TaxTMI 
TaxTMI 
2017 (1) TMI 437
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.... 2004 to 31^st March 2009 demanding Rs. 3,14,19,192/- and Rs. 2,28,79,063/- and the other two for the period from 1^st April 2009 to 31^st March 2010 demanding Rs. 2,09,19,300/- and for the period from 1^st April 2010 to 31^st March 2011 demanding Rs. respectively. Of the demands in the first two notices, Rs. 1,89,22,265/- and Rs. 1,46,04,351/- were confirmed in the impugned order as were the demands in the other two notices for the subsequent periods. The impugned order held the appellant liable to tax under section 66A of Finance Act, 1994 as recipient of service and dropped that portion of the demand pertaining to the period prior to 18^th April 2006 when section 66A was incorporated in Finance Act, 1994. 2. The first demand pertains to expenditure incurred by the Dubai branch of the appellant for marketing and promotion of their software package outside India. The other notices pertain to commission paid to foreign service providers by the Dubai branch for procurement of business and sales promotion of their software packages. 3. Taking note of pronouncements of the Hon'ble Supreme Court that taxation of services rendered by a provider from outside India is liable to taxa....
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....16 (42) STR 981 (Tri-Mumbai)]. 8. The primary foundation upon which the impugned order stands is the absence of denial by the appellant that services have been utilised by the Dubai branch. Placed on this foundation is the inference drawn from the balance sheet, in which expenses and income of the Dubai branch have been included, that the appellant and the Dubai branch are inseparable undertakings and that the consideration to the foreign service provider is attributable to the receipt of service by the appellant. From this it is but the next step to invoke section 66A of Finance Act, 1994 and rule 3 of Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 to fasten the tax liability on the appellant. 9. It was submitted on behalf of appellant that section 66A(2) of Finance Act, 1994 segregates the entity in India from its business in another country for the purposes of taxation which disaggregation should also govern the commercial independence of each other. This was held to be so in re British Airways thus: '31. In this case, as is clear from the RBI's letter, BA, India are a branch office of 'BA, U.K.' permitted for operating air service. ....
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.... the services provided by CRS/GDS Companies were Indian branch specific services which satisfied the business needs of BA, India and the role of 'BA, U.K.' was of facilitator only. xxxxxxx 49. Ld. Member (Technical) has also discussed in para-31 of the proposed order as to how the British Airways, India a branch office of British Airways, U.K. cannot be considered as a temporary establishment. The same is not for a particular project after the completion of which the same would get wound up. The same has been specifically permitted by RBI to carry on the air transportation activities and has to be held as a permanent establishment, in which case on account of the provisions of Section 66A, it has to be treated as a person separate from its head office. It is the counter-argument of Learned Authorized Representative that the Tribunal in re Torrent Pharmaceuticals Ltd has determined the specific purpose of section 66A(2) of Finance Act, 1994 as: 5.5 Section 66A (1) above is talking of service provider and service recipient as 'persons' which has to mean as different business persons. Section 66A(2) and its Explanation I only make a clarification and to fix service tax lia....
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....disaggregation of branch and headquarters by section 66A(2) of Finance Act, 1994. The present dispute is on entirely different footing, viz., that the payment for service rendered by foreign service provider, though claimed to be effected by branch in Dubai, was, in effect, made by the appellant. We draw a distinction in designating the Indian operation as appellant and the Dubai operation as branch. 10. We have addressed this issue in our decision in re Tech Mahindra which examined the nature of overseas branches of a software exporting entity headquartered in India. Having considered the provisions of section 66A(2) of Finance Act, 1994 and the role of the overseas branches, we held that the symbiotic business and structural relationship is not susceptible to interpolation into the specific context of section 66A and each transaction of the overseas branch would have to be scrutinized to ascertain if taxable service has been rendered by branch to headquarters and vice versa. The impugned order has overlooked the requirements of accounting standards which mandates that financials of the branch are to be included in the financials of the corporate entity that has established the....
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....n the Rules of 2006 make it clearly that such services have to be received by a recipient located in India for use in relation to business or commerce. The provisions of the successor Rules are no different. We note that section 66A of Finance Act, 1994 is a special enabling provision engineered to tax import of services, both to countervail the taxing of domestic transactions and to afford a national treatment to the service, and the determination of taxability is with reference to the Rules supra. The Rules draw its origin also from the exemption powers devolving on the Central Government under section 93 of Finance Act, 1994; accordingly, any situation that is not envisaged in the specific framework of taxability in rule 3 is beyond the ambit of tax. The impugned order has erred in merely relying on the provisions of section 66A(2) of Finance Act, 1994 and the non-exclusion of section 65(105)(zzb) of Finance Act, 1994 from rule 3 to conclude that tax liability arises. 12. We note that rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India), Rules 2006 includes business auxiliary servicesbut is restricted to such as are received by a recipien....
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....r business or commerce outside India. 14. We refer to our decision in re Genome Biotech Pvt Ltd, wherein we have held that '15. Services that are not connected with manufacture or with the transport of goods till the customs frontier of the country can be disassociated from use within the country and hence would not lie within the ambit of the legal fiction of import of services. Services that are undeniably rendered by a foreign service provider in relation to the goods sold abroad cannot be presumed to be covered by the legislative intent to tax. To tax a service using the legal fiction of import and then reimburse that tax because the service was not required for any activity within the country is an exercise in futility and is contrary to the objectives of and means devised for export promotion by the State. xxxxxxx 19. The original authority has failed to take note of the destination of the goods manufactured by the appellant and has deemed the services rendered in Ukraine to have been imported into India for business and commerce. From our examination of the scheme of deeming of import of services for taxation supra, it can be reasonably inferred that the business....