TaxTMI 
TaxTMI 
2015 (9) TMI 1097
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....e appellant, a subsidiary of M.s General Motors Corporation USA, is a manufacturer of vehicles and, for the production of Spark (M-200) and Beat (M-300), has contracted to receive technical know-how under agreement with M/s General Motors Daewoo Automotive Technologies (now known as General Motors Korea) and M/s General Motors Global Technology Operations, both also being subsidiaries of M/s General Motors Corporation. These are, therefore, associated enterprises of the appellant who provide "intellectual property service". As the service-providers are based outside India, it devolves on the appellant to discharge tax liability under "reverse charge mechanism" in accordance with section 66A of Finance Act, 1994. For the period from April 2009 to June 2010, the appellant paid tax of Rs. 73,16,277 and Rs. 79,03,346 as well as R&D cess of Rs. 71,30,045 and Rs. 76,73.150 for the two models. For the period from July 2010 to December 2011 the appellant paid Rs. 1,23,58,700 and Rs. 2,22,61,151 as well as R&D cess of Rs. 1,19,73,073 and Rs. 2,14,95,302 for the two models. The differential tax demanded in the show cause notice was Rs. 87,36,601 and Rs. 87,27,177 for the earlier period and R....
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....rned Counsel for the appellant, it would appear that the intent in the deeming provision of Rule 6 is limited to debiting the account of the supplier in the books of the recipient for services rendered by associated enterprises and that such addition is mandated only in conjunction with actual payment if such accounting entries have been made. It is his submission that such inclusion is not contemplated except as a supplement to payments made. Other submissions in the appeal memorandum were also elaborated upon. The learned Departmental Representative reiterated the provisions of the statute relied upon by the original authority. 6. We have given careful consideration to the grounds of appeal and the submissions made by the two sides. The issue in dispute, as we see it, are (i) the point at which the tax liability crystallizes in the peculiar circumstances of the service provided to the appellant and (ii) the relevance of the entries made in the books of accounts of the appellant in valuation of taxable service. Before we proceed to record our findings on these two issues, the nature of the service and the accounting system needs to be articulated for a proper appreciation of th....
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....quirements, such enhancement or depletion could impact debtors' or creditors' balances too in the short-term. Consequently, every contracted transaction may well comprise a series of such double entries with their own distinct debits and credits. The aspect to be borne in mind is that accounting entries are mere reflections of the stages that the prudent accountant considers to be important enough to be recorded at any given point in time with the financial impact of the transaction revealing itself at a much later point in time. To label the last entry as the only one intended by the legislature without a specific articulation to that effect would not be proper interpretation of the provisions. The booking of royalty every month has a credit and debit entry just as the reversal at the end of each quarter, as well as the fresh booking at the end of the quarter, does - there are, thus, three debits and three credits for the royalty over a quarter. The existence of both debit and credit entry for royalty dues for each month is, therefore, unquestionable. Simply put, debit and credit are mutually exclusive terms but used in conjunction by the accountant. 9. From the above, ....
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....ve been effected. Much as the appellant would like to alienate the book-keeping entry from the deeming provision on the ground that such entry is merely for internal management reporting, it cannot be denied that the transaction has found a place in the books. Such an attempt to alienate is also not acceptable when the production of each unit utilizing the provided technical know-how is the actual destination of the service and such utilization becomes the taxable point with tax liability to be discharged at the moment most proximate to booking of compensation as laid down in Rule 6 of Service Tax Rules, 1994. Royalty may be paid by appellant to providers of know-how at frequencies scheduled in the contract but the deemed payment by passing of book entries overrides the relevance of actual payment. That the management reporting system placed emphasis on monthly booking of royalty accruing is also indicative of the importance of such monthly entries from the stake-holders perception even if the contracted moment of compensation was later. 11. The learned Counsel for appellant contends that the scope of the Explanation is not extendable to such deemed payment because it needs to b....
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....nterprises. A plain reading of the Explanation does not lend credence to the claim canvassed on behalf the appellant - any debit or credit entry that can be linked to the service is sufficient. 13. Taking this argument forward, learned Counsel would have us agree with him that receipts-based valuation has always been the intent in taxation on "reverse charge" basis because of the special treatment accorded in Rule 7 of Point of Taxation Rules, 2011 even after taxation in all other situations was, by these Rules, transformed to "accrual basis". Accordingly, it is contended that the word "credit" which erroneously insinuated itself in second proviso of Rule 7 of Point of Taxation Rules, 2011 was substituted by "debit" with effect from 1 st April 2012. And since this reference to debit after that date concerns itself exclusively with "reverse charge" taxability of "associated enterprises", that is how it should be read in its former avatar in Rule 6 of Service Tax Rules, 1994. We find ourselves unable to subscribe to this view as the alteration made in 2012 has not been officially attributed to any error in the Rules as it stood on 1 st April 2011. It would be consistent with the p....
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....ugned order but, not having been done, needs to be remedied. 16. The references made by the learned Counsel to the provisions of the Income Tax Act, 1961 and the decisions of the Hon'ble Supreme Court in re Commissioner of Income Tax v Ashokbhai Chimanbhai [(1965) 561 ITR 42 (SC)], Commissioner of Income Tax v Birla Gwalior (P) Ltd [ (1973) 89 ITR 266 (SC)], International Auto Ltd v Commissioner of Central Excise [2005 (183) ELT 239 (SC)] and Commissioner of Central Excise & Customs (Appeals) v Narayan Polyplast [2005 (179) ELT 20 (SC)] and that of the Tribunal in reJay Yuhshin v Commissioner of Central Excise [2000 (119) ELT 18 (T-LB)] do not come to the direct assistance of the appellant whose liability arises from a plain reading of the deeming provision relating to "associated enterprise" in the law relating to service tax and the system of acknowledging royalty in their books of accounts. The Explanation in Rule 6 of Service Tax Rules, 2004 lends itself to literal construction without having to look elsewhere for clarity. The observation of the Hon'ble Supreme Court in re Commissioner of Income Tax v Keshab Chandra Mandal [AIR 1950 SC 265] that "hardship or inconven....