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2017 (5) TMI 521
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....35,58,85,202 1,51,62,28,175 Interest u/s 75 Not quantified Not quantified Not quantified ------ Penalty u/s 77 5,000 5,000 5,000 15,000 Penalty u/s 78 100% of tax 100% of tax 100% of tax 100% of tax 2. The facts of the case are that the applicant is a software company providing IT services having clientele abroad. To facilitate their clients they have established branch offices in various countries, which provide on-site services to the applicant's foreign clients. The case of the department is that these branch offices of the applicant are providing support services of business or commerce to the applicant in furtherance of their business of the IT services. Since a branch office established in other country by a person in India is treated as a separate person for the purpose of charge of service tax under reverse charge mechanism under section 66A of Finance Act, 1994, therefore the applicant is required to discharge the liability of service tax on the consideration paid to their branch offices, in lieu of such services. Accordingly adjudication took place and demands referred to para 1 hereinabove w....
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.... further submits that on these services have been received outside India in respect of Visa facilitation work permit in respective countries is provided by authorised people only which are located outside India. The services are provided by these agents in respects of branches outside India, therefore, services are provided and consumed outside India. Therefore, no service tax is payable on such services. He further submits that the services in respect of visa and immigration formalities are not covered under the category of BSS as these are independent services provided by professional law firms and are not an outsourced service. The services are not in the nature of BSS as per CBEC Circular No.334/4/2006-TRU dated 20.2.2006 clarifies the scope of BSS which is undertaking services outsourced by business organization which are capable of doing themselves. The services provided by work permit consultants cannot be carried on by the applicant in India nor can it be outsourced as only authorized person under the foreign country's regulations are capable of providing such services. Therefore, the services provided by work permit consultants are services provided....
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....ting under the law of Australia and has principal business located at Sydney. He further submits that the applicant is nowhere provided the breakup of the compensation made to the branch offices that is to say as to what were establishment charges, as claimed by them. 12. Heard both sides and considered the submissions. 13. On careful consideration of the submissions, we find that the contention of the applicant is that they have reimbursed the salary and other expenses to their overseas branch offices on which the department is asking to the applicant to pay service tax as per section 66A under BSS. For better appreciation the section 66A of the Finance Act, 1994 is reproduced below:- SECTION [66A. Charge of service tax on services received from outside India. - (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who has established a business 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, and (b) received by a person (hereinaf....
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....nation-based tax, is constitutionally restricted to India. In the scheme of Chapter V of Finance Act, 1994, the incidence of tax on service 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 purpose of Finance Act, 1994, from its head office. 14. Consequently, an entity that is not subject to a domestic taxing statue is not amenable, by any stretch of argument, to scrutiny for conformity with the provisions of that statue. Activities of the overseas entity cannot be subject to ascertainment of classification of service 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 ....
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....pose of ascertaining the receipt of service. Therefore, notwithstanding the identifiability of all the essential factors relevant to charge of tax, viz., supplier, customer, supply and place of provisions, 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. 18. A commercial organization establishes its subordinate formations to further the commercial activity that the principal body is engaged in. Commercial feasibility mandates that such branches exist to render services or to facilitate placement of goods. Therefore, to posit that the overseas branches render services does not require genius of a high order. At the same time, reasonable intelligence suffices to identify the recipient of the service and the nature of the service rendered. 19. The appellant assessee has established branches for furthering its commercial objectives. The benefit of assigned activities of the branch will, undoubtedly, accrue to the appellant. there is not dispute that it is the appellant....
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....Ahmd) and Infosys Ltd. v. Commissioner of Service Tax (2014-TIOL-409-CESTAT-Bang) does support the proposition that a service is taxable under section 66A of the Finance Act, 1994 only when such service is rendered in India. The question that arises then in the context of the present dispute is whether the branch renders a service is rendered in India within the meaning of the above statutory provisions. A forced disaggregation merely for the purpose of tax when similar domestic structures are not taxed and when commercial soundness calls for establishment of branches would be clearly inequitable. 25. .....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 not 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 ren....
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.... Those services from foreign service providers which are directly received by the appellants in India and where payments are directly made to the service providers abroad, service tax is paid by the appellant. Appellant claimed CENVAT credit of such service tax paid under reverse charge mechanism and department has no objection for taking such credit. With respect to services directly availed by the appellant, the Foreign Service provides do not charge any local VAT/ GST of the respective country. And this Tribunal has observed as under:- 5.3 On the issue of demand of service tax of Rs. 11,56,32,589/- with respect to remittances made by the appellant to branch offices, both sides have relied upon the case law of M/s. British Airways v. CCE (Adj.) Delhi [2014-TIOL-979-CESTAT-MUM]. It is the case of the appellant that nearly Rs. 7 crore demand is with respect to salary of the employees of the appellant working in the foreign branch offices, treating the branch offices/establishments as service providers held by Revenue as a separate legal entities under the provisions contained in Section 66A(2) of the Finance Act, 1994. Senior Advocate appearing on behalf of the appellant stro....
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....son carrying business through a permanent establishment abroad may like to pay lower rate of local VAT/GST abroad to avoid service tax payment in India by showing the services to have been availed abroad. However, there is no likelihood of such avoidance in case of an assessee who is eligible to Cenvat credit in India for the service tax payable in India for which the assessee is entitled to Cenvat credit. It is also not the case of the of the Revenue that appellant is not capable of utilising Cenvat credit admissible as they have paid more than Rs. 12,000 crores as taxes during the periods 2007-2008 to 2011-2012. 5.7 From the above interpretation made in the case of M/s. British Airways v. CCE (Adj.), Delhi (supra) it has to be seen in the present proceedings whether while procuring services branch offices of the appellant abroad have acted only in the capacity of 'facilitators' and the services so procured were consumed in India or the services so availed were consumed outside India. Learned Senior Counsel appearing on behalf of the appellant relied upon guidelines of 2006 & 2008, issued by Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy & A....
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....hould accrue. To ensure that the basic principles of neutrality, efficiency, flexibility, certainty and simplicity are achieved these, and some other, terms will need to be defined at a later stage, drawing on the lessons learned from the development of these business models and examples. 11. As a first step, it was agreed that the development of guidance on how to implement the main rule in practice should start by the examination of a selection of basic concepts as listed above (i.e. supplier, customer, supply) on the basis of simple practical examples, involving simple supplies. 3. Tax Collection Mechanisms 12. It is recommended that the business customer should account for VAT/GST, where applicable, on cross-border business-to-business (B2B) transactions using the reverse charge, self-assessment or tax shift mechanism (hereinafter reverse charge mechanism), as far as this type of mechanism is consistent with the overall design of the national consumption tax system. Once the place of taxation is determined, the country that has the right to tax the supply decides whether any tax is actually due. For example, countries may wish to consider dispensing with the requ....
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....that M/s. TTL are liable to pay Service Tax on the entire amount received inasmuch as TTL Korea has rendered the services to TTL which is classifiable under the category of "Business Auxiliary Services". Accordingly, on the entire amount received for the services rendered, a show cause notice dated 24-4-2012 was issued demanding Service Tax of Rs. 1,48,90,191/- under Reverse Charge Mechanism in terms of Section 66A of the Finance Act, 1994 along with interest thereon. Notice also proposed to impose penalty. The notice was adjudicated vide the impugned order and the Service Tax demand was confirmed along with interest thereon and also by imposing equivalent amount of penalty. Hence, the appellant is before us. And this Tribunal has observed as under:- 5.1 As per the agreement entered into between TTL & TTL Korea and TDCVL, TTL and TTL Korea have to render Information Technology Services to TDCVL in Korea. The services rendered consist of two components - onsite services rendered by TTL Korea and offshore services rendered by TTL. Nevertheless, the service recipient remained TDCVL and not anybody else, for which they have paid the consideration. As per the agreement, the invoic....
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....red for rendering of services abroad. Therefore, prima facie, we are of the view that the provisions of Section 66A are not at all attracted. 5.3 Thirdly, even if it is assumed that the appellant has received the service from abroad from their branches, since the service have been consumed by the clients abroad, it would amount to export of service under Rule 3 of the Export of Service Rules, 2005 in which case also there would not be any Service Tax liability. In the case of permanent establishment of the appellant situated abroad, the service has been provided by foreign service providers abroad and the service has also been consumed abroad. 6. In view of the above factual and legal position, we are of the considered view that the matter has to go back to the original adjudicating authority for consideration afresh with regard to the question, whether he has any jurisdiction to demand Service Tax on activities which are completely rendered outside India and on which tax liability has been discharged under the local laws where the activity has taken place. All issues are kept open. The appellant is at liberty to produce evidence of discharge of tax liability on the transacti....