2026 (3) TMI 913 - AT - Service Tax

Reverse charge liability for cross border reimbursements requires proven receipt of specified services in India; absent that, no tax arises.

Whether cross border reimbursements and payments to overseas branches or foreign vendors attract reverse charge under Section 66A(2) was examined by ... Taxability of services received in India under Section 66A - reimbursements and fund transfers made by the assessee to its overseas branches or payments to foreign vendors - reverse charge - Burden on Revenue to prove receipt of service in India - Services rendered and consumed abroad. Whether reimbursements and payments made to overseas branches and foreign service providers amounted to receipt of taxable services in India and attracted service tax under Section 66A - HELD THAT:- The Commissioner in the impugned order on perusal of the Master Service Agreement entered into between the appellant having its principal office at Bangalore and branch office at California, USA on the one hand and M/s. Empower Consulting Services, California USA and another agreement with M/s. Info Objects Inc; observed that M/s. Info Objects Inc. were supplying skilled manpower to the overseas branch of the appellant which was also evident from the invoices raised on the appellants branch office at California. Similarly, the appellants branch office renders software development and maintenance services to the clients abroad. Thus, from the agreements and that invoices it is seen that the services are rendered and received outside India and hence not liable to tax. We also find that in the reply to the show-cause notice, the respondent had clearly stated that in order to keep the branches functional, certain amounts are transferred for expenses such as rent, electricity bills, telephone and internet expenses etc.; thus, explaining that the amounts transferred were on account of operational expenses and not against any services rendered by them. Though the Commissioner has in detail based on facts and agreements explained the circumstances under which the payments were made, nothing is forth coming from the Revenue to dispute these facts. Therefore, we are in agreement with the reasoning given in the impugned orders and accordingly, we uphold the order of the Commissioner. Following the settled decisions in the case of Infosys Ltd. Versus Commissioner of Service Tax, Bangalore [2014 (3) TMI 695 - CESTAT BANGALORE] and KPIT Cummins Infosystems Ltd. Versus Commissioner of C. EX.[2013 (12) TMI 792 - CESTAT MUMBAI] and based on the detailed observations of the Commissioner in the impugned orders, we do not find any merit in the appeals filed by the Revenue. Final Conclusion: The Tribunal upheld the Commissioner's orders holding there was no evidence of receipt of taxable services in India and, on the Revenue's failure to prove the taxable event, dismissed the appeals. Issues: Whether reimbursements and fund transfers made by the assessee to its overseas branches or payments to foreign vendors constituted receipt of taxable services in India attracting liability under Section 66A(2) of the Finance Act, 1994 (reverse charge) for the periods in issue.Analysis: The question required determining if any service specified under Section 65(105) of the Finance Act, 1994 was provided from outside India and received in India such that the provisions of Section 66A(2) would apply. The impugned orders examined documentary evidence including agreements and invoices and the nature of payments (operational reimbursements, payments from export earnings/EEFC, and invoices raised on foreign customers). The Commissioner found no evidence that overseas branches rendered taxable services to the assessee in India or that benefits of services rendered abroad were received in India. Reliance was placed on the amended legal framework concerning place of provision (post 01.07.2012), the scope of 'business support service' under Section 65(104c) of the Finance Act, 1994, and precedent holdings that liability under reverse charge arises only where receipt of service in India by a person situated in India is established. The analysis also considered export of service principles under Rule 3 of the Export of Service Rules, 2005 and consistent appellate authority reasoning that payments made/from export receipts and services consumed abroad do not give rise to service tax liability in India absent evidence of receipt/consumption in India.Conclusion: The appeals filed by the Revenue are dismissed and the impugned orders dropping proceedings are upheld; no service tax liability is sustained on the reimbursements and payments challenged, in favour of the assessee.