2024 (6) TMI 1330 - AT - Service Tax

Revenue's appeal dismissed on subsidiary company's service tax liability for USA entity's Indian office services

Commissioner of Central Tax Rangareddy-GST Versus Deloitte Consulting India Projects LP

Commissioner of Central Tax Rangareddy-GST Versus Deloitte Consulting India Projects LP - TMI Issues Involved:1. Whether DCIPLP, Hyderabad is liable to pay Service Tax for services rendered by its parent company in the USA.2. The interpretation of statutory provisions under Section 65B of the Finance Act, 1944, particularly explanations 3(b) and 4.3. The reliance on Annual financial statements and other documentary evidence to establish Service Tax liability.4. The distinction between the parent company and its representational office for Service Tax purposes.5. The applicability of Service Tax on the income reflected in the financial statements of DCIPLP, Hyderabad.Issue-wise Detailed Analysis:1. Liability of DCIPLP, Hyderabad for Service Tax:The Original Adjudicating Authority concluded that DCIPLP, Hyderabad is not liable to pay Service Tax as there was no evidence of any service provided by DCIPLP, Hyderabad to DTTIPL, nor any consideration received. The invoices were raised by DCIPLP, USA directly on DTTIPL, and DTTIPL paid Service Tax under the reverse charge mechanism (RCM) on services received from DCIPLP, USA. The Department's argument that services were provided by the parent company through the Indian office was not supported by corroborative evidence.2. Interpretation of Section 65B of the Finance Act, 1944:The judgment examined explanations 3(b) and 4 of Section 65B(44) of the Finance Act, 1944. Explanation 3(b) treats establishments in taxable and non-taxable territories as distinct persons, while explanation 4 treats a business carried out through a representational office as having an establishment in that territory. The Tribunal held that merely being treated as an establishment does not subject DCIPLP, Hyderabad to Service Tax in the absence of any activity carried out for consideration.3. Reliance on Annual Financial Statements:The Adjudicating Authority noted that the financial statements reflecting income from DTTIPL and the discharge of income tax and provident fund dues were not sufficient to establish Service Tax liability. The Department's reliance on these statements without corroborative evidence was deemed inadequate. The judgment referenced the case of Lea International Ltd vs CST, Delhi, which held that accounting practices for compliance with Income Tax laws do not automatically imply Service Tax liability.4. Distinction Between Parent Company and Representational Office:The Tribunal upheld the Adjudicating Authority's conclusion that DCIPLP, Hyderabad, as a representational office, was not engaged in providing any business activity that could be termed as a provision of service. The Department's argument to treat the parent company and the representational office as one entity for Service Tax purposes was rejected, as it contradicted the distinct person treatment under explanation 3(b).5. Applicability of Service Tax on Income Reflected in Financial Statements:The Tribunal agreed with the Adjudicating Authority that the income reflected in the financial statements of DCIPLP, Hyderabad, did not constitute consideration for any service provided. The mere reflection of income for compliance with statutory provisions did not establish a Service Tax liability. The case law of Samsung India Electronics Pvt Ltd vs CE & CGST, Noida was cited, emphasizing that Service Tax liability cannot be imposed on the same transaction twice.Conclusion:The Tribunal found no infirmity in the Order of the Adjudicating Authority, which dropped the demand for Service Tax against DCIPLP, Hyderabad. The appeal filed by the Revenue was dismissed, and the cross-objections filed by the Respondent were disposed of accordingly. The judgment underscored the necessity of clear evidence of service provision and consideration received to establish Service Tax liability.