TaxTMI 
TaxTMI 
2023 (11) TMI 311
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....s to its clients which are spread in various countries. In order to provide output services to its clients, the Appellant incurs expenditure for procuring various input services, inputs and capital goods from domestic as well as foreign vendors. The Appellant has made payments in foreign currency to various entities within and outside India which were recorded as business expenditure in its books of accounts. On the basis of CERA audit, after considering the foreign currency expenditure reported in the annual accounts and comparing the same with the service tax returns filed by the Appellant, the service tax authorities issued a show cause notice dated 20.04.2017 to the appellant for recovery of service tax demand of Rs. 10,55,33,679/- and applicable interest along with penalty alleging that the Appellant has short paid / not paid service tax on the payments made in foreign currencies for procuring various services such as: (a) Professional fee/engineering services ; (b) License fee/subscription ; (c) Corporate cost allocation ; (d) Repairs and maintenance ; (e) Consultancy fees ; (f) Bank charges ; (g) Other. 2. The....
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....ceived engineering services from the group entity. TDS has been deducted only on the INR component directly paid by the Appellant to the seconded employees. III Bank Guarantee Commission Charges None of the Debit Notes or Invoices shows any payment of service tax on Bank Guarantee. The service tax paid by bank on commission charges for bank guarantee has no relation to the payments made by Appellant to M/S Linde AG. IV Software charges (goods) There was no documentary evidence in the form of an invoice or a bill of entry to support that it was goods and therefore the Appellant's plea is required to be rejected. V Repairs & Maintenance (Performance outside India) Appellant's contention that it was payment towards purchase of RSA stick is entirely unconvincing as no documentary evidence has been submitted by the Appellant. VI. Payment made to / for a. Government authorities. b. Purchase of protective clothing c. Purchase of Books/ Magazines d. School fee. e. Demurrage charges. f. Reimbursement of Salary plus other reimbursement g. Reimbursement of relocation charges of employees. h. Bank charges. i. Reimbu....
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....vendors and was making payments in foreign currencies towards professional fee/engineering services, license fee/ subscriptions, corporate cost allocations, repairs and maintenance, consultancy fees, bank charges etc. for use in business and had short paid / not paid service tax on the same under reverse charge. Therefore, the appellant was put to a sufficient notice of the alleged irregularities in filing the ST-3 returns and if the appellant did not agree to the allegations, it was incumbent upon him to specifically contradict those allegations by reconciling the figures in books of account and the ST-3 returns. We do not find that there was any lack of clarity on the part of the department in determining the nature and impugned services in the show cause notice. The appellant was clearly pointed out the differences in books of accounts and ST-3 returns by way of following chart :- Expenses as per balance sheets 2011-12 2012-13 2013-14 2014-15 Total Professional fee/engineering services 279445434 25001148 236095730 128762043 669304355 License fee/subscri tion 93380512 89180567 163885362 216606011 563052452 Corporate cost al....
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....the facts of the case. 4. Now we examine the each of service against which the demand has been raised:- (A) Professional Fees/ engineering services: A (i) The Learned Counsel of the appellant has claimed that they are engaged in providing engineering services to their group companies outside India and availed various services outside India in relation to provision of such export of services. Such services received by them are either in the nature of supervision services in relation to installation / repair of goods or in relation to immovable property. The services under consideration have been availed by them in order to execute its work / provide services to its client on their site located outside India. The professional fees / engineering services on which service tax is not paid are those services which are received by them outside India and are consumed outside India in connection with providing the export services. The Appellant submits that for receiving the aforementioned service, the Appellant was issued the invoice bearing no. B012209077 dated 12 December 2012 for EUR 13,42,000/- (INR 9,17,72,871) by M/s. Linde AG, Germany in the month of December 2012 against w....
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....ces received by them in relation to supervision / coordination of immovable property will fall under the purview of Rule 5 of the PoPSR. The Rule 5 of the PoPSR provides that place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located. In the view of the above, the place of provision of the said services received by them is outside the taxable territory under both the above mentioned rule, i.e. Rule 4(a) and Rule 5 of PoPSR. That, even if for the sake of argument, it is assumed that Appellant is liable to discharge service tax in F.Y. 2011-12 considering the rule 7 of the POT Rules and rule 3(iii) of the Import of service rules as held in the impugned order on the ground that the such service has been received by a recipient located in India for....
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....for a service received in India but a tax on the funds transferred in a cross-border transaction. Such a tax is not contemplated in Finance Act, 1994. The demand of tax on the appellant is not in accordance with law." Thus the Ld. Counsel has pleaded that the liability of service tax on this amount is legally not sustainable. A (2) As against above arguments the Learned AR of the department has re-iterated the findings in the impugned order that the appellant in defense reply has shown to have incurred an amount of Rs. 9,17,72,871.00 during the financial year 2011-12, towards engineering support services received for Ruwais project and they have claimed that the services have been consumed outside India and service tax shall not be attracted on such services for period from April 2011 to March 2012. But the invoice has been issued dated 12.12.2012 in relation to their project in Ruwais, for the services provided during the financial year 2011-12 to the appellant. That as per proviso in Rule 7 of Point of Taxation Rules, 2011 as existed prior to 01.04.2012 in case of "associated enterprises" where the person providing the service is located outside India, the point of taxation....
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....onsumed in India when the services have been received by a recipient located in India for use in relation to business or commerce. We are not convinced that the service can be related to in relation to the immovable property or the performance based services which are specifically covered under Rule 3(i) and 3(ii) of the Rules 2006 ibid and which do not cover the services under Section 65(105)(g) of the Finance Act, 1994. We find that the similar issue has already been decided by the Tribunal in the case of 2019 (20) G.S.T.L. 259 (Tri. - Mumbai) in the case of EMI Transmission Limited vs. Commissioner Of Central Excise, Nashik The relevant extract of the order is reproduced below :- "5. We have carefully considered the submissions made by both the sides. We find that the demand of Service Tax on the Technical Testing Analysis service was raised on the basis of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, which reads as under : "3. 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 s....
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.... upto 1-4-2011 as w.e.f. 1-4-2011 vide Notification No. 23/2011-S.T., dated 31-3-2011 Clause (zzh) was omitted under Rule 3(iii) of Rules, 2006. The submission of the Ld. Counsel is that even after omission of Clause (zzh) in Rule 3(ii) of Rules, 2006. The service is not liable to tax for the reason that the service was only performed in non-taxable territory i.e. foreign country for this reason it is not taxable. In this regard we find that after omission of Clause (zzh) w.e.f. 1-4-2011 Technical Testing and Analysis service even though only performed outside India shall be liable to Service Tax as per Clause (iii) of Rule 3 of Rules, 2006, according to which, the only requirement is that service are received by a recipient located in India for use in relation to business or commerce. There is no dispute that technical testing and analysis service though wholly performed outside India but the same was received by the appellant in India which was indeed used in relation to business or commerce. Therefore after 1-4-2011, the service of technical testing and analysis is clearly chargeable to Service Tax." 4.2 In view of the above discussion, we hold that the professional fees/ Eng....
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....by the local laws. The Company would be responsible for complying with local labour laws as applicable to such employee in India. In view of the above, the Appellant submits that the group companies have not rendered any services to the Appellant. Further, pursuant to secondment contract, employees of group companies became employees of the Appellant and said employees work under the complete supervision, control and management of the Appellant during secondment. For the same, the Appellant remunerates the said seconded employee by way of payment of salary and other benefits. In this regard, for the purpose of the administrative convenience of the seconded employees with regard to meeting of their requirements in their home country a portion of salary payable by the Appellant is disbursed by group companies to the designated overseas account of the seconded employees. The group companies initially pays the portion of the salary costs of the seconded employees to their designated overseas account and raise a debit note of said amount on the Appellant. The Appellant would reimburse the group companies for the exact actual amount paid by the group company, based on the debit notes fro....
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....ually by the Appellant and the Appellant's group company. That during the entire secondment period, the seconded employee reports to the concerned person of the Appellant and as per the contract, he/she needs to comply with the local conditions of employment, and administrative procedure. (ii) It has been held that the "Company" i.e. the reserves the right to require the "Assignee" to undertake other duties which may reasonable be required. The "Company" reserves the right to terminate the assignment prior to the planned end date in the event that the "Assignee" is not taking care of his obligations. He argued that this clause is to safeguard the Appellant, in case the employees who are seconded are not performing their obligation, the Appellants can ask the Company to terminate the agreement. This observation of learned Adjudicating authority has no relevance in determining whether the employees were seconded, or manpower services were provided. (iii) It has been held The salary of the "Assignee" is split into two, one Home Currency Element and another is Host Currency Element and approximately 80% of the salary is paid at home country and tax involved on the same is ....
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....rcumstances based on which the decision was rendered is entirely different and therefore distinguishable from the present facts of the case. The Ld. Counsel argued that the Ld. Respondent has changed the allegation with respect to the classification of the amount of corporate cost allocation. The impugned OIO has alleged that Service Tax is payable under reverse charge mechanism ("ROM") by the Appellant on the amount of corporate cost allocations under the service category of "Consulting Engineer Services". In this regard, the Appellant has made detailed submissions vide Para E29 to E56 of the Appeal to substantiate non-applicability of Service tax on the said reimbursements along with additional submissions filed from time to time based on legal/ judicial developments. However, during the course of the personal hearing before the Hon'ble Tribunal on 12th January 2023, the department representative alleged the nature of services to be "Manpower Supply Services" and demanded payment of Service Tax under RCM relying upon the decision of the Hon ble Supreme Court in the matter of M/S Northern Operating Systems Pvt Ltd. (supra).Therefore, they are not liable for service tax on the corp....
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.... assignee and the home and host company. (b) The "company" reserves the right to call the "assignee" back before the planned assignment end date if required (due to e.g. political unrest, business and organizational reasons, performance reasons). The "company" also reserves the right to require the "Assignee" to undertake other duties which may reasonable be required. These duties would take into account the nature and status of the role of appointment, qualifications and experience. If it is necessary to end an assignment ahead of the planned end date, the "Company" will give 3 months notice (depending on an important reason due to the personal situation of the "Assignee" also a longer appropriate time limit will be applied but not longer than six months) of the impending repatriation to the "Assignee" iv. Clause 4 - Remuneration abroad. (a) Salary - The gross assignment base pay for assignment purposes will be Euro 109800 per annum. The net assignment pay has been calculated in accordance with the attached salary buildup schedule. It is quoted partly in the home country and party host country as follows: Home Currency Element: Euro 89130 net paid out in the home count....
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....ignment prior to the planned end date in the event that the "Assignee" is not taking care of his obligations. In such case the termination will be considered as termination by the Company for cause according to the IA Policy. ix. Clause 9 - Social Security. The "Company" will file an application to ensure that the "Assignee" remains covered by the social security system in his home country Germany, if possible. The "Company" will continue to pay the applicable employer's and employee's social security contributions with respect to old age and unemployment insurance to the home scheme. If possible, the "Company" will apply for the exemption from the host social security scheme. x. Clause 10 : Medical care abroad/Accident insurance for dependents. For the duration of Employee's residence in the foreign country, Linde will conclude an insurance policy covering medical care abroad with the Hallesche Insurcrs. During the assignment abroad the "Company" will take out an accident insurance for the "Assignee" and the "Company" will cover the premium costs. xi. Clause 11 - Taxation. The assignment salary is quoted net based on the Tax Equalization Policy of the....
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....td is not having any power to control the "Assignee" as claimed by the assessee. The "Assignee" is just reporting to the Specified Persons of M/S Linde Engineering India Pvt. Ltd as specified in the assignment contract. The salary and other emoluments and perks are decided by the Company and the host company has no control over these things. Even in case, the "Assignee" is not taking care of his obligations, the "Company", i.e. M/S Linde, AG or their group companies reserve the right to terminate the employee and the host Company, i.e., M/S Linde Engineering India Pvt. Ltd is not having any power to terminate or revert such employees. And above all German law is the proper law of this agreement. That despite the fact that the re-imbursement is made by the appellant, they do not the controlling power over the seconded employees. all these facts conclusively prove that the employees working in M/S Linde Engineering India Pvt. Ltd are acting or providing service in India on behalf of their employer, i.e. M/S Linde, AG, Germany. 4.6 Therefore, the payments under the head of corporate cost allocation made by the appellant in foreign currency to M/S Linde, AG and their group companies....
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.... applicable to the facts of the case. The Company is effectively providing taxable service of "Consulting Engineer services" defined under Section 65(105)(g) of the Finance Act, 1994 before 01.07.2012 and taxable service under Section 66B after 10.07.2012 (C) Bank Guarantee Commission Charges: 5. Learned Counsel has stated that the remittance made by it to its subsidiary in relation to bank guarantee commission charges pertain to the bank guarantee obtained by Linde AG Germany (LAG), the parent company of the Appellant on behalf of the Appellant for its various projects. The bank guarantee is obtained by M/s. LAG from a bank situated outside India. Since the bank guarantee is to be given for a project in India to appellant's customer in India, the foreign bank routes the guarantee through its Indian branch and obtains the guarantee from an India bank. The Indian bank issues the bank guarantee in favour of the Appellant on the basis of request given by the foreign bank. The Indian branch of the foreign bank forwards the advice of charges of the Indian bank issuing the guarantee as well as its own service charges to the requesting foreign branch. The foreign bank then forwards ....
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....Engineering India Pvt. Ltd and invoices raised by Credit Agricole CIB, Deutschland to M/S Linde, AG, Deutschland, show that they are charging correspondent cable charges, correspondent commission, etc.; that none of these Debit Notes shows any payment of service tax on the bank guarantees issued; these invoices show that no service tax has been discharged on theses invoices; prima facie these Debit Notes are raised by M/s. Linde, AG for the services provided by them for procuring the bank guarantees; therefore, the appellants submission that no service tax is leviable under reverse charge mechanism on such services is contrary to facts and against the prevailing legal provisions of charging service tax on the services received by them from persons situated outside India; therefore, the appellant's submission that no service tax is leviable under reverse charge mechanism on such services is contrary to facts and against the prevailing legal provisions of charging service tax on the services received by them; that the payments made by the assessee are aptly covered under the import of services and the bank guarantee received by the appellant for its various projects in India was a se....
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....e Hon'ble CESTAT, Ahmedabad vide Order No, A/10699/2020 dated 26.02.2020 in which they have remanded the matter to the adjudication authority for passing afresh order, in view of thc appellant's submission before the Hon'ble Tribunal that they are in a position to submit all documents in support of their defense; still the appellant has not produced any documentary evidence to substantiate their claim that no service tax is leviable on the Bank charges of Rs. 1,30,167.00 paid in foreign currency; therefore, the appellant is liable for payment of service tax under reverse charge mechanism on the expenditure incurred by them in foreign currency amounting to Rs. 1,30,167.00 under the head of bank charges as per the provisions of Section 66A read with Section 66 and 68 of the Finance Act, 1994 for the period prior to 1.7.2012 under Banking and other financial services and as per the provisions of Rule 2(d)(i(G) of the Service Tax Rules,1994 read with Section 66B and 68 of the Finance Act, 1994 for the period from 1.7.2012. 6.2 We find that the appellant has claimed that the impugned charges are bank commissions providing various services with respect to foreign remittances. ....
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.... technology software, study, analysis, design (ii) and programming of information technology software, adaptation, (iii) up-gradation, enhancement, implementation and other similar services related to information technology software, providing advice, (iv) consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software, acquiring the right to (v) use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products, acquiring the right to (vi) use information technology software supplied electronically." 7.1 In respect of taxability on Software services received from 1.7.2012, the relevant provisions as under: i. Further, as per the provisions of 66B, there shall be levied at the specified rate on....
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....of RSA Stick (i.e. goods); he challenged that the very chargeability / levy of service tax as per section 66B of Finance Act; he stated that they had provided invoices for substantiating our claim on sample basis of Rs. 347840/- Considering the same, the Adjudicating authority has set aside the demand thereupon. He prays that demand on Rs. 1,89,905/- may also be set aside with regard to these goods. 8.1 Learned AR on the other hand has submitted that as the appellant has failed to provide any documentary evidence that the balance amount of Rs. 1,89,905/- has been made in foreign currency was on account of purchase of software, service tax is to be levied on the same under reverse charge mechanism. 8.2 We are of the considered opinion that under the service tax law all payments received or paid to the foreign parties by the assessees against any service provided/ received from abroad (i.e other than goods, immovable property or money/actionable claims) are subject to tax unless those are brought under specific exception. Once a discrepancy has been brought to the notice of the assessee for a particular amount, onus lies upon him to prove that the amount was not taxable. Having....
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.... law being in force in a foreign country and not for a service provided by the government of the said foreign country and hence the said payment fails the very test of being regarded as a consideration towards receipts of any service. 9.2 On the other hand Learned AR has argued that the Appellant has not submitted any invoices or contracts or any other documents in support of their claim that the same are not taxable in India. Further, the Adjudicating authority found that the submission of the Appellant has not made any reason for, why the Appellant have made payments of tax to the foreign governments on the income earned by their employees in the foreign country. It was observed that the tax collected by any government on the income earned by employee is paid by the employee by himself/herself. If the tax on income earned by the employee is paid by the Appellant, then it has to be included to his income or the payments of the services provided by them. 9.3 We find that in the impugned order it has been discussed that in order to ascertain the correctness of their submission, the adjudicating authority has gone through the list as per the Annexure-G and assessment orders sub....
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....x is not applicable on the reimbursement of expenses on the ground that there is no service element involved therein. He further argued that even if for the sake of argument, it is assumed that the underlying expense would form part of the gross amount charged for providing engineering services by the group entity, then even in that case no service tax is levied on the corporate cost allocation expense. 10.1 The Ld. AR on the other hand has argued that whereas invoice no. 33084010 dated 27.08.2013 issued by Cryostar SAS to M/s Cryostar India, Division of M/s. Linde Engineering India Pvt. Ltd., was issued for Working Clothes and they have charged 597.57 Euro (INR 48893.00), the same has been issued for purchase of goods and the service tax demand has already been dropped in the adjudication order But a Debit Note No. 8026180 dated 05.11.2013 was issued by SELAS -Linde GMBH to M/s Linde Engineering India Pvt. Ltd , wherein they have charged 38029.50 Euro towards "Engineering Services for LEI by Mr. Arnold Ulsperger from 06/2013 until 10/2013 and 11160.14 EURO towards Travel costs for Mr. Amold Ulsperger and 440.83 Euro towards Protective Clothing. From the debit note no. 8026180 d....
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....on and database access or retrieval services" are services in relation to online information and database access or retrieval or both, in electronic form through computer network, in any manner. Thus, these services are essentially delivered over the internet or an electronic network which relies on the internet or similar network for their provision. The other important feature of these services is that they are completely automated, and require minimal human intervention. Examples of such services are:- (ii) digitized content of books and other electronic publications, subscription of online newspapers and journals, online news. flight information and weather reports; the underlying expense can be classified under the category of 'On-line information and database access or retrieval service' ('OIDAR services); that for the period April 2011 to June 2012, the Appellant relies on the judgment of ROYAL WESTERN INDIA TURF CLUB LTD. VS COMMR. OF S.T., MUMBAI [2015 (38) S.T.R. 811 (TRI. - MUMBAI)-wherein it has been held that as an essential for service tax to be levied, the service has to be classified under proper category of service, without su....
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....As the service providers were outside India, the service cannot be taxed in India. We therefore set-aside the demand for the service under the head "Purchase of books and magazines". (iv) Other (a) REIMBURSEMENT OF INSURANCE CHRGES (b) REIMBURSEMENT OF RELOCATION CHARGES OF EMPLOYEES (c) SCHOOL FEES (d) REIMBURSEMENT OF SALARY PLUS OTHER REIMBURSEMENT (a) REIMBURSEMENT OF INSURANCE CHRGES 12. The Ld. Counsel has argued that the employees of group companies of the Appellant come on secondment and work in India; as per the employment contract which binds the Appellant and the employees of the Appellant in employer employee relationship, the Appellant is bound to reimburse health insurance premium paid by the group company of the Appellant to the insurance company situated outside India; the said payment has not been made by the Appellant for availing any services; that such payments have been made pursuant to the employment contract between the employees of the Appellant and the Appellant. The said payments have been made purely under employer employee relationship. Hence, the question of levy of service tax does not arise. (b) REIMBURSEMENT OF RELOCATION CHAR....
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....ty to pay tax on the said services under consideration does not arise. (d) REIMBURSEMENT OF SALARY PLUS OTHER REIMBURSEMENT 12.3 The Learned Counsel has argued that that the payments made by the Appellant are either of the nature of corporate cost allocation or reimbursement of expenditure incurred by employees or not in relation to expenses leviable to service tax; that the Appellant would also like to submit that as per the provisions of the Finance Act, the underlying expenses would be covered under employee-employer relationship and hence the liability to pay service tax does not arise. 12.4 On the other hand Learned AR has reiterated the findings in the adjudication order that all these expenses i.e. "REIMBURSEMENT OF INSURANCE CHRGES", "REIMBURSEMENT OF RELOCATION CHARGES OF EMPLOYEES", "SCHOOL FEES" and "REIMBURSEMENT OF SALARY PLUS OTHER REIMBURSEMENT" were incurred by them in corporate cost allocation and that the said expenses were made by them towards the taxable services, viz. Consultancy Services received by them from the persons situated outside India and they are liable for payment of service tax under reverse charge mechanism; that all the payments made by ....
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....er No. A/10699/2020 dated 26.02.2020 has remanded the matter to the adjudicating authority for passing afresh order, in view of the appellant's submission before the Hon'ble Tribunal that they are in a position to submit all documents in support of their defence; that as per findings in the adjudication order, still the appellant has not produced any documentary evidence to substantiate their claim that no service tax is leviable on the expense of Rs. 24,860.00 as demurrage charges paid in foreign currency. 13.3 We are of the considered opinion that under the service tax after law all payments received or paid to the foreign parties by the assessees against any service provided/ received from abroad (i.e other than goods , immovable property or money/actionable claims) are subject to tax unless those are brought under specific exemption. Once a discrepancy has been brought to the notice of the appellant for a particular amount, onus lies upon him to prove that the amount was not taxable. Having failed to prove that the amount paid in foreign currency was not subject to tax liability, we are of the view that service tax is leviable after 01.07.2012 on such payments. Purcha....