The Central Board of Excise and Customs (“the CBEC”) vide Circular No. 179/5/2014- ST dated September 24, 2014 (“the Circular”)has provided clarification with respect to chargeability of Service tax on transactions between a Joint Venture (“JV”) and its members post Negative List regime of Service Tax with effect from July 1, 2012 whereby all services are taxable subject to the definition of the service [available in Section65B(44) of the Finance Act, 1994], other than the services specified in the Negative list [Section 66D] and Mega Exemption Notification [Notification No. 25/2012]:-
(a) Provision of taxable services by the members of the JV to the JV and vice versa and inter se between the members of the JV
An unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons in terms of Explanation 3(a) of Section 65B (44) of the Finance Act, 1994 (“the Finance Act”) .
terms of the above explanation, the JV and the members of the JV are treated as distinct persons and therefore, taxable services provided for consideration, by the JV to its members or vice versa and between the members of the JV are taxable.
(b) Taxation of cash calls or capital contribution made by the members of the JV to the JV
Cash calls are capital contributions made by the members of the JV to the JV. If cash calls are merely a transaction in money, such transactions are excluded from the definition of service in terms of Section 65B(44) of the Finance Act.
The JV Agreement will determine whether cash call transactions are only transaction in money or consideration for taxable services. Some examples in the Circular are as follows: -·
- Cash calls in the nature of advance payment by the members to the JV for service to be provided attract Service tax.
- Payments made out of cash calls pooled by the JV, towards taxable services received from a member or a third party is in the nature of consideration and hence attracts service tax.
- Consideration received (either in cash or kind) by the member for managing the cash calls or to provide support services (e.g. administrative service in the form of setting up/ management of a project office/site office) to the JV for a consideration either in cash or kind (say, goods or services) also attracts Service tax.
(c) JV Agreement is a key to understand the taxation of transactions
JV being an unincorporated temporary association constituted for the limited purpose of carrying out a specified project within a time frame, a comprehensive examination of the various JV agreements (at times, there could be number of inter se agreements between members of the JV) holds the key to understanding of the taxation of transactions involving taxable services between the JV and its members or inter-se between the members of a JV.
RECENT CASE LAWS
Assessee not required to deposit penalty in excess of 25% of total tax amount if the service tax liability along with interest is deposited before issuance of Show Cause
Baroda Surface Protection Services Vs. Commissioner of Central Excise & ST., Vadodara [2014 (9) TMI 748 - CESTAT Ahmedabad]
Baroda Surface Protection Services (“the Assessee”) discharged the entire Service tax liability and interest before issuance of Show cause notice which was issued after the amendment brought in Section 78 of the Finance Act, 1994 (“the Finance Act”) w.e.f. May 10, 2008. Subsequently on receipt of Order-in-original, the Assessee discharged 25% amount of penalty imposed under Section 78 and also penalty under Section 77 but contested the imposition of penalty under Section 76 before the first appellate authority who rejected the appeal. The Assessee aggrieved by this order filed an appeal before the Hon’ble Tribunal.
The Department contended that imposition of simultaneous penalty under Section 76 and 78 of the Finance Act is correct as Section 78 got amended with effect from May 10, 2008 and any infringement prior to May 10, 2008 would attract both the penalties.
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