TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 191
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....es rendered by subsidiaries to the parent company, appellant has been discharging service tax liability under the reverse charge mechanism prescribed in section 66A of Finance Act, 1994. 3. The said section specifies that taxable services enumerated in section 65(105) are chargeable to tax when received from outside the country and that liability devolves on the domestic entity as though it had rendered the service to itself. Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 identifies the manner of receipt of services that render it taxable, prescribes the requirement for registration by the recipient under section 69 of Finance Act, 1994 and circumscribes the applicability of CENVAT credit to such transactions. 4. The branches of the appellant act as salary disbursers of the staff deputed from India to client locations besides carrying out other assigned activities. The salaries so disbursed, as well as other expenses of the running the branch, are met from the coffers of the appellant. Payments made by customers are also received in branches and transmitted to the head office after netting the expenses incurred by the branch. 5. Convinced ....
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....which the adjudicating authority failed to establish; > that, without there being a client relationship, business auxiliary service cannot be said to have been rendered; > that reimbursements are not consideration and is not rendering service; > that overseas branches did not charge any consideration for any service; > that the Tribunal in re Torrent Pharmaceuticals Ltd [2014-TIOL-2647-CESTAT-AHM] has held that branches are not service providers within the meaning of section 66A of Finance Act, 1994; > that salaries, sub-contracting costs and expenditure on services that were rendered outside the country cannot be taxed under section 66A of Finance Act, 1994; > that activities taxed overseas cannot be taxed under Finance Act, 1994; > that services rendered in connection with authorized operations in special economic zones are not includible as consideration for rendering of taxable services; > that the entire demand is revenue neutral as CENVAT credit could be taken and refund claimed; > that there was no scope for invoking section 73 (3) of Finance Act, 1994; > that penalty under section 78 and 78A of Finance Act, 1994 are not liable to be invoked; > that cir....
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....ce Act, 1994, the incidence of tax on services is to be borne by the recipient of service and levy is enforced on the provider of service. As the tax can be collected only from a service-provider within the jurisdiction, undertakings beyond the territory are beyond the ambit of the statute irrespective of the nature of the structural form or the linkage - organic or contractual. In such a taxing law, an entity that is beyond the jurisdiction of the statute has an existence independent of the taxable entity. A branch is, therefore, an entity distinguishable, for purposes of Finance Act, 1994, from its head office. 14. Consequently, an entity that is not subject to a domestic taxing statute is not amenable, by any stretch of argument, to scrutiny for conformity with the provisions of that statute. Activities of the overseas entity cannot be subject to ascertainment of classification of services in section 65(105) of Finance Act, 1994. More so, as tax authorities are bereft of wherewithal to scrutinize the activities of such an entity and there is, indeed, no cause to embark upon such a venture either. Undoubtedly, such entities are subject to tax in the territory in which they opera....
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....supplier, customer, supply and place of provision, tax becomes leviable to the extent that receipt of service in India is established. The business auxiliary service that the impugned order has found to have been rendered by the branch office of the appellant-assessee has to cross this hurdle. 16. Section 66A of Finance Ac, 1994 taxes all taxable services received by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India from "a person who has established or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India Revenue has alleged that Explanation 1 in sub-section (2) having designated branches as business establishment overseas and section 66(2) mandating that (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Tax liability devolves on the appellant-assessee. 17. Tax-shifting arises from th....
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....nance Act, 1994 may not apply. That is where the impugned order has erred in not reading section 65(105) along with section 66A and Rules framed for the purpose of charging tax on services received from abroad. Unless both are applied together, the jurisdiction to tax would be in question. 20. It would be worthwhile to look at the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 2. Taxable services provided from outside India and received in India.- Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services,- (i) specified in sub-clauses ****** as are provided or to be provided in relation to an immovable property situated in India; (ii) specified in sub-clauses ****** of clause (105) of section 65 of the Act, be such services as are performed in India: Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder; (iii) specified in clause (105) of section 65 of the Act, but excluding,....
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....e location of the service provider :- (a) Services provided by a banking company, or a financial institution, a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services; (d) Service consisting of hiring of all means of transport other than,- (i) aircrafts, and (ii) vessels except yachts, upto a period of one month. 21. From the above, it is apparent that mere identification of a service and the legal fiction of separate establishment is not sufficient to tax the activities of the branch. The very existence of a branch presupposes some kind of activity that benefits the primary establishment in India and the organizational structure inherently prescribes allocation of financial resources by the primary establishment to the branch to enable undertaking of the prescribed activity. The books of accounts and statutory filings do not distinguish one from the other. The application of Finance Act, 1994 to such a business structure within India does not provide for a deemed segregation. Such a legal fiction in relation to overseas activities should, therefore, have a reason. 22. Section 66A ....
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.... referred to must be for pursuit of business or commerce in India. The two sets of Rules provide for availment of CENVAT credit of the tax paid by the Indian entity on reverse charge basis. As an exporter, the Indian entity is entitled to claim refund of taxes lying unutilized in CENVAT credit account. There is no dispute that the activities of the branch are in connection with the export activity of the appellant assessee. That the legislature would prescribe the collection of a tax merely for the purpose of refunding it subsequently does not pass the test of reason. More so, as there is no inference of any monitorial aspect in undertaking such an exercise. An exporter who operates through branches is clearly not the target of the legal fiction of branches being distinct from head office. The proposition that the intent of section 66A in taxing the activity rendered by an overseas branch to its headquarters in India is limited to the local commercial or business activities of the head office is thereby confirmed. Consequently, mere existence as a branch for the overall promotion of the objectives of the primary establishment in India which is essentially an exporter of services do....