2018 (11) TMI 32 - AT - Service Tax

Tribunal rules on service tax exemption, CENVAT credit, and reverse charge mechanism in recent case.

The Tribunal ruled in favor of the appellant on points related to the qualification of services provided to foreign network firms as Export of Services ... CENVAT Credit - Rule 6(3)(c) of CENVAT Credit Rules, 2004 - invocation of extended period of limitation - export of services or not - Services provided by the appellant to the foreign network firms and other foreign companies and the consideration for such services collected in convertible foreign currency - Form F-3 - Services procured from foreign Chartered Accountants Firm - reverse charge mechanism - exempt service provided or not? Services provided by the appellant to the foreign network firms and other foreign companies and the consideration for such services collected in convertible foreign currency - Export of Services under the Export of Services Rules, 2005 - period involved was April 2005 to September 2008 - Whether the services provided by the appellant to foreign network firms and other foreign companies for a consideration collected in convertible foreign exchange would be qualified for export services under export of services rules 2005 or otherwise? - Held that:- It is undisputed that the appellant herein rendered services to their overseas network entities as well as to their clients located outside India and the consideration for such services was collected in convertible foreign currency. The findings of the adjudicating authority is that the services rendered by the appellant are in the form of auditing and accounting of various entities situated in India but had only forwarded the certificate to the foreign entities which is not service rendered outside India; it is also finding that the services are rendered to foreign clients, but performed wholly within India - the activity undertaken by the appellant herein in this appeal would definitely qualify for as export of services and no service tax liability arise - demand set aside. Services provided to Satyam Computer Services Ltd. in respect of certification of Form F-3 which is required tobe filed before the US Securities and Exchange Commission (SEC) - exemption under N/N. 58/89-ST, dated 16.10.1998 - Held that:- The certification service by a Chartered Accountant was not included in the 11 services enlisted in Notification No. 59/98 (supra) which were taxable. And hence, the certification service being not included in the 11 services so mentioned was clearly exempt in terms of the said notification till 28.02.2006 - demand not sustainable. Chartered Accountants’ Service - reverse charge mechanism - Held that:- The definition is an inclusive one and a very wide inasmuch as it includes any concern rendering services in the field of chartered accountancy. In the case in hand, it is undisputed that appellant herein had availed the services rendered by PricewaterhouseCoopers USA and U.K, in the areas of accounting and auditing and various other functions related to chartered accountant services. In our view, the definition of practicing chartered accountant, the emphasis is on the membership of Institute of Chartered Accountants of India and certificate of practice granted under the provisions of Chartered Accountants Act, 1949 (38 of 1949) may not apply to the appellant as the second part i.e. inclusive part is emphasizing on independent concern engaged in rendering chartered accountancy services. It can be noted that the second part of the definition does not talk about requirement of the concern being Indian or otherwise. So, in our view, it applies to all concerns whether it is in India or abroad - if the associated concern is situated abroad and engaged in rendering services in the field of chartered accountancy, will get covered under the definition of ‘practicing of chartered accountants’ and in our view the demand confirmed by the authorities is sustainable and accordingly appeal to this extent is rejected. Applicability of mischief of Rule 6(3) of the CENVAT credit rules 2004 - appellant claims that they have not provided any exempted services during the relevant period - Held that:- The taxable services related to accounting and auditing are not exempted and the claim of the assessee has been that they have never sought exemption from the services under the said notification No. 59/1998. The provisions of notification No. 25/2006-ST, dt. 30.07.2006 is for seeking exemption for the amount received as consideration for appearances before the statutory authorities in the course of proceedings initiated under any law for the time being in force by way of issue of notice. It is the submission that this benefit of notification No. 25/2006 was also not claimed by the appellant during the relevant period in question. Nothing adverse is recorded in the adjudication order on this claim made by the appellant - demand not sustainable. Time limitation - Held that:- As regards the question of limitation, we hold against the appellant at point no. 3(c), we find that appellant being practitioner in Service Tax, should have discharged the service tax liability on their own and can not take the shelter under the bonafide belief for claiming relief under limitation. Appeal allowed in part. Issues Involved:1. Qualification of services provided to foreign network firms as Export of Services under the Export of Services Rules, 2005.2. Eligibility for exemption from service tax for services provided to Satyam Computer Services Ltd. under Notification No. 58/89-ST.3. Tax liability under reverse charge mechanism for services procured from foreign Chartered Accountants Firm.4. Applicability of Rule 6(3) of the CENVAT Credit Rules, 2004 for availing CENVAT credit without maintaining separate accounts.Issue-wise Detailed Analysis:1. Qualification of services provided to foreign network firms as Export of Services under the Export of Services Rules, 2005:The Tribunal addressed whether the services provided by the appellant to foreign network firms and other foreign companies, with consideration collected in convertible foreign exchange, qualified as Export of Services. The appellant argued that the services rendered to entities outside India and the consideration received in foreign currency should be considered as Export of Services. The adjudicating authority had held that these services did not qualify as Export of Services since they were performed in India. However, the Tribunal referred to the case of B.A. Research India Limited, which stated that the performance of a service is not complete until the report is delivered to the client outside India. The Tribunal concluded that the services rendered by the appellant qualified as Export of Services, and thus, no service tax liability arose.2. Eligibility for exemption from service tax for services provided to Satyam Computer Services Ltd. under Notification No. 58/89-ST:The appellant provided certification services to Satyam Computer Services Ltd. for filing Form F-3 with the US Securities and Exchange Commission. The adjudicating authority categorized these services as auditing and accounting, making them liable for service tax. The appellant contended that certification services and issuance of comfort letters did not amount to auditing or accounting. The Tribunal agreed with the appellant, stating that certification work does not equate to auditing. The Tribunal held that the services provided were exempt under Notification No. 59/1998-ST, which exempts services other than 11 specified categories. Thus, the demand for service tax on this account was set aside.3. Tax liability under reverse charge mechanism for services procured from foreign Chartered Accountants Firm:The appellant argued that services procured from PricewaterhouseCoopers USA and UK should not be taxed under the reverse charge mechanism for the period before 18.04.2006, as Section 66A of the Finance Act, 1994 was not applicable then. The Tribunal agreed, citing the Indian National Shipowners Association case, which clarified that reverse charge mechanism applies only post 18.04.2006. For the period post 18.04.2006, the appellant contended that PricewaterhouseCoopers did not fit the definition of 'practicing chartered accountant' under Section 65(83) of the Finance Act, 1994. However, the Tribunal noted that the definition includes any concern engaged in rendering chartered accountancy services, irrespective of location. Thus, the Tribunal upheld the service tax demand for the period post 18.04.2006.4. Applicability of Rule 6(3) of the CENVAT Credit Rules, 2004 for availing CENVAT credit without maintaining separate accounts:The revenue authorities argued that the appellant did not maintain separate accounts for taxable and exempted services, thus violating Rule 6(3)(c) of the CENVAT Credit Rules, 2004. The appellant contended that they did not provide any exempted services during the relevant period and that all services provided were taxable. The Tribunal found that the revenue authorities failed to prove that the appellant rendered exempted services. Additionally, the Tribunal noted that the appellant consistently disclosed all required information in their returns. Consequently, the Tribunal held that the demand under this head was unsustainable and set it aside.Conclusion:The Tribunal allowed the appeals on points 3(a), 3(b), and 3(d), setting aside the demands, interest, and penalties. However, it upheld the demand on point 3(c) for the period post 18.04.2006, confirming the service tax liability under the reverse charge mechanism. The Tribunal did not address the question of limitation for points allowed on merits but held against the appellant on limitation for point 3(c). The demands, interest, and penalties for points upheld were confirmed.