AI Drafter 
TaxTMI 
TaxTMI 
2024 (3) TMI 344
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.... the services received from foreign country. 1.2 The following two issues are involved in the present appeals:- (i) Whether the Appellants as a recipient of service are liable to pay service tax under reverse charge mechanism when the foreign service provider has supplied services to the Appellants through the service provider's Indian subsidiary and such subsidiary is therefore treated as having establishment in India under Section 66A (Explanation 1) of the Finance Act 1994. (ii) Whether the extended period of limitation has been rightly invoked for issuance of show cause notice. 2. Shri J. C. Patel, Shri Hardik Modh and Shri Amit Laddha, Learned Counsels appearing on behalf on the Appellants submits that the Appellants are engaged in the business of importing rough diamonds and exporting them only after cutting and polishing for which they require diamond processing machines that run on a specific type of software - HASP. He further submits that all activities including marketing & promotion, being the sole point of interaction, placing order, raising of invoice, advancing of payments, installation, repairs and maintenance and training of employees in fur....
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....no liability to pay Service Tax. He has placed reliance on the following judgments in support of their claim: - • Uniworth Textiles Ltd. vs CCE 2013 (288) ELT 161 • Simplex Infrastructures Ltd. vs Commissioner of Service Tax 2016 (42) STR 634 • Delhi International Airport Ltd. vs Commissioner of CGST 2019 (24) GSTL 403 • Binjrajka Steel Tubes Ltd. vs Comissioner of C. Ex. 2016 (342) ELT 302 • Roma Henny Security Service Pvt. Ltd. vs Commissioner of Service tax 2018 (8) GSTL 239 3. Shri R. R. Kurup, learned Superintendent (AR) on behalf on the Revenue reiterates findings of the impugned order. 4. We have carefully considered the submissions made by both the sides and perused the records. It is clear to us that the Appellants have business establishment in India that they are purchasing goods from a foreign country and using them as a part of their business activities. It is also very clear to us that they are receiving various types of services in respect of the said goods such as installation, marketing, promotions etc. It is abundantly clear to us that the goods are provided by companies situated outside India ....
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....dia and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1.- A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. (emphasis applied) Explanation 2.-Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally consulted.]" The rationale behind the scheme of levy of service tax is that such tax should be levied on the value of taxable services that is provided by the service provider and received by the service recipient within the territory of India. The insertion of Section 66A of the Finance Act by the law makers embodies an exception to this general rule. Section 66A is an independent charging provision which in its simplest understanding provides for the levy of service tax in India on such services that are provided or to be provided by a person located outside India and such service having been received by a person located in India. Section 66A lays down that such services {sp....
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....promotes the said software to the clients in India; • Point of interaction: Sarin India acts as the sole point of interaction to the Indian Clients for any information / price / terms and conditions, etc. of the software; • Order: The Indian client places the purchase order to Sarin Indiaand Sarin India further send the same purchase order to Sarin Israel; • Invoice: After receipt of such order of purchase, invoice for the said softwaresare sent under the name of Sarin Israel to the Indian Client; • Payments: Payments were made to Sarin Israel upon instruction and details given by Sarin India; • Installation: The software is carried by Engineer of Sarin India on CD / Pen Drive and then installed at the Indian Client's place; As apparent from the Invoice of Sarin (See page 177 of Appeal for example), the prices include onsite installation and training. It is evident from the Installation reports (Pages 204 to 230 of the Appeal) that the installation and training are carried out in India by engineers of Sarin India. The sample copies of Invoice of Sarin Israel and Installation report are scanned below evidencing the....
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....Agency carrying on business in India for Sarin Israel and Galatea Israel and therefore, service tax is liable to be paid by the service provider and not by the service recipient. 3. It is observed that Sarin India was performing all the activities in regard to supply of software, starting from placing of order till installation, upgradation and maintenance of software, installation and other relevant processes. Sarin India is an extension of business activities of Sarin Israel, which has been carried out in India and hence, it can be termed as fixed establishment through which business of Sarin Israel was conducted in India. 4. As submitted by the appellants which is not under dispute that all the companies of Sarin Group are working under the common management which reveals from the audited financial statements of Sarin India: • • In Director's Report, director recorded their appreciation stating that "Your directors would like to place on record its appreciation for the corporation and assistances provided by its collaborators i.e. Sarin Technologies Ltd. Israel and look forward to the continued support in future." This statement cl....
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.... 4.5 Our above view is supported by the decision of Nagarjuna Oil Corporation Ltd. v CCE Puducherry, 2017 (47) STR 96 (Chennai) wherein this Tribunal has taken the following view: "5. The only point for determination is the Appellants's liability to service tax on reverse charge basis in terms of Section 66A. The admitted facts are that there is an agreement between the Appellants and NOC BV, Netherlands. NOC BV, Netherlands has an establishment in India recognized by various authorities in terms of applicable regulations. The Indian establishment of NOC BV, Netherlands have registered themselves with the service tax department and remitted the full tax liability with reference to the impugned contract. The original authority while taking cognizance of the existence of NOC BV in India, proceeded to confirm the service tax demand on the basis that the agreement is with NOC BV, Netherlands and the consideration is paid in foreign exchange. We find that Explanation 1.- under Section 66A stipulated that "a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country." In the instant case, NOC....
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.... services from the Bangalore establishment. All the invoices pertaining to the receipt of services had been duty issued by the service provider viz. M/s. CSA International, Canada, whose establishment (Canadian Establishment) is found in Foreign Country. 21. In terms of second proviso to Section 66A (1) (b), which reads as "where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided". It is observed that M/s. LEDL is liable to pay the service tax for the services received by them in as much as they had no direct connection with Bangalore establishment (i.e. M/s. CSA India Private Ltd., Bangalore) whereas the direct connection with M/s. CSA International, Canada is quite obvious from records." ............The lower appellate authority made contrary observations that the Foreign Service provider did not have any office in India. Whereas in his findings, he has fastened liability to pay service tax on the Appellants basi....
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....re of a foreign enterprise in another, which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country onto the soil of another country." Article 5 of the DTAA entered into between Israel and India has been referred to by the Appellants in their submissions. It reads as under:- "Article 5 - Permanent Establishment 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) a sales outlet; (h) a warehouse in relation to a person providing storage facilities for others; and (i) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on. ....
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....ischarge of liability of service tax cannot be made applicable to the Appellants. Therefore there is no second thought required to be arrived at the conclusion that the Appellants had received goods from a foreign country and services in its extension from service provider in India through the said foreign company's Branch office at that time one of which is located in India thereby sufficiently establishing that they have a permanent establishment hence the Appellants cannot be fastened with the liability of service tax for being a recipient of service under section 68(2) of the Finance Act read with rules 2(1)(d) as a 'deemed service provider' in India. 4.9 As regards the second issue, the Learned Counsel for the Appellants has made submissions on the grounds of both revenue neutrality and limitation. 4.10 It is observed from records that there was no intention on the part of the Appellant to evade Service tax which can be proved by the fact that the Appellant was entitled to avail CENVAT credit of Service tax paid under the Reverse Charge mechanism and claimed refund of unutilized amount of service tax paid under Rule 5A of CENVAT Credit Rules, 2004 on export of the goods ....
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....na fide belief that there was no liability to pay Service tax. This proposition is supported by Hon'ble Apex Court judgment in Uniworth Textiles Ltd. v. CCE, Raipur reported in 2013 (288) E.L.T. 161 (S.C.), wherein it was held that the extended period of limitation is not invokable for mere non-payment and requires a deliberate default on the part of the assessee, is also applicable. 4.14 It is trite law that the extended period of limitation can be invoked only if there is an allegation of collusion, willful misrepresentation or suppression of facts against the Appellant. It is an admitted position that the Appellant filed the statutory returns providing all relevant details therein. The Appellant submits that the payment made to Sarin Israel, Galatea Israel and Diamsoft Company Inc. of UAE were shown as capital goods (Tangible Assets) under the Plant & Machinery and the Appellant was claiming depreciation on them. Further, the amount paid to foreign company towards usage of software i.e. Pay Per Carat (PPC supplied by M/s. Galatea Israel) has been shown in Labour Optimizing expenses under the manufacturing expenses in Profit and Loss Account. The abovementioned eviden....
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.... no one stated that the Appellant had any intention to evade the liability for payment of Service Tax. In such circumstances, when the Appellant has no malafide intention to evade the payment of Service Tax, larger period of limitation is not invocable. 4.19 We also find force in the submissions on behalf of the appellants that the issue involved is an interpretational issue and the bonafide interpretation of the Appellants was that they were not liable to pay Service tax as the suppliers were providing service through their Indian arm having a fixed establishment in India and therefore, based on a strict reading of the provisions of law, the Appellant was not liable to pay Service Tax. Being similar circumstances involved, the following case laws support the appellants' case: • Tata Consultancy Services Vs. Commissioner, 2018 (18) GSTL 478 • Hindalco Industries Ltd. Vs. CCE,2018 (10) TMI 392 - CESTAT New Delhi • Uni Ads Ltd. Vs. CCE, [2016 (42) STR 547 (Tri. Bang.)] 4.20 This is pertinent to note that the entire diamond industry did not pay Service tax on value of software installed in the computer on the basis of the bonafide belief th....
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....Supply Sr.No Typets SANON 3 MHC PCI Card Sr.No: Vacuum Pump Sr.No Stage Motor 16K Bottom Light 16K Top Light Wiring Motor 8943 7354 HSI Normal P Computor Detalls-Hardware Operating System: Win Xp Processor: 706P es 243 Graphics Card: 5522 CPU Make: Mother Board: Memory: 18M HP 45 DELL Ram: 1 Gb 2 Gb Other: Liscence Key: Hasp Detalls SRM ÐаврÑ: m GARough Remarks/Comments: Haspshow GIA Polish C2V file Rocut Best Value Other: Engineer Name: Jignes Sign: Customer Name:" Sign: Office Use Only Team Leader Sign: Date: Date: Date: 7-10-09 Mumbal Office: 11/21, Ground Floor,Mani Mahal,Sanox Centre,Mathew Road, Opera House, Mumbai-400,004, Tel: 022-66555555 Surat Office: 89,A-1-D, Plot432, Brinks Arye House OppoZenith Mil Vastadevdi Rd Katragam Sural-395-008-Tel: 0261-2-32640 Document 2 207 ARIN Date C INSTALLATION REPORT 1675 L.R. No.: 105-06 Customer Name: Kloar Time Address: Vorochhe New Building -exports (Jiubhail L.M. Road. PIN: City: Surat Machine Co....
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.... Alarm Up- Relarm Details Subnet Mask Phone No inal Remark: Alarm Configured. 192.168 15.3 ONS 2525-0Default Gateway; kl. 15.20 150 con bjudand Sig For asps: Mut any part missing Surar Damaged Engineer Name ustomer Name 1000 anager SRM Hasp Show Sign Sign: Sun Signs Document 4 RIN DOES NOW PVT LTD. INSTALLATION REPORT 29/05 oner Name: Kiran fixports L.H.Road Suncit PIN: chine Configuration : (To be filled in by the Installation Engineer) 230 L.R. No.: 520/04-05 Time: 3 City: Sunit Machine Type: Dia Expert DiaMark-2 DiaExpert SL DiaScribe DiaScan Colorimeter DiaScan S DiaMension Machine Serial No.: 55291411-30456 Lens 1/ 3/4/1.1/☠1.2/☠122/ 1.3/☠Laser Mapping Module Yes S/N Laser Marking Module Yes S/N 3casas 1417 100-0518 NO NO HASP Plug: Application: Octonous Computer Configuration: Operating System: Win 98 Win 2000 Win XP System Configurations CPU: P-III P-IV RAM: 128 256 ☠512 ☑ HDD FDD 1.44 CD-R ✓ CD-RW ☠Others ....
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....s being delivered by Sarin to carrier. (CIP) Payment to: Sarin Technologies Ltd. Bank Leumi Le-Israel Ltd. (10) Bursa Business Branch (743) Account: 1108480060 Ramat Gan Israel Swift: LUMIILITXXX Sincerely, Dikla Vaisman SAJUN TECHNOLOGIES LTD Tel: 972-7603500 Sarin Technologies Ltd. Document 6 Technologies Ltd. Yeda St., Kfar-Saba,Israel 44643 Israel 972-9-7903500 Fax: 972-9-7903501 Number: 557405941 xporter Number: 511332207 To: Kiran Gems Pvt. Ltd 109 Prasad Chambers, Opera house Mumbai India Attn: Jitubhai/Vashrambhal Tel.: 9122 23676341 ORIGINAL Delivery: Kiran Gems Pvt. Ltd2 Plot No. 9, Near Affil Tower, 177 SARIN SARIN TECHNOLOGIES LTD. URL: www.sarin.com E-mail: [email protected] Date: 24-Jan-2010 Print Date: 28-Jan-2010 L.H.Road, Varachha Surat India Price Quotation CQ10000178 - Hardware Item Part description Quantity Unit price Total price 0191-95 HASP HL Time Ver 3.21-6.1 RoHS 3.00 ea US$ 39.00 555030 HASP HL Time Ver 3.21-6.1 RoHS Courier Expenses 2.00 ea Included US$ 117.00 Included 1.00 ea US$ 90.....
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.... Calibration done. by Customes. Check Tow Stones mic Working 6f9. Completed Under Observation Pending Files Collected: Engineer Name: Dumps Pomo Auto Packs Sign: Customer Name: Sign: Office Use Only Team Leader: Sign: Screen Shots Srn File Date: 77 Date: Date: Mumbai Offices Sanox Centre, Mani Mahal, 11/21, Mathew Road, Opera House, Mumbai-400 004. Tel: 91-22-66555555 Surat Office: 89, A-1-D, Plot:432, Brink's Arya House, Opp. Zenith Mill, Vastadevdi Rd., Katargam, Surat-395 008. Tel.: 91-261-2532651 Document 8 In Name ordinator Logged Sarin Technologies India Pvt. Ltd. Service Call Report Tw Katargam No tockku Cove 748352 Varacha nsted Sarin Machine Details Call Report No: Rest Surat Date Tel Not 160 33367 Some propose visor Ver STO Attended Date: Type Of Call Wt. variation Image problem Problem Observed Light marking Marking break OS -DE-ML 05-5 Eye 05-5 Truscan achine Sr. No 5086947 O C06-94 DiaMark DM-Z Truscan Nane DM-N-Z DM-Nana DM-2-Diode No achine Sta....
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....Fres,Cotected: Call Status Customer Name Demo Executive: Co-ordinator Team Leader: Demo Head nemark: 8211& સખાન (માધો ન હતા. Complete Malercha Under Observation RoyRe OFFICE USE ONLY Bign Sign Bign Pending Date: Date Date: Date Date: Mumbai Office: 11/21, Ground Floor, Mani Mahal, Sanox Centre, Mathew Road, Opera House, Charni Road, Mumbai- 400 004, Tel: 6655 5555 Surat Office: 89, A-1-D, Plot No.432, Brink's Arya House, Opp. Zenith Mill, Vastadevdi Road, Katargam, Surat-305 008. Tel: 91-261-253 2640 Document 10 Sarin Technologies India Pvt. Ltd. Service Call Report Katarganaracha Rest Surat Explos LH Bol Auto:cont Sarin Machine Details 161 8581 Call Report No: Date: 2 Tel Nos 04-5 05-5+ CDE-ML Eye Truscan DE-SL Eve Truscan Nano DiaMark DM-2 DM-N-Z DM-Nano DM OM-Lab Orcidia Colibri achine Sr. No: 50834+ 31347 DM-Z-Diode Not Too: 175 1.1 1.5 1.4 chine Statuar Warranty AMC Chargeable Call Computer Details Hardware C ta RAM ....
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....-ordinator Team Leaders Demo Head Sign Date Sign Date Sign Date 1 Remark Mumbal Office: 11/21, Ground Floor, Mani Mahal, Sanox Centre, Mathew Road, Opera House, Charni Road, Mumbai-400 004. Yel: 66555555 Karst Office 89 4-1-n Pint Nn 43 Brink's Arva Hu Ona, Zenith M. Vastadevdi Road, Katargam, Surat-395 008. Tel.: 91-261-253 2640 Document 12 ARIN 164 Sarin Technologies India Pvt. Ltd. Demo Call Report GURAT 3926 Call Report No., Date: 11/1/12 Kinom Excret Pintabl Cal Amended by Co-ordinator Demo Ting plven on the following utare type Version Designation anexed Call Start Time: Tel. No. Call and sime: Training Feature request Cal Training Call Roperators name Signature of Operators 47870 We are satisfied with today's training. If we feel any difficulty to operate the software, we will call you Training Required Next Day Department Head Name: Machine No Purpose of Call No Signature of Head of the Department Other Calls (Bugs, Requests, Other) Machine Type: Problem Observed: 53 (24-12753-6LL-HR-341-E SOM HE 21244 011 8 2323 201 ....