Tuesday 10 December 2013

Sodexho Meal Vouchers promote sale of goods & services - they are not similar to credit/debit cards - Appellant is providing business auxiliary service to its affiliates, hence ST demand correctly confirmed - Appeal dismissed: CESTAT

BRIEF facts of the case are that the applicants are issuing meal and gift vouchers to corporate clients.
This is how the voucher system works - The assessee is in the business of issuing meal/gift coupon vouchers. The assessee has large number of affiliates.These affiliates are different business entities such as restaurants, eating places and other establishments who have agreed to accept the vouchers of the assessee as payment for goods or services provided by them. The assessee entered into an agreement with such affiliates.

After providing goods or services to the user, these meal/gift vouchers are presented to the assessee by the affiliates who, after deducting certain amounts as service charge , make payment for the face value of the vouchers.

The assessee approaches various customers who are generally in business, public and private organizations,and who wish to make benefits in kind available to the employees. The assessee entered into agreement with such customers. The customers as per their requirement purchase the meal vouchers from the assessee. The assessee charges in addition to the face value of the meal vouchers certain amount as service charges as also delivery charges.The customers, in turn, distribute such meal vouchers to their employees as per the terms of the employment.

The employeesuse such vouchers for purchase of food from one of the affiliates. These vouchers are not honoured by the business establishment in general but only by the affiliates of the assessee. Thus the user has no option but to purchase the goods and other services from one of the affiliates of the assessee. One of the advantages of this system is that such meal vouchers are considered as fringe benefit for employees. The value of such vouchers is therefore, not taxable in the hands of user under the Income Tax law. For the customer it becomes expenditure and this helps in saving taxes. Similar to the meal vouchers, the assessee also issues gift vouchers which can be used for purchase in book shops, music shops and other departmental shops which are their affiliates.

The adjudicating authority dropped the proceedings relating to the service charges collected from the customers but confirmed the demand relating to the service charges collected from affiliates.

Against the confirmed demand, the applicant had sought a Stay from the Tribunal on the ground that the said definition of Business Auxiliary Services as being enumerated in section 65(19) of the Finance Act, 1994 is not applicable as they are not promoting or marketing and, at the most, the services rendered by them may be covered under Section 65(33A) ["credit card, debit card, charge card or other payment card service"] or 65(104C) ["support services of business or commerce"] of the Finance Act, 1994, both of which were introduced with effect from 01.05.2006 and they have already taken service tax registration under section 65(104C) and were discharging service tax liability from 1.5.2006.

Reliance was placed in this regard on the decisions in TrumacEngg. - 2008-TIOL-198-CESTAT-AHM and Cameo Corporation Service - 2008-TIOL-1084-CESTAT-MAD .

The Bench after considering the submissions observed that the very same services as has been provided by the applicant is included in the ‘Business Support Services' and has been introduced with effect from 1.5.2006 under sub-section 104C of Section 65 of the Finance Act, 1994. Finding strong force in the submission that once specific services are introduced as taxable from a particular date then the same could not get covered in earlier services, as held by the Tribunal in the case of TrumacEngg , the Bench observed that the applicant has made out a prima facie case for waiver of pre-deposit of the amounts involved.

Accordingly, the application for waiver of pre-deposit of the amounts involved was allowed and recovery thereof stayed till disposal of the appeal. See 2008-TIOL-1860-CESTAT-MUM.

But that is an old story - Fortunes fluctuate and one cannot presume the direction in which way the appeal would travel merely because the stay application was allowed.

The appeal was heard recently along with the appeal filed by the Revenue against the dropped portion of the demand and proportionate penalty on the confirmed amount.

And the Bench after going through the definition of BAS w.e.f 10.09.2004 observed -

Whether Sodexho Meal Vouchers promote sale of goods/services? -

+ In the present situation, user/employee does not purchase the meal vouchers. It is his employer who purchases such meal vouchers from assessee. User employee has no say in this process. When a user/employee gets such meal vouchers from his employer (assessee's customer), the user has to look the list of affiliates and thereafter approach one of the affiliates of the assessee to buy goods and services. The user cannot approach any other entity or business establishment but to limit himself to the affiliates of the assessee. In our view, such a scheme/restrictions viz. purchase of vouchers by employer and purchaser of goods and services by employee from affiliates itself promotes the sale of goods and services of the affiliates and therefore meal vouchers of the assessee definitely helps in promoting sale of goods and services of assesses affiliates.

The assessee, therefore, are providing business auxiliary service to its affiliates.

Whether Sodexho Meal vouchers are similar to credit/debit cards? -

+ Credit/debit card are nothing but substitute of carrying the cash by an individual. The credit/debit card holder directly pays to the bank and the bank in turn pays the amount to the shop and establishment. Thus, in case of credit/debit card, the user has wide option to go practically to any business establishment and buy any goods or service. In the case of assessee' voucher, user is constrained to go and buy goods/services from the assessee's affiliates. In case of credit/debit card, card holder pays to the bank. Further in case of voucher, it is not the user who pays to the assessee but it is the employer of the user who pays to the assessee. Further, it is common that certain percentage of vouchers purchased by customers and in turn given to user/employee are never used (due to expiry date or user has forgotten to use such vouchers etc.) but appellant still gets and retain value of such vouchers. In credit/debit card, card holder pays only for the goods & services purchased. Moreover, when a user presents such meal vouchers to an affiliate and if value of goods and services availed in less than the value of vouchers, he does not get refund and excess amount is retained by affiliates. No such thing happens in credit/debit card. In India, the above voucher system is used mainly to save tax.

Therefore, meal voucher cannot be compared with credit/debit cards and cannot be called a payment system which is true for the debit/credit card. Vouchers are definitely not substitute for carrying cash as is the case with credit/debit card. In fact, in real life value of such meal vouchers is limited to two thousand per month per employee.

On the submission by the appellant that they are paying service tax under Business Support service with effect from 1.5.2006 and, therefore, it cannot be covered under any other entry, the Bench observed that since it has held that services provided by the appellant are covered under BAS and at the relevant time BSS was not in existence, it is unnecessary to go into any further discussion on this issue.

The Bench also distinguished the case laws cited by the appellant and also upheld invocation of extended period of limitation. In the matter of imposition of penalty, the CESTAT observed that since no attempt was made by the assessee to ascertain their tax liability from the department before the investigation started, there is no reason to hold that the assessee had bonafide belief and accordingly held that penalty was correctly imposed.

In the matter of the Revenue appeal against the dropped portion of the demand pertaining to the service charges collected from the customers , the Bench observed that the SCN itself invoked clause (vi) of the definition of BAS and which the appellant was put to notice and, therefore, coverage under clause (iv) cannot be raised before the Tribunal. Inasmuch as by holding that the adjudicating authority was not expected to expand the scope of the SCN, the Revenue appeal was rejected.

So also, the CESTAT held that the adjudicating authority appeared to have missed the amount of Education Cess while imposing penalty under section 78 and, therefore, the Revenue appeal was allowed to the said extent.

The appeal filed by the assessee was dismissed

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