TaxTMI 
TaxTMI 
2025 (1) TMI 1037
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....has also filed an appeal bearing No. 88873/2018 being aggrieved against the dropping of demand for the period prior to 01.05.2011 in the same impugned order dated 25.05.2018. 2.1 The brief facts of the case are that the appellants herein is a banking company operating through various branch offices situated across India and having their head office in London, United Kingdom i.e., Standard Chartered Bank, UK (for short, referred to as "SCB-UK"). The SCB-UK has an extensive global network of its branches all over the world including India. The appellants provide various services to their customers such as trade services, cash management operations, utilities, loans processing, securities services, credit risk control, financial market operations and compliance & assurance, handling transaction processing activities across various product lines including credit cards, personal loans, current account and savings account, mortgage raising and corporate Finance solutions across all its domains. In order to provide support to all its global branches SCB-UK being the head office incurs certain expenses under the various heads such as advertising, auditing fees, donations, en....
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....the period from October, 2009 to December, 2016) and 21.03.2018 (pertaining to the period from January, 2017 to June, 2017), had confirmed service tax demands of Rs. 366,46,36,354/- out of the total demand proposed in show cause notices of Rs. 396,30,85,469/- along with interest on the appellants under Section 73(2) read with proviso to Section 73(1) of the Finance Act, 1994 and also imposed penalties on the appellants under Sections 76, 77 and 78 ibid. 2.4 Further, learned Commissioner had dropped the demand for an amount of Rs. 29,84,49,115/- in the course of adjudication, on the ground that the services in the nature of operational or administrative assistance were included in the taxable service of "Business Support Services" vide a prospective amendment to the definition w.e.f. 1.5.2011. Therefore, for the period prior to 1.5.2011, the term "Business Support Services" did not include the phrase "operational or administrative assistance in any manner" and thus he held that service tax demand under the head "Business Support Services", prior to 01.05.2011, does not get covered under the scope of definition of 'support services of business or commerce' and therefore the ....
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....f of them. Further, SCB-UK has also not raised any invoice or debit note on the appellants for recovering the head office expenses. No consideration has been charged in the present case as no amount is actually paid by the appellants to SCB-UK towards the allocation of head office expenditure. Therefore, he claimed that the appellants are not liable to discharge service tax in absence of consideration. 3.4 Learned Advocate further stated that SCB-UK has allocated the expenses incurred by them among global branches based on appropriate allocation drivers such as turnover, head count etc. Such apportionment of head office expenses is only for the limited purpose of compliance with income tax laws and it does not put an obligation on the appellants to make payment to SCB-UK. The allocated amounts were not paid by the appellants to SCB-UK. Also, the allocated expenditure is merely on cost basis without any mark-up. Hence, he stated that such an arrangement of cost sharing will not be liable to service tax. 3.5 Learned Advocate further submitted that Section 66A (prevailing upto 30.6.2012) deals with a scenario when a taxable service is provided by a person located out....
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....unsel claimed that the department's understanding that HOA expenses are consideration for the support services provided by head office of the appellants (SCB-UK) in terms of section 67 of the Finance Act, 1994 is correct. He further stated that if no expenses have been incurred by the head office (SCB-UK), then in that case no deductions will be available under section 44C of Income Tax Act, 1961. Since SCB has claimed such deduction, he stated that the appellants have actually incurred the HOA expenses attributable and allocated to the SCB-India for providing business support. The expenses incurred by SCB-UK are intrinsically and essentially linked to their business operation in India. 4.2 Further, he stated that SCB-UK, located in a non-taxable territory i.e. outside India was providing services and the same was subject to service tax under reverse charge as per Section 66A of the Finance Act, 1994. The said services qualified as import of service under section 65(105)(c) of Finance Act, 1994 prior to 1.7.2012 and qualified as import of services as per Rule 3 of Place of Provision of Services Rules, 2012 post 1.7.2012. 4.3 Since the Appellant and SCB-UK are associ....
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....ed as 'head office executive and general administrative expenses' apportioned by the headquarters of the appellants SCB-UK to the appellants as Indian branch office, involve payment of service tax under Sections 66A, 66B and 67 of the Finance Act, 1994 read with Place of Provision of Services Rules, 2012 (POPS). The services which are in dispute are Business Support Services (BSS) or 'support services', which were earlier covered under the specific category of taxable service viz. 'support services of business or commerce'. 6.2 It can be seen from the factual matrix of the case that the appellants have been allocated with certain costs towards the general administrative expenses incurred by their head office (SCB-UK) situated at London in United Kingdom. These expenses have been allocated at cost i.e., without any mark-up by SCB-UK to all its branches inter alia including the appellants, in compliance with Income Tax Act, 1961 and the extant regulations framed by the Reserve Bank of India in respect of remittance of profit by foreign banks operating in India. There is no service provider identified by the department, in the present case so as to bring the appel....
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.... other person, in relation to support services of business or commerce, in any manner; Post Negative List regime after 01.07.2012 CHAPTER V SERVICE TAX Extent, commencement and application. Section 64. (1) This Chapter extends to the whole of India except the State of Jammu and Kashmir. (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. (3) It shall apply to taxable services provided on or after the commencement of this Chapter. Interpretations Section 65B (44) service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an ....
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....anch or agency or representational office in any territory shall be treated as having an establishment in that territory; 65B(52) "taxable territory" means the territory to which the provisions of this Chapter apply; Charge of service tax on and after Finance Act, 2012. Section 66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of [Substituted for "twelve" by the Finance Act, 2015, w.e.f. 1-6-2015] [fourteen per cent] 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. Determination of place of provision of service. Section 66C. (1) The Central Government may, having regard to the nature and description of various services, by rules made in this regard, determine the place where such services are provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided. (2) Any rule made under sub-section (1) shall not be invalid merely on the ground that either the....
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....provision of the service. Place of provision of services relating to immovable property. Rule 5. The 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. Place of provision of services relating to events. Rule 6. The place of provision of services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, or entertainment or a celebration, conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall be the place where the event is actually held. Place of provision of services provided at more than one location. Rule 7. Where any service referred to in rule 4, 5 or 6 is provided at more than one l....
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....vice [section 65 (105) (zzzq)]: 5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource. 5.2 The words "operational and administrative assistance" have wide connotation and can include certain services already taxed under any other head of more specific description. The correct classification will continue to be governed by Section 65A." In view of the above, we find that the Government had clearly stated that the scope of taxable services under Section 65(105)(zzzq) ibid is being expanded and the scope of services to be covered w.e.f. 01.05.2011 are explained as those services which are in the nature of support activities for the ongoing business support functions. As these services are distinct from operational assistance for marketing which was covered earlier under the scope of taxable services, for the limited purpose of understanding and for....
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....a service provider from India, as a corollary are not liable for payment of service tax. Thus, it is clear that when any services are provided outside the taxable territory between two persons who are not connected to the branch office in India and the services not being provided to the appellants situated in India, such services cannot be brought under the tax net for payment of service tax. 6.6 We had also examined the legal provisions under the context of Place of Provision of Services Rules, 2012 (POPS) framed in exercise of the powers under Section 66C ibid and Section 94(2)(hhh) ibid. It transpires from plain reading of the above legal provisions, that for the limited purpose of date for determination of rate of service tax and the place of provision in certain services in specified situations, these POPS Rules have been framed. The place of provision shall in general be the location of recipient of service, except in certain circumstances specified therein. These exceptions include performance-based services, situations where services have been provided relating to immovable property, certain events such as celebration, conference, fair, exhibition etc., and certain....
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....e gross revenue, employee headcount, profits of each branch or other suitable allocation parameters. This allocation of expense is communicated by SCB-UK to the appellants vide an independent auditor's report. The said audit report consists of total head-wise expenditure incurred, basis of allocation or apportionment of the head office expenses to the branches and the amount which is allocated/attributed to the branches. The said audit report also categorically mentioned that the purpose of report is merely for compliance with local Income tax purposes. Further, at the end of every year, the appellants remit, a part of its surplus profits to SCB-UK (referred to as 'remittable surplus'). In case there is no remittable surplus profit for any year, then there is no remittance done by the appellants. For instance, the learned Advocate had pointed out that the appellants have not remitted any surplus to SCB-UK during the financial year 2011-12. The amount of surplus profit or the remittable surplus in respect of banking company incorporated outside India (foreign company) is subject to certain regulations prescribed under the Banking Regulation Act, 1949 and the circular issued by the R....
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....ssify the services under Section 65(105) of Finance Act, 1994, the receipt of 'business auxiliary service' by the assesseeappellant from its branches and the inclusion of reimbursable expenses for computation of gross receipts under Section 67 of Finance Act have been dealt in detail by this Tribunal in the case of Tech Mahindra Ltd., Milind Kulkarni Vs. Commissioner of Central Excise, Pune - 2016 (44) S.T.R. 71 (Tri. -Bom.). In the aforesaid case, the Tribunal has held that transfer of funds is nothing but reimbursements and taxing of such reimbursement would amount to taxing of transfer of funds which is not contemplated by Finance Act, 1994 and therefore set aside the demand of tax as having been made without authority of law. In view of the categorical decision of the Tribunal, the issues under dispute in the present case is no more open to debate, and a different view cannot be taken by this Tribunal. The relevant paragraphs of order of the Tribunal in the case of Tech Mahindra Ltd., Milind Kulkarni (supra) is extracted and given below: "9. The primary planks of the confirmation of demand in the impugned older are that the appellant and its branches are differen....
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....ich they operate. We notice that decisions of this Tribunal in Torrent Pharmaceuticals Ltd. v. Commissioner of Service Tax, Ahmedabad [2015 (39) S.T.R. 97 (Tri.-Ahmd.)] and KPIT Cummins Infosystems Ltd. v. Commissioner of Central Excise, Pune-I [2014 (33) S.T.R. 105 (Tri.-Mumbai)] have considered the subjection to tax by another State for deciding on exclusion from tax levied by the laws of India. A note of caution must be recorded here: this acknowledgement of evidentiary value is not intended to be construed as a condition sufficient for exemption. As the Tribunal expressed in re Torrent Pharmaceuticals Ltd. : '5.8 ... ... ... Therefore, payment of VAT abroad will be an indicator to decide whether service is provided and consumed outside India or has been consumed/received in India. The agreements/documents available with the appellant have to be accepted for the purpose of determining place of providing and consumption of service in India... ' That it is to be taken as an indicator arises from the absence of crossborder tax facilitation that extends availment of credit beyond the tax frontiers of the country. For these reasons, it is neither feasible nor necess....
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....urposes of this section. tax liability devolves on the appellant-assessee. 17. Tax-shifting arises from the nature of the levy. It is now well-settled that service tax is a destination-based indirect tax; its incidence is borne by the recipient of the service though mechanics of the collection are entrusted to the provider of the service. As a provider who is not within the tax jurisdiction of this country cannot be subject to such entrustment 'reverse charge' is resorted to. Furthermore, akin to the import of goods, equivalence requires that the tax be collected as though it was a domestic transaction with responsibility devolving on the taxable entity in the country. 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. ....
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....guish one from the other. The application of Finance Act, 1994 to such a business structure within India does not provide for a deemed segregation. Such a legal fiction in relation to overseas activities should, therefore, have a reason. 22. Section 66A of Finance Act, 1994 does not prescribe promulgation of any Rule for its administration. The two sets of Rules extracted supra are framed under the general provision in Section 94 of Finance Act, 1994. Moreover, the Rules draw upon Section 93 of Finance Act, 1994 in a manner akin to Export of Service Rules, 2005. It is noticed that the Taxation of Services (Provided from Outside India and Received in India) Rules, 2005 also mirrors the Export of Service Rules, 2005. That, however, cannot be taken as intent to tax the inflow of service merely because of a corresponding exemption accorded to the outflow of services. Reference to Section 93 as an authority for prescribing the Rules would make it appear that the purpose of the said two sets Rules is to exclude from tax such services that do not fall within the three classifications predicating the import of service. The residuary provision in the Rules of 2006 make it clearly t....
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....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 establishment in India which is essentially an exporter of services does not render the transfer of financial resources to the branch taxable under Section 66A. 26. The legal fiction of service rendered by overseas branch to its primary headquarters would appear to be intended to prevent escapement from tax by resort to branches specifically to take advantage of the principle of mutuality. When a service to be rendered in India by the primary establishment is deliberately routed through an overseas branch or when a service that would otherwise be contracted from an overseas entity is, instead, sourced through an overseas branch, this legal fiction will come into play. The transaction of the appellant-assessee and the branches which is under dispute before us being related to exports is unambiguously not intended to be taxed as it has nothing to do with business or commerce in India....
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....ent establishments in India and abroad as separate persons. This only clarifies whether a service is provided and consumed in India or abroad. If the 'permanent establishment' is treated as a 'service provider' to its own head office in India then it will amount to charging service tax for an activity provided to own self. Therefore, a comprehensive reading of Section 66A of the Act, would indicate that a permanent establishment situated abroad as a 'separate person', is only to determine whether the provision of service is in India or out of India. The contention of the Appellant, therefore, deserves to be accepted. 21. The Commissioner (Appeals) also observed that section 66A is an independent charging section for levy of service tax on services provided or to be provided to a person located in India. This observation of the Commissioner (Appeals) is not correct. The charging section is section 66 of the Act and not section 66A, as was observed by the Allahabad High Court in Glyph International Ltd. v/s Union of India xxx xxx xxx xxx 23. The confirmation of demand under the impugned order, ther....
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....harge under section 66A of the Finance Act." 8.4 In one other case involving demand of tax on transactions between head office situated abroad and branch office situated in India, the Tribunal have held that such transaction cannot be subjected to service tax levy as follows: "7. Regarding the contention of the Revenue with reference to deemed legal entity in terms of Section 66A, we note that the scope of the said provisions have been subject matter of various decisions of the Tribunal. We find in the present facts of the case, there will be no tax liability by invoking such provision. In Kusum Health Care Pvt. Ltd. the Tribunal relying on the decision of Torrent Pharmaceutical Ltd. - 2015 (39) STR 97 (Tri. -Ahmd.), Milind Kulkarni - 2016 (44) STR 71 (Tri. -Mumbai) held that the fiction created under Section 66A to consider the branch of an assessee as a separate establishment is not to tax a service rendered to its head office. On the same ratio, we hold that even service if any received by the branch office cannot be subjected to tax. 8. We note that the appellant has not received any service to be taxed in the present situation. The debit entrie....