. The contention that there are two taxable events i.e. one the receipt of
advance and the other the date of rendering of service does not appear to be correct. The
contention that the receipt of advance itself is taxable event runs contrary to the provisions
contained in 2nd proviso to Rule 6(1) of the Rules ibid and Boards instructions dated 27.07.2005
referred to above. It appears that it will also lead to an absurd situation that service tax has been
levied without even rendering of service. It also leads to an absurd situation where taxable event
(and consequently the applicable rate of service tax) gets determined with the fact of receipt of
payments instead of the fact of rendering services which intention does not appears to be
legislative intent.
5.3.4 From the foregoing, it appears that there is only one taxable event i.e. the date of
rendering of service. Further, in the instant case since the services against the receipt of Rs.

Page 15 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010
19,91,05,603/- were provided in 2006-07, it appears that the assessee was liable to pay service
tax @ 12.24% and the payment made by them @ 12.24% earlier thus appears to be correct. The
subsequent claim that service tax @ 10.2% was applicable as on date of receipt of advance, and
adjustment of Rs. 40,61,754/- thus do not appear to be correct.
5.3.5 Whereas similarly the contention that the billing during 01.04.2005 to 30.09.2005 and
advance receipts between the period 16.06.2005 to 30.09.2005 are barred by limitation is also not
tenable. The service tax of Rs. 2,43,70,526/- (S.No.1 of Table D above) paid by the assesse on
31.10.2007 against the closing balances of advances of Rs. 19,91,05,603/- as on 31.03.2006
(S.No.1 of Table D above) was well within the limitation period of 5 years and the receipt of
Rs.20,74,62,832/- (Invoicing of Rs. 8,56,32,421/- (S.No. 2(a) of Table B above) during 01.04.2005
to 30.09.2005 + advances of Rs.12,18,30,411/- received during 16.06.2005 to 30.09.2005)
(S.No.6 of Table E above) does not appear to be hit by period of limitation in view of the following
reasons
(i)
The assessee has been receiving running advances from their associated
enterprises from time to time and they also have been raising bills for the actual
services provided by them from time to time. However, there was no one to one
correlation between the amount received and bills raised and no particular advance
can be treated to be against a particular bill;
(ii)
The assesse did not raise invoices as prescribed under Rule 4A(1) of the Service
Tax Rules, 1994. The rule 4A (1) ibid reads as under Rule 4A. Taxable service to be provided or credit to be distributed on invoice, bill or
challan (1
)
Every person providing taxable service shall not later than fourteen days from the
date of completion of such taxable service or receipt of any payment towards the
value of such taxable service, whichever is earlier issue an invoice, a bill or, as the
case may be, a challan signed by such person or a person authorized by him in
respect of taxable service provided or to be provided and such invoice, bill or, as
the case may be, challan shall be serially numbered and shall contain the
following, namely :(i)

the name, address and the registration number of such person;

(ii) the name and address of the person receiving taxable service;
(iii) description, classification and value of taxable service provided or to be provided ;
and
(iv) the service tax payable thereon.

5.3.6 In view of above, it appears that the amount received, bills issued and service tax paid can
be re-conciled only on the basis of first in first out basis as under :
Year

Taxable value

Rate of S.Tax
Service payable
Tax
10.2%
2,94,74,009

200506

28,89,60,870*

2006-

19,91,05,603** 12.24% 2,43,70,525

S.Tax paid

Date
of Differential
Payment
tax not paid

2,74,02,825

31.10.2007, 20,71,184/06.01.2011
and
31.03.2011
2,43,70,525/-

Page 16 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010
07
Total

48,80,66,473

5,38,44,534/- 2,74,02,825/- -

2,64,41,709/-

* Column no.2 of Table-A above (being the value of service rendered)


** Column no.4 of Table-A above (being the amount of advance received)
5.4
Whereas from the foregoing it appears that the assessee has short paid a sum of Rs.
2,64,41,709/- (including Education cess) by claiming adjustment wrongly which is not available to
them and claiming the receipts to be barred by limitation which in fact are within the limitation
period of five year as discussed above and the same is recoverable from them under Section 73
of the Finance Act, 1994 alongwith applicable interest under Section 75 of the Act ibid. The details
of the service tax and education cess payable are as under
Year

Taxable value

S.Tax
payable

E.Cess
payable

S.Tax paid

E.Cess
paid

Differential
service tax
payable

Differential
E.Cess
payable

200506

28,89,60,870

2,88,96,08
7

5,77,922

2,68,65,515

5,37,310

20,30,572

40,612

200607

19,91,05,603*

2,38,92,67
2

4,77,853

2,38,92,672

4,77,853

2,43,70,525

Total

48,80,66,473

5,27,88,75
9

10,55,775

2,68,65,515

5,37,310

2,59,23,244

5,18,465

2,64,41,709

Total
differential
tax payable
20,71,184

* Column no.2 of Table-A above (being the value of service rendered)


** Column no.4 of Table-A above (being the amount of advance received)
6.
From the foregoing it appears that the assessee has contravened the following provisions
of Service Tax, the Chapter V of the Finance Act, 1994, as amended, read with the provisions of
Service Tax Rules, 1994, as amended.
a) Section 69 of the Finance Act, 1994 as amended read with Rule 4(5A) of the Service Tax
Rules, 1994 in as much as they have failed to get their registration certificate amended by
getting the Supply of Tangible goods Services included in their registration certificate
within one month of receipt of such services;
b) Section 70 of the Chapter V of the Finance Act, 1994 as amended read with Rule 7 of the
Service Tax Rules, 1994 as amended in as much as the assessee has failed to file their
half-yearly ST-3 returns properly as required to the proper officer.
c) Section 66, 66A and Section 68 of Chapter V of the Finance Act, 1994, as amended, read
with Rule 6 of the Service Tax Rules, 1994 as amended in as much as they have failed to
(i) deposit the Service Tax on the expenses incurred in foreign currency for the period
2008-09 to 2009-10 for Supply of Tangible Goods services (ii) failed to pay service tax on
services provided by them and falling under taxable service category of Management,
Maintenance or Repair services during 2008-09 to 2009-10 and (iii) failed to pay service
tax on services provided by them and falling under Market Research Agency services.
d) Section 66 read with Section 66A of the Chapter V of the Finance Act, 1994 as amended in
as much as they failed to deposit the Service Tax on amount paid by them to associated
enterprises situated abroad being recipient of Supply of Tangible goods Services.
e) Section 91 read with Section 95 of Finance Act (No.2), 2004 & Section 136 read with
Section 140 of the Finance Act, 2007 in as much as they failed to pay Education Cess and
Secondary and Higher Education Cess at the applicable rates.

Page 17 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010

7.
Whereas the audit of the assessee was scheduled to be conducted in the month of June
2010 for which certain documents were called for by 18.06.2010 and the assessee was
accordingly given intimation vide letter dated 01.06.2010 (RUD-15). The assessee however did
not provide the information by the requisite time and requested for extension of time of one month
to provide the information vide their letter dated 07.07.2010 (RUD-16) They vide their letter dated
05.08.2010 (RUD-17) provided the information. In their FDSS (RUD-9 supra) it was informed that
they have exported services during 2005-06 for a sum of Rs. 43,21,78,878/-. However, during the
course of audit, it was observed that the services claimed by them as exports were not exports.
The fact that the said services were not eligible for benefit of export was in the knowledge of the
assessee inasmuch as they themselves started paying service tax on the amounts received
against such services w.e.f. 2006-07 and also discharged their service tax liability on the
advances outstanding as on 01.04.2006. There was no change in the provisions of Export of
Services Rules, 2005 during the period 2005-06 or 2006-07 or even afterwards inasmuch as the
law relating to export of Market Research Agency was based on performance of such services
and for claiming the benefit of export under such rules at least part performance of services was
an essential criteria to be followed. However, in the instant case there was no change either in
manner of providing the services by them or in law relating to taxability of the services inasmuch
as the services were wholly performed in India. The assessee also accepted their liability at the
instance of audit so far as taxability of such services is concerned. It thus appear that the
assessee had the knowledge that such services were taxable and while depositing the service tax
on the GTA services and Import of services prior to conduct of audit they deliberately chose not to
pay service tax on Market research services provided by them to take undue benefit of export
despite knowing that they were not eligible for claiming such benefit. They also did not pay service
tax on services of Management, maintenance or repair provided by them in respect of the
warranty services provided by them to Indian customers. They further did not pay service tax on
Supply of Tangible Goods services provided by them. All these acts and omission on the part of
assessee appears to be deliberate and the intention to evade the payment of service tax is
evident from the actions/omissions of the assessee. Their intention is also manifested from the
fact that they are taking shelter against the time limitation even though they have
acknowledged that they are liable to pay the service tax.
8.
It further appears that the assessee by doing so, had intentionally and wilfully suppressed
the facts of receiving/providing impugned taxable services and calculation of impugned value of
such taxable services and did not pay the Service Tax as applicable on such services and did not
file prescribed ST-3 returns accordingly. Thus, by not disclosing the entire facts to the Department,
the said value has escaped the assessment for Service Tax liability, resulting into contravention of
various provisions of the said Act and the said Rules aforesaid with intention to evade payment of
impugned Service Tax. The fact of receiving of these services would not have come to the notice
of the department but for the audit conducted by the department. Thus, it appears that the
provision of proviso to Section 73 (1) of the Act ibid can be invoked and thus, demand and
recovery can be made for non-payment of Service Tax for five years from the relevant date.
9.
Whereas it appears that interest is also chargeable and recoverable from the assessee,
from the due date till the date of actual deposit, under the provision of Section 75 of the said Act
on account of failure on their part to credit the due Service Tax to the Government account at
appropriate rate.
10.
It also appears that the assessee have rendered themselves liable to penal action for
aforesaid contraventions under Section 76, 77 & 78 of the said Act as the assessee have failed to
deposit the due Service Tax with the government and for various contraventions as discussed
here-in-above.

Page 18 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010

10. Now, therefore, M/s Huwaei Telecommunications (India) Company Private


Limited, JMD Pacific Square Sector-15, Near 32 Milestone, Delhi-Jaipur
Highway, NH-8, Gurgaon are required to show cause to the Commissioner, Service
Tax Commissionerate, having office located at IAEA House, 17-B, I.P. Estate (near
W.H.O. Building), Ring Road, New Delhi 110002 within 30 days of receipts of this
notice as to why:(i)

The proviso to Section 73(1) of the Finance Act, 1994 should not be invoked;

(ii)

Service tax amounting to Rs.3,07,60,301/- (Rupees Three Crore Seven Lakhs Sixty
Thousand Three Hundred and One only), Education Cess of Rs.6,15,205/- (Rupees Six
Lakhs Fifteen Thousand Two Hundred and Five only)and Secondary and Higher Education
Cess of Rs.48,370/-(Rupees Forty Eight Thousand Three Hundred and Seventy only),
totaling Rs.3,14,23,878/- as detailed in para 4.5 & 5.4 above should not be demanded and
recovered from them under proviso to Section 73(1) of Finance Act, 1994 read with
Section 66 and 68 of the Finance Act, 1994, read with Rule 6(1) of the Service Tax Rules,
1994, further read with Section 91 and Section 95 of Finance Act, 2004 and Section 136
read with Section 140 of the Finance Act, 2007 for Education Cess and Secondary &
Higher Education Cess respectively;

(iii)

Service tax amounting to Rs.44,10,236/- (Rupees Forty Four Lakhs Ten thousand Two
Hundred and Thirty Six only), Education Cess of Rs.88,205/- (Rupees Eighty Eight
Thousand Two Hundred and Five only)and Secondary and Higher Education Cess of
Rs.44,102/-(Rupees Forty Four Thousand One Hundred and Two only) totaling Rs.
45,42,543/- as detailed in para 3.6.6 above should not be demanded and recovered from
them under proviso to Section 73(1) of Finance Act, 1994 read with Section 66A and 68 of
the Finance Act, 1994 read with Rule 6(1) of the Service Tax Rules, 1994, further read with
Section 91 and Section 95 of Finance Act, 2004 and Section 136 read with Section 140 of
the Finance Act, 2007 for Education Cess and Secondary & Higher Education Cess
respectively;

(iv)

Interest as applicable should not be charged and recovered from them under Section 75 of
the Act ibid from the due date till the date of actual deposit;

(v)

Penalty under Section 76 of the Finance Act, 1994 should not be imposed upon them for
failure to pay the Service Tax in accordance with the provisions of Section 68 of the said
Act read with Rule 6 of Service Tax Rules, 1994;

(vi)

Penalty under Section 78 of the said Act should not be imposed upon them for deliberately
suppressing the facts with the intention to evade payment of Service Tax; and

(vii)

Penalty under Section 77(1)(a) and 77(2) of the said Act should not be imposed upon them
for not filing of return in violation of provisions of the Finance Act, 1994 and Rules made
thereunder and for not getting the registration certificate amended by inclusion of Business
Auxiliary services, and Supply of Tangible goods Services within the stipulated time.

12.
M/s Huwaei Telecommunications (India) Company Private Limited, are further
directed to submit a written reply incorporating all the evidences upon which they intend to reply in
support of their defence. They must also indicate whether or not they would like to be heard in
person before the case is finally adjudicated.

Page 19 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010
13.
M/s Huwaei Telecommunications (India) Company Private Limited, are further
informed that if no cause is shown against the action proposed to be taken within the stipulated
period of 30 days of the receipt of this notice or if they do not appear for personal hearing on the
date and time fixed for personal hearing, the case will be decided ex-parte, on the basis of the
evidences placed on records without any further reference.
14.
This Show Cause Notice is being issued without prejudice to any other action that may be
taken against M/s Huwaei Telecommunications (India) Company Private Limited, New Delhi,
or any other person(s)/firm (s)/company(ies) whether or not named herein under the Service Tax
Law or any other Law for the time being in force in India or any other demand of Service Tax
which may be issued to them in respect of service(s) referred to hereinabove or services other
than those covered in this notice, if any, provided by M/s Huwaei Telecommunications (India)
Company Private Limited, New Delhi, or any other person(s)/firm(s) /company(ies).
Enclosures :- (i) RUDs as above and as per list attached
Sd/(R. D. NEGI)
COMMISSIONER OF SERVICE TAX
SPEED POST/ Registered AD
M/s Huwaei Telecommunications (India) Company Private Limited,
14TH Floor, Tower C, Unitech Cyber Park,
Sector-39,
Gurgaon -122002,
Haryana
Copy forwarded for information and necessary action to:
(i)
The Assistant Commissioner, Service Tax, Div-III, Gurgaon. He is requested to issue
demand for subsequent period, if any.
(ii)
The Superintendent (Adjudication), Hqrs., New Delhi.
(iii)
Guard File.
(iv) Stationary Group (Service tax, Audit)
(v) Superintendent, Range-II, Service Tax Division III, Gurgaon

DEPUTY COMMISSIONER
SERVICE TAX

Page 20 of 21

I-26(494)ST/ADT./GR.A1/AMR-008/2010
List of Relied Upon Documents (RUDs)
S.No.
1.
2.
3.

Name of the document


Relevant portions of the financials for the period 2005-06 to
2009-10.
Note regarding equipment rentals.

Page Number
1-9
10-15
16-25

5.

Copy of purchase order (rental extension) dated 10.06.2010


placed by the assessee on M/s Living Ston U.K. Ltd. and a
Bill of entry filed for such import.
Details supplied by the assessee regarding total amount paid
in foreign currency by them as equipment rental to the
foreign entities during the period 2008-09 and 2009-10.
Write up regarding warranty expenses.

6.

Letter dated 22.03.2011 from the assessee.

29-41

7.

42-46

13.

Standard terms and conditions for supply of goods between


assessee and Huawei Singapore
Shedule 17 Note 12(Balance sheet for the year 2009-10) and
Schedule 17 and Note 14 (balance sheet for the year 200809) and details received from the party during the audit.
FDSS for the year 2005-06 to 2009-10 submitted by the
assessee during audit.
Information submitted by the assessee regarding details of
amount received during the year 2005-06 and C.B. of
advances as on 1.4.06 reg. Marketing Service Agreement
Note explaining the receipts against the services rendered
under Marketing Service Agreement in the year 2005-06
Information given by assessee reg. effective rate of S.T. on
C.B. of advances of Rs.19,91,05,603/- as on 31.03.2006
Market Support Services Agreement submitted by Assessee

14.

Reconciliation sheet of Tax payable

85-86

15.

Letter dated 01.06.2010 to the assessee.

87-89

16.

Letter dated 07.07.2010 from the assessee.

90-91

17.

Letter dated 05.08.2010 from the assessee.

92

4.

8.
9.
10
11.
12.

Page 21 of 21

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27-28

47-54
55-66
67
68-72
73-74
75-84

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