Separate permanent establishments and documentary verification govern reverse charge tax and Cenvat credit eligibility.

Foreign branch offices treated as separate permanent establishments are regarded as distinct persons under section 66A(2) of the Finance Act, 1994, so services received through those branches are not treated as services received by the Indian entity for reverse charge purposes; the described consequence is that service tax, interest and penalty were not sustainable. Disallowance of Cenvat credit based on photocopies, unauthenticated or illegible invoices may be reopened where the taxpayer claims to hold originals and seeks verification; the matter is then to be examined afresh on original documents with an opportunity of hearing before a reasoned decision on credit eligibility.

---

---

Issues: (i) Whether service tax was payable on services received through foreign branch offices treated as permanent establishments; (ii) whether the disallowance of Cenvat credit required remand for verification of documents.

Issue (i): Whether service tax was payable on services received through foreign branch offices treated as permanent establishments.

Analysis: The foreign branch offices were treated as independent permanent establishments with separate employees, clients, bank accounts, expenditure and income. Section 66A(2) of the Finance Act, 1994 provides that permanent establishments in different countries are to be treated as separate persons for the purposes of that section. On that footing, services received by such foreign establishments could not be treated as services received by the appellant in India under reverse charge.

Conclusion: The demand of service tax, together with the consequential interest and penalty, was not sustainable and was set aside.

Issue (ii): Whether the disallowance of Cenvat credit required remand for verification of documents.

Analysis: The credit was denied because the invoices produced before the adjudicating authority were photocopies, unauthenticated, or illegible. The appellant asserted possession of the original invoices and sought an opportunity to produce them for verification. In these circumstances, the matter required fresh examination by the adjudicating authority on the basis of the original documents and after giving the appellant an opportunity of being heard.

Conclusion: The disallowance of Cenvat credit, together with the consequential interest and penalty, was set aside and the matter was remanded for verification and a speaking order on eligibility of credit.

Final Conclusion: The appeal succeeded on the service tax issue and was remanded on the credit issue, resulting in partial relief to the appellant and disposal of the proceedings.

Ratio Decidendi: Where foreign branch offices functioning as permanent establishments are statutorily treated as separate persons, tax under reverse charge cannot be fastened on the Indian entity for services attributable to those establishments; disputed credit based on unverifiable documents may be remanded for fresh verification and a reasoned determination.

---