2020 (4) TMI 104 - AT - Service Tax

Tax liability on overseas legal services for M/s Ghodawat Energy Private Limited under Finance Act, 1994 provisions

The judgment addressed the tax liability on legal services provided by overseas entities to M/s Ghodawat Energy Private Limited, based on the Finance Act, ... Management of business consultancy service - Import of legal services relating to arbitration proceedings - reverse charge mechanism - Negative list - taxation of services in the hands of ‘deemed provider of service’ - extended period of limitation - HELD THAT:- From the details of Invoices, it appears that, these do not come within the purview of exclusion of charges for representation before courts or tribunals that, according to us, can be extended also to arbitral forums. The claim, made on behalf of the appellant, that only services rendered by ‘business entity’ was taxable in the pre-negative list era does not preclude the service received by the appellants from M/s Eversheds LLP from being taxed as the provider of service has been so described for the restricted purpose of excluding individuals. The issues arising from taxation of services in the hands of ‘deemed provider of service’ was, during the relevant time, fraught with doubts and assumptions and judicial light was thrown to dispel the attendant darkness only in recent times. Furthermore, as ‘deemed a provider of service’, obliged to discharge the tax liability, the appellant was entitled to avail of credit under CENVAT Credit Rules, 2004. Motive for suppression, misdeclaration or evasion of tax is, thus, not patent. Nor do we find any substance in the impugned order or show cause notice to conclude otherwise. In these circumstances, the recovery of tax on the charges paid to M/s Eversheds LLP in notices that extended beyond the normal period of limitation stands barred. Demand of service tax confirmed for the Normal Period - Adjudicating authority directed to separate the wheat from the chaff. Renting of immovable services - Held that:- The appellant had discharged liability on rental of immovable property, along with interest, before issue of show cause notice. There are no evidence of any of the ingredients that could lead to invoking of the extended period in section 73 of Finance Act, 1994. Therefore, the provisions of section 73 (3) of Finance Act, 1994 precludes further proceedings. The imposition of penalty of ₹ 7,41,600 and of ₹ 40,375 fails to find sustenance in law. Appeal disposed off. Issues:Tax liability on legal services rendered by overseas entities, applicability of Finance Act, 1994 provisions, recovery orders, imposition of penalties, tax on attorney fees, legal arguments regarding taxable services, tax on charges for environmental activities, tax on turbine assembly unit rental, tax on services provided outside India, taxation of arbitration proceedings, defense of impugned orders, CENVAT Credit Rules, liability discharge on rental property, imposition of penalties.Analysis:1. The judgment dealt with the tax liability imposed on M/s Ghodawat Energy Private Limited for legal services rendered by overseas entities. The tax liability was based on the transfer of consideration for legal services provided, leading to demands and penalties under sections 76 and 78 of the Finance Act, 1994. The appeals challenged the adjudication orders for recovery and penalties, which were addressed collectively in this common order.2. The tax liability was primarily linked to legal services provided by M/s Eversheds LLP, Singapore, for representation in the International Court of Arbitration due to a breach of contract. The tax amounts for various years were specified, and the appellant argued against the tax liability based on legal interpretations and exemptions under the Finance Act, 1994.3. The legal arguments presented focused on the definition of taxable services under the Finance Act, 1994, especially after significant changes introduced in Chapter V. The appellant contended that legal firms did not fall under the description of a 'business entity' for taxable services and highlighted exemptions and notifications relieving them from tax burdens.4. The judgment addressed the applicability of tax on services provided outside India and the interpretation of taxable territory under the Finance Act, 1994. The defense of the impugned orders argued for the inclusion of services provided by M/s Eversheds LLP within the tax ambit, citing relevant rules and notifications.5. The judgment also discussed the taxation of arbitration proceedings and disputed the tax liability on fees related to such proceedings. It analyzed the definition of 'management or business consultant' under the Finance Act, 1994, and concluded that certain charges were not liable to tax under the specified provisions.6. The judgment further examined the liability discharge on rental property and penalties imposed, finding no evidence to invoke extended periods for proceedings. The imposition of penalties was questioned, and the judgment provided a detailed analysis of the legal aspects governing the recovery and penalties imposed.7. In conclusion, the judgment remanded the matter back to the adjudicating authority for quantification of recoverable amounts based on relevant invoices. The appellant was directed to furnish details for this purpose, emphasizing adherence to the stipulated framework for further proceedings.