2021 (11) TMI 69 - AT - Service Tax

Export of Services Ruled, Appellant Prevails

L & T Sargent & Lundy Limited Versus C.C.E. & S.T. -VADODARA-I

The Tribunal held that services provided by the appellant to entities outside India qualified as export of services under Rule 6A of the Service Tax ... Export of services or not - consulting engineering services - export of services or not - the said two service recipients were other ‘establishments’ of the assessee - applicability of item (b) of Explanation 3 of Clause (44) of section 65 B of the Finance Act, 1994 and in terms of rule 6A of the Service Tax Rules, 1994, as inserted w.e.f. 01.07.2012 vide Notification No.36/2012-S.T., dated 20.6.2012 - services provided by the appellant to Larson & Toubro Electromech LLC (Oman) and Sargent & Lundy, USA, is exempt service or not. Whether the service recipients were ‘other establishments’ of the appellant, and, therefore hit by rule 6A of Service Tax Rules? - HELD THAT:- As per clause (44) of Section 65B of the Act. 1994 'service means any activity carried out by a person for other for consideration, and includes a declared service. Item (b) of the explanation 3 stipulates that an establishment of a person in taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Therefore, a question arises in the fact of the present case, whether the services provided by the petitioner No.1 located in India which is a taxable territory and the recipient of the service i.e. holding Company of the petitioner No.1 located outside India which is a non- taxable territory, whether both of them would be two establishments of the same Company or not so as to treat them as distinct persons liable for service tax. The services rendered by the petitioner No.1-Company outside the territory of India to its parent Company would have to be considered 'export of service' as per Rule 6A of the Rules, 1994 and Clause (f) of Rule 6A of the Rules, 1994 would not be applicable in the facts of the case as the petitioner No.1, who is the provider of service and its parent Company, who is the recipient of services cannot be said to be merely establishment so as to be distinct persons in accordance with Item (b) explanation 3 of Clause (44) of Section 65B of the Act, 1994 - Exempt services or not - services provided by the appellant to Larson & Toubro Electromech LLC (Oman) and Sargent & Lundy, USA - HELD THAT:- In the instant case, the appellant is a service provider and is a joint venture company of Larson & Toubro Ltd, an Indian conglomerate and Sargent and Lundy LLC (USA). Both Larson & Toubro Ltd and Sargent and Lundy LLC (USA) are independent registered companies in India and USA respectively. The service recipient Larson and Toubro Electromech LLC is a company registered in Oman. The said company is formed with L&T Hydrocarbon Engineering Limited holding 70% of its share capital and Modern Channels Services LLC holding 30% of its share capital - it is apparent that the appellant and service recipient are similarly placed as the service provider and service recipient in the case of M/s Linde Engineering India Private Limited decided by High Court. Consequently, LLC and Sargent and Lundy LLC (USA) cannot be treated as ‘other establishments’ of the appellant. The fundamental charge that the service recipients are ‘other establishments’ of service providers in terms of in terms of rule 6A (f) and item (b) of Explanation 3 of clause (44) of section 65B of the Finance Act, 1994 is not established. Consequently, the services provided by appellant qualify as Export of Services, under rule 6A of Service Tax Rules, 1994. Thus, as the services provided by the appellant are export of services under rule 6A of Service Tax Rules, 1994, the same cannot be called ‘exempted services’ under clause 2(e) of the Cenvat Credit Rules, 2004. Since the services provided by the appellant are not exempted services, no demand of reversal of credit can be made under rule 6 of the Cenvat Credit Rule, 2004 and no liability can be fixed on the appellant. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the services provided by the appellant to entities outside India qualify as 'export of services'.2. Whether the service recipients are considered 'other establishments' of the appellant.3. Applicability of Rule 6A of the Service Tax Rules, 1994, and relevant provisions of the Finance Act, 1994.4. Determination of whether the services are 'exempted services' under the Cenvat Credit Rules, 2004.5. Legitimacy of the demand for service tax, interest, and penalty.6. Invocation of the extended period of limitation due to alleged suppression of facts.Detailed Analysis:1. Qualification as Export of Services:The appellant, M/s L&T Sargent & Lundy Limited, provided consulting engineering services to entities located outside India, specifically M/s Larsen & Toubro Electromech LLC and M/s Sargent & Lundy LLC. The appellant did not charge service tax on these services, treating them as export of services. The Revenue contended that these services did not qualify as export because the recipients were considered 'other establishments' of the appellant under item (b) of Explanation 3 of Clause (44) of section 65B of the Finance Act, 1994, and Rule 6A of the Service Tax Rules, 1994.2. Consideration as 'Other Establishments':Revenue argued that despite being registered as separate entities in their respective countries, the service recipients were 'other establishments' of the appellant. The criteria for being 'any other establishment' does not depend on the place of registration but on the relationship between the entities.3. Applicability of Rule 6A and Relevant Provisions:Rule 6A of the Service Tax Rules, 1994, outlines the conditions under which services are considered exported. One critical condition is that the provider and recipient of the service must not be merely establishments of a distinct person. Revenue alleged that the services provided by the appellant did not meet this condition.4. Determination of Exempted Services:Revenue asserted that the services provided by the appellant were exempted services under sub-clause (2) of clause (e) of Rule 2 of the Cenvat Credit Rules, 2004, as they were provided in a non-taxable territory and no service tax was leviable under section 66B of the Finance Act, 1994. Consequently, the appellant was required to reverse the Cenvat Credit availed on these exempted services.5. Legitimacy of Demand for Service Tax, Interest, and Penalty:The Original Adjudicating Authority confirmed the demand for service tax, interest, and penalty, alleging that the appellant did not maintain separate accounts for input services used for exempted and taxable services. The extended period of limitation was invoked due to alleged suppression of facts and willful misstatement in the ST-3 returns.6. Invocation of Extended Period of Limitation:The extended period was invoked on the grounds that the appellant suppressed vital facts with the intention to evade service tax. The appellant argued that there was no suppression or misdeclaration on their part, and thus, the extended period should not have been invoked.Judgment Analysis:The Tribunal found that the facts were not in dispute regarding the provision of services to entities outside India without charging service tax. The primary issue was whether the service recipients were 'other establishments' of the appellant, which would disqualify the services as exports under Rule 6A.The Tribunal referred to a similar case decided by the High Court of Gujarat in M/s Linde Engineering India Pvt. Ltd. vs Union of India, where it was held that the service provider and recipient, being independent legal entities, could not be treated as establishments of the same company. Applying this precedent, the Tribunal concluded that Larson & Toubro Electromech LLC and Sargent & Lundy LLC (USA) were independent entities and not 'other establishments' of the appellant.Consequently, the services provided by the appellant qualified as export of services under Rule 6A of the Service Tax Rules, 1994. As these services were considered exports, they could not be classified as exempted services under clause 2(e) of the Cenvat Credit Rules, 2004. Therefore, no demand for reversal of credit or liability could be imposed on the appellant.The Tribunal set aside the impugned order, concluding that the demand for service tax, interest, and penalty could not be sustained. The appeal was allowed, and the judgment was pronounced in the open court on 26.10.2021.