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Sets Aside ₹22.84 Crore Service Tax Demand Against HCL Infosystems on Limitation
A three-and-a-half-year delay in issuing a proved fatal for the Revenue, as the Allahabad bench of the struck down a ₹22.84 crore service tax demand against HCL Infosystems Ltd., along with interest and penalties.
In a detailed ruling pronounced on , the Tribunal, comprising Judicial Member P. K. Choudhary and Technical Member K. Anpazhakan, allowed the appeal filed by the company against the Order-in-Original dated passed by the . The demand covered the period July 2010 to June 2015 and was spread across five distinct counts—from reimbursement of employee costs by group companies to amounts received from Intel Corporation under its "Intel Inside" programme.
The Genesis: An Audit That Sat Dormant for Years
The dispute traces back to a special audit of HCL Infosystems' accounts conducted under , between , covering April 2011 to February 2012. The department communicated its objections to the company in , sought further details in , and received responses by .
Then—silence. For nearly three years, the company heard nothing from the Department. It was only on that the finally arrived, proposing a service tax demand of ₹22,84,80,700. The demands were classified under various service categories, including Business Support Services, Commercial Coaching & Training, Advertising Agency Service, and Comprehensive Service & Maintenance Contracts (CSMC).
What Was at Stake: Five Heads of Demand
The revenue's case rested on five distinct issues:
- Reimbursement of employee operating costs by group companies (₹21.80 lakh) under Business Support Services
- Print services involving multi-function printers installed at customer premises (₹1.74 crore) under Business Support Services
- Reimbursements from Intel Corporation under the 'Intel Inside' programme (₹35.34 lakh) under Advertising Agency Service
- Supply of courseware material to Career Development Centers (₹1.27 crore) under Commercial Coaching & Training Services
- CSMC services covering maintenance of equipment (₹19.26 crore), where the department denied the benefit of
The Company's Stand: Multiple Protective Layers
HCL Infosystems argued each head of demand on multiple grounds. On employee cost reimbursements, it contended that group companies had never "outsourced" any business functions—an essential ingredient for Business Support Services. On print services, the company argued the transaction amounted to a "" involving , falling outside the service tax net. The courseware sale, it said, was merely a supply of goods to independent service providers, not a provision of coaching services. As for the Intel logo, HCL maintained it merely printed and displayed a logo supplied by Intel, with no role in conceptualising or designing any advertisement.
The company also raised a jurisdictional challenge: for the period after , the continued to invoke the erstwhile Section 65(105) categories even though the had replaced them. And on limitation, it argued that the department had all relevant information since 2012—rendering the belated October 2015 notice time-barred for demands up to .
"Merely Sharing Expenditure" Is Not a Taxable Service
The Tribunal accepted HCL's arguments on the employee cost reimbursements, finding that the group companies had not outsourced any business functions. Critically, it relied on , which clarifies that only "outsourced services" fall within Business Support Services. The Bench also drew support from the 's decision in , where the Apex Court held that mere sharing of expenditure between related entities does not constitute provision of a service.
The court emphasised that —which sought to include expenditure incurred by service providers—was struck down as by the in , and this principle applied squarely to the present case.
Print Services: A , Not a Taxable Service
On the multi-function printer arrangement, the Tribunal applied the five-attribute test laid down by the in
for determining
"
"
. It held that the printers were delivered and installed at customer premises, remained under the customer's exclusive control during the contract period, and could not be used by any other party simultaneously. The transaction therefore qualified as a
under
, outside the purview of service tax. The value of toner, spare parts and consumables—on which VAT had already been discharged—was also held eligibable for exclusion under
.
Intel Logo: Display Without Design Is Not Advertising
One of the most notable findings concerned the "Intel Inside" programme. The department had treated reimbursements received from Intel as consideration for advertising agency services. The Tribunal disagreed, holding that the term "advertising agency" requires engagement in making, preparing, displaying, or exhibitting advertisements—with the itself having clarified that only those involved in designing, visualizing, and conceptualizing advertisements are liable.
"We hold that the activity of mere printing, displaying etc. of the 'Intel' logo would not qualify as 'advertising agency services' and thus, no service tax is levible on the said transaction."
The Bench noted that Intel supplied the logos, and HCL had no role in their design or conceptualisation. Since the mere display of a supplied logo does not constitute advertising service, the ₹35.34 lakh demand was set aside.
CSMC: The That Could Not Be Denied
On the ₹19.26 crore demand relating to CSMC services, the department claimed HCL had arbitrarily deducted 80% of the gross amount as the value of goods sold. The Tribunal, however, found that HCL had supplied toner, developers, spares, and other consumables during maintenance work, had paid appropriate VAT on those goods, and had not availed —fulfilling all conditions of .
Citing the 's decision in , the Tribunal held that once VAT/Sales Tax had been paid on the goods component, demanding service tax on the same transaction was untenable.
"Once VAT/Sales Tax has been paid on the said transaction, then the demand of service tax on the same transaction is untenable."
A Fatal Delay: Limitation and the Non-Existent Provision
The Tribunal devoted significant attention to two fundamental flaws in the department's case. First, the was issued on , although the special audit—which formed the entire basis of the case—had been conducted in 2012. The department sat on the information for three and a half years without explanation.
"We concur with the submissions of the appellant the Department had no reason whatsoever for the belated issuance of the impugned SCN after an inordinate gap of almost 3 years for demanding Service Tax from July '10 onwards. Such a lethargic action on the part of the Department is fatal for the impugned order and the same is liable to be set aside on this ground alone."
The demand up to was therefore held barred by limitation.
Second, for the post- period, the department had confirmed demands under —a provision that ceased to govern taxable services after the advent of the . Following the decisions in , , and , the Tribunal held that a demand based on a non-existent provision cannot be sustained.
"The demand of service tax confirmed for the period from 1.7.2012 to , by invoking a non-existent provision of law is untenable and the same liable to be set aside on this ground itself."
The Final Word
With the underlying demands falling on multiple independent grounds, the Tribunal set aside the impugned order in full. Since the demands themselves failed, the question of interest or penalty did not arise, and both were quashed as well.
The ruling reinforces several enduring principles of indirect taxation: mere reimbursement or sharing of costs between group entities does not automatically constitute a taxable service; transfer of the right to use goods may constitute a ; and the value of goods on which VAT has been discharged cannot be subjected to service tax contrary to the statutory exemption framework. It also serves as a reminder to the Revenue that undue delay in issuing show cause notices—after all information is already in hand—can prove fatal to the entire demand.
The appeal was allowed with consequential relief, if any, as per law.
