TaxTMI 
TaxTMI 
2021 (10) TMI 229
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....ction 77 of Finance Act, 1994 are also sought to be quashed. Another submission in the grounds of appeal, though not pressed in the light of these binding precedents, is that their explanation of these remittances as payments for supplies procured by overseas branches and offices, which would have excluded them from being deemed to have received in the 'taxable territory', was not considered in the impugned order that, according to Learned Counsel, was further susceptible for having been founded on statutory provisions and Rules that had ceased to be in vogue by then. 2. A narration of the factual matrix may not, therefore, be inappropriate. Appellant is a 'export oriented unit (EOU)' approved under the eponymous scheme in the Foreign Trade Policy for production and export of 'pharmaceutical products' and, in pursuit of its business strategy, has established representative offices at several places outside the country, as 'cost centres', dependent on the principal establishment in India for operational existence. By taking recourse to the special design in Finance Act, 1994, intended for taxing recipients as 'deemed provider' of services received from abroad, to the transfer of ....
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....roversy in taxing of intangibles, fraught with obvious handicap of lack of visibility, is compounded when it comes to the imperative of bestowing 'national treatment' to services sourced from abroad owing to impossibility of ascertaining arrival at the territorial boundary. The saddling of demand on the one manifest aspect of service transactions, viz., 'consideration', without contextual reference to the taxable event, though irresistibly attractive to tax authorities, may not always be consistent with legislative intent. That has been the thrust of decisions of the Tribunal in several disputes arising from the fastening of tax liability in cross-border transactions. The conceptual clarity of legislative intent essential for resolution of this conundrum, and provided by the exposition in Torrent Pharmaceuticals v. Commissioner of Service Tax, Ahmadabad [2015 (39) STR 97 (Tri-Ahmd)] and in Milind Kulkarni & others v. Commissioner of Central Excise, Pune [2016 (44) STR 71 (Tri-Mum)], was relied upon thus '6. We find that the Revenue has taken a stand that since as per the proviso, a branch office located outside India shall be treated as a separate business establishment, t....
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....Act, 1994 reproduced below :- ''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 (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply : Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply: Provided further that where the provider of the service has his business establishment ....
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....lihood 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." 7. The matter came up before the Tribunal again in the case of Milind Kulkarni - 2016 (44) STR 71 (Tri.- Mum.). The Tribunal after examining the earlier decision observed as below:- "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 no dispute that it is the appellant-assessee who enters into contractual agreements with overseas customers for supply of 'information technology services' which have 'off-shore' components rendered directly to the overseas entity by the appellant-assessee. 'On-site' activity is undertaken by deputing employees working at the site of the customer. These employees are, without doubt, on the rolls of the appe....
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....hat these services are received in India in relation to business or commerce. A plain reading would make it apparent that the services 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....
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....rovided to one's own self. Similarly placed branches of the appellant undertaking similar activities in India will not be held so. Therefore, a comprehensive reading of Section 66A of the Finance Act, 1994, a permanent establishment situated abroad as a "separate person‟, will be understood to have been prescribed only to determine the provision of service whether in India or out of India. Theoretically it could be possible that a person 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." By referring to the above decision, the Tribunal came to the following conclusion:- "8. The ratio of the above decision and also the close reading of the proviso to Section 66 A alongwith explanation therein is make it clear that the legal fiction of considering a branch of an assessee as a separate establishment is not to tax a service rendered to its head office. Further, here there is no such service also has been identified with supporting evidence. 9. We find that the ratio adopted by the Tribunal in examining the applica....
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..... A plain reading would make it apparent that the services 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 establishm....
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....in 65B(51) of Finance Act, 1944. Documentation of the circumstances surrounding this paradigm shift does not offer any scope to infer that the concept which birthed the levy of services provided within the country, as well as those brought into the country, was intended to be re-shaped beyond the significant departure from the delineated description of each of the enumerated services hitherto existing. 10. Central to the revised schema is 'SECTION 66B. Charge of service tax on and after Finance Act, 2012. - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.' with 'provided or agreed to be provided in the taxable territory' as the frame of event to be taxed. The mechanism for determination of any 'service' to have been rendered within the jurisdiction of such levy is established under the authority of 'SECTION 66C. Determination of place of provision of service. - (1) T....