TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 832
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..... According to the department, the liability of service tax should not have been discharged by RIL under the reverse charge mechanism but should have been discharged by Aker India under the forward charge mechanism. Accordingly, a show cause notice dated 17.04.2015 was issued to Aker India for the period from February 2010 to April 2014 proposing a demand of Rs. 21,56,44,210/- with interest and penalty. This show cause notice was adjudicated upon by the Principal Commissioner of Customs, Central Excise and Service Tax Kakinada Commissionerate [the Principal Commissioner] by order dated 10.06.2016. The proposed demand was confirmed under section 73(2) of the Finance Act 1994 [the Finance Act] with interest under section 75 of the Finance Act and penalties under sections 78, 77(1) and 70 of the Finance Act. 2. The contention of the appellant that service tax was payable in the present case1 by RIL as the service recipient of the services provided by Aker Malaysia under the reverse charge mechanism and not by treating the appellant as a service provider was rejected for the following reasons: (i) The reverse charge mechanism provisions for the period prior to 01.07.2012 were not ap....
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....'s Personnel, spares and functional Support Base. Further Contractor shall also manage Spares and provide software back-up for control systems at CRP and FPSO. 1.1 Outline Scope of Work The Contractor shall carry-out maintenance and repairs of the Subsea Equipment and Company Owned Tools and Spares. Life of field maintenance, repair and life cycle costs are important areas to be addressed during the project phase and thereafter during contract execution phase, Contractor shall mitigate the risks in line with the following outline strategy: Involvement of Contractor Group personnel:- Involvement of Contractor Group personnel deployed for providing technical services for installation and commissioning under the project and continuity of same for execution of this Contract is essential. Contractor shall ensure the continuity of such personnel under this Contract so that the Services are performed by skilled personnel in accordance with the Contract requirements. Comprehensive and Integrated Service:- Contractor shall develop and provide a comprehensive and integrated service for the life cycle management and Services in support of the Subsea Equipment. Contractor'....
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....istrar of Companies was obtained on 18.12.2009 and a bank account was thereafter opened in India in January, 2010. 9. Till 14.04.2014, the entire liability of service tax on the consideration paid by RIL to Aker Malaysia was discharged by RIL under the reverse charge mechanism. From 15.04.2014, by which time human and technical resources present at the Kakinada site office had acquired sufficient degree of permanence, the contract with RIL was amended to provide that the project/site office of Aker Malaysia in India (Aker India) would obtain registration and discharge the applicable service tax. Accordingly, the site office of Aker Malaysia obtained registration with the service tax department at Kakinada and began discharging service tax liability on the consideration paid by RIL to Aker Malaysia. 10. However, a show cause notice dated 17.04.2015 was issued to Aker India alleging that it was the Indian 'business establishment' of Aker Malaysia and consequently, liable to discharge service tax under the forward charge mechanism on the consideration received by Aker Malaysia from RIL. The demand proposed was for the period prior to 15.04.2014, i.e. for the period from February 201....
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.... Services Rules, 2012. Since the assesses have willfully suppressed facts with an intention to evaded payment of tax, the proviso to Section 73(1) of Finance Act, 1994 is liable to be invoked for recovery of tax not paid. The details of taxable value and tax thereon are contained in the Annexure to this notice." (emphasis supplied) 11. The appellant filed a reply dated 14.07.2015 to the aforesaid show cause notice clearly stating that RIL had paid the service tax on the consideration paid by it to Aker Malaysia in foreign exchange on reverse charge mechanism and, therefore, recovery of such service tax again on the same service was not tenable. 12. The demand proposed in the show cause notice was confirmed by the Principal Commissioner. It needs to be noted that the Principal Commissioner did not confirm the allegation made in the show cause notice that the Indian project office (Aker India) was a "business establishment" of Aker Malaysia and instead proceeded to hold that Aker India was a "fixed establishment" of Aker Malaysia located in India, which was directly concerned with providing services to RIL in India and, therefore, liable to discharge the service tax liability cons....
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....the same is not covered by negative list. As already discussed taxability of the services undertaken is not disputed by the asseessee. Further, I find that in the instant case India would be the location of the service provider in terms of sub- rule b (iii) of Rule 2 (h) of the Place of Provision of Services Rules, 2012 as the project office is the establishment most directly concerned with the provision of the service. Further, as per 'Explanation 4' given under the definition of service vide Section 65B (44) of the Finance Act, 1944 a person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory. In the present case, M/s. Aker Solutions India Sdn. Bhd. (ASI) a foreign entity, is carrying on business through a project office in the territory of India and hence, in terms of the 'Explanation 4' given above, M/s. Aker Solutions India Sdn. Bhd. (ASI) shall be treated as having an establishment in the territory of India. In this case as the location of the service provider and the service receiver is in the taxable territory, in terms of Rule 8 of the Place of Provision of S....
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....ia from Kakinada support base to RIL, Aker India would be liable to pay service tax and RIL was not required to discharge service tax liability on a reverse charge mechanism; (ii) The contention of the appellant that it is not covered by the first part of clause (a) to sub-section (1) of section 66A of the Finance Act is not correct for the reason that the second proviso to sub-section (1) creates an exception to and restricts the applicability of clause (a) to the appellants case, since the establishment of the service provider directly concerned with provision of service is located in India; (iii) Further, when Explanation-1 to section 66A (2) and the second proviso to Sec 66A (1) of the Finance Act are read together, it is very clear that appellant is a 'business establishment' in India directly involved in the performance/provision of service. Hence the second proviso was rightly applied taking into consideration the entire facts of the case; (iv) If the contention of the appellant that it was not liable to discharge the tax liability since the Head Office received the consideration is accepted, then the whole purpose of the proviso/Explanation to section 66A of the Finan....
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....he person chargeable with service tax, then what would be the consideration with reference to which liability to tax can be computed. In other words, whether it would be correct to assume that the amount received by Aker Malaysia is the amount received by Aker India; (iii) Even if it is assumed that Aker India was the person liable to pay tax on the services provided to RIL, then can a demand on such tax liability be made from Aker India when the same had already been paid by RIL as the service recipient; and (iv) Whether, in view of the revenue neutral situation, the Principal Commissioner was justified in confirming the demand of service tax by invoking the extended period of limitation and also while imposing penalty. 18. The contentions advanced by the learned counsel for the appellant and the learned authorised representative appearing for the Department can now be examined. Person Chargeable with Service Tax For the Period Prior to 2012 19. The appellant has contended that since the service provider i.e. Aker Malaysia was a company incorporated in Malaysia, the usual place of residence would be outside India and, therefore, the reverse charge mechanism contemplated und....
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....ise legally constituted. (3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint." 21. A perusal of the aforesaid provisions of section 66A of the Finance Act would indicate that sub-section (1) has two clauses, namely (a) and (b). While clause (a) relates to the service provider, clause (b) deals with service recipient. There is apparently no dispute with regard to applicability of clause (b) as it is not in dispute that the service recipient i.e. RIL is located in India and is covered by the said clause. The dispute is with regard to the application of clause (a) which deals with the types of service providers governed by the reverse charge mechanism The said clause (a) covers the following two types of service providers: (i) Persons who have established a business or have a fixed establishment from which the service is provided, in a country other than India; and (ii) Persons who have a permanent address or usual place of residence in a country other than India. 22. It is important to take note of Explanation 2 to sub-section (2) of section 66A of the Finance Act. It clarifies that in relation ....
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....The provisions of section 66A of the Finance Act were required to be examined and the Principal Commissioner should not have been influenced by the Board Circular, as was observed by the Supreme Court in Orient Paper Mill vs. Union of India [1978 (2) ELT J 345 (SC)] 27. For the aforesaid reasons, it is not possible to accept the contention advanced by the learned authorised representative appearing for the Department that what has to be seen under section 66A of the Finance Act is the place "from which the service is provided". This expression "from which the service is provided" is conspicuously absent in type (ii) service providers in clause (a) of sub-section (1) of section 66A of the Finance Act. The legislature has used different requirements while describing the two types of service providers covered under clauses (a) and (b) and there is no reason to ignore this difference. 28. Learned authorised representative appearing for the Department also placed reliance upon Explanation 1 to sub-section (2) of section 66A of the Finance Act. 29. A bare perusal of Explanation 1 would indicate that it applies only to a "branch" or "agency". The project office cannot be equated with a....
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....done as per 'dollar man day rates' specified in Exhibit C. 34. Thus, in view of the aforesaid discussion, it clearly emerges that reverse charge mechanism contemplated in section 66A of the Finance Act was clearly applicable and the tax liability has, therefore, correctly been discharged by RIL as the service recipient located in India. The confirmation of demand against the appellant for the period prior to 30.06.2021, therefore, cannot be sustained. For the Period Post 2012 35. Section 68 of the Finance Act would be relevant for the post 2012 period and it is reproduced below: "68. Payment of service tax (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66B and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying t....
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....lication for the purpose of identifying the person liable to pay tax. 39. Though it may not be necessary to examine this contention in view of the aforesaid findings, but even if the said definition is taken into consideration, the conclusion would be the same. Rule 2 (h) of the 2012 Rules is reproduced below: (h) "location of the service provider" means- (a) where the service provider has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained; (b) where the service provider is not covered under sub-clause (a): (i) the location of his business establishment; or (ii) where the services are provided from a place other than the business establishment, that is to say, a fixed establishment elsewhere, the location of such establishment; or (iii) where services are provided from more than one establishment, whether business or fixed, the establishment most directly concerned with the provision of the service; and (iv) in the absence of such places, the usual place of residence of the service provider. 40. The Principal Commissioner has held that the location of the service provider would be India ....
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....vided in the form of: (a) Local Access: where Verizon India facilitates provision of wire line telecommunication circuit between two Verizon Business designated locations. (b) Bandwidth: where Verizon India provides diverse wire line telecommunication circuit of a specified bandwidth at the designated locations. (c) MPLS VPN: wherein a virtual private network is established through a private line. xxxxxxxxxx 5. Verizon India further clarifies that it is not privy to the contracts entered into by Verizon US with its customers in the US. Verizon India maintains that even if the services rendered by it are considered to be telecommunication services, the criteria for determining if there is an export of services under the Export of Service Rules, 2005 (ESR) is the same. Verizon India contends that it satisfied the twin requirement under the ESR for the service rendered by it to Verizon US to be considered to be an export of service viz., the recipient of the service is located outside India and the payment for the service rendered is received by Verizon India in convertible foreign exchange. xxxxxxxxxxx 45. In any event the Circular dated 3rd January, 2007 would in any ....
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....or the appellant has however submitted that Explanation 4 to section 65B (44) of the Finance Act has to be read together with Explanation 3(b) and if so read, the conclusion would be that though a representational office in any other country is an establishment of the person whom the said office represents (by virtue of Explanation 4), such a representational office is considered as a person distinct and separate from the other establishments of the same person located elsewhere [(by virtue of Explanation 3(b)]. 43. The aforesaid submission deserves to be accepted as the position that would emerge would be the same as that from the erstwhile section 66A (2), which dealt with different establishments located in different countries as separate persons for the purpose of reverse charge mechanism. 44. In the alternative, even if it is accepted that the identification of the establishment "most directly concerned with the provision of service" has to be made by ascertaining which of the several establishments play a dominant role while rendering services, the establishment most directly concerned with the provision of service would be Aker Malaysia and not Aker India. 45. It needs to....