TaxTMI 
TaxTMI 
2025 (2) TMI 901
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....rder has been passed in respect of the issues raised vide SCN dt.11.12.2012 for the period 01.04.2011 to 31.03.2012. The common issues involved in both the appeals are as follows:- a) Whether services consumed entirely abroad is taxable under section 66A of the Finance Act, 1994 and b) In the facts and circumstances of the case, who is the service recipient viz., (i) the appellant or (ii) the liaison office of the appellant or (iii) USA based clients of the appellant. 2. The Adjudicating Authority, vide his impugned order, inter alia, relying on the provisions of section 66A, came to the conclusion that the appellants have received Manpower Recruitment & Supply Agency Service (MRSAS) and not the liaison office of the appellant and therefore, the appellant is liable to pay service tax on reverse charge mechanism (RCM). The Adjudicating Authority has relied on the judgment of Hon'ble Allahabad High Court in the case of Glyph International Ltd Vs UOI [2012 (25) STR 209 (All)] and judgment of Hon'ble Bombay High Court in the case of Indian National Shipowners Association Vs UOI [2009 (13) STR 235 (Bom)], wherein the constitutional validity of section 66A was upheld....
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.... provisions relating to service tax with regard to import of service from outside India is governed by Service Tax Rules, 1994, which was notified vide Notification 02/1994 dt.28.06.2004. As per Rule 2(1)(d)(iv) (w.e.f. 19.04.2006), a person is liable for paying the service tax in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service will be the person liable for paying such service tax. 4. Learned Advocate has mainly relied on the judgment of Mumbai bench of this Tribunal in the case of Sharda Cropchem Vs CCGST & CE, Mumbai West [2023 (7) TMI 1121] to support that in the event of no consumption of service in India, section 66A would not make the recipient of service liable for service tax. Since it is an undisputed fact that the services were procured outside India and also consumed outside India, therefore, there cannot be any service tax liability on the appellant under RCM. They have also relied on the following judgments;- a) Infosys Ltd Vs CST Bangalore [2014-TIOL-409-CESTAT-Bang] b) KPIT Cummins Infosystems Lt....
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....he appellant and there is no such provision under the law that it must also be consumed in India, apart from being received, for invoking section 66A, on plain reading of the provisions. He has also contested that the grounds taken as regards revenue neutrality is also not correct, inasmuch as the judgments of the Hon'ble Supreme Court in the case of Star Industries Vs CC (Imports), Raigad [2015 (324) ELT 656 (SC)], has, inter alia, held that revenue neutrality cannot be the criteria as such, for the appellant to claim the relief. Inasmuch as the Hon'ble Supreme Court felt that had it been a case of revenue neutrality, there was no need for the appellant to be in appeal against the case. He has also relied on certain other judgments to support that revenue neutrality cannot be the criteria for dropping the demand. 9. Heard both sides and perused the records. Since in both impugned orders, the common issue is taxability on Manpower Recruitment or Supply Agency service received by the appellant in terms of section 66A, apart from some other ancillary services, we propose to take up both the appeals together for disposal. 10. On perusal of the impugned orders, it is apparent tha....
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....e 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 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 ....
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....-clauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, be such services as are received by a recipient located in India for use in relation to business or commerce. Provided that where such taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient." 13. He has also considered that the Hon'ble High Court of Allahabad in the case of Glyph International Ltd Vs UOI (supra) clearly held that insertion of section 66A w.e.f. 18.04.2006 is legal and proper by holding that no demand can be made in terms of the said provision for the period prior to that date by way of certain rules and notifications issued under diffe....
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....f availing foreign agents services for procuring export order, for which commission was paid, was considered. It was held by the Adjudicating Authority that since service is in the nature of BAS and despite both the service provider and service recipient being outside India, the taxability was sustained invoking the provisions of Rule 3(1)(iii) of TSPOI Rules, 2006 w.e.f. 18.04.2006. 16. We find that the Adjudicating Authority has also examined one of the contracts, which clearly provided that contract is between the appellant and Plutus Solutions Inc., located at 5350, Amesbury No.2111, Dallas, Texas 75206 (sub-contractor). On going through various provisions, he found that the appellants have entered into contract with their clients for software development and in order to execute software development work, they have procured skilled personnel by manpower supply agencies like Plutus Solutions Inc. He has also observed that the liaison office of the appellant has no locus with regard to service being provided to the clients in view of the fact that the payment for services rendered by the sub-contractor is required to be made by the appellant and not by any other branch or agen....
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....es. The argument by the appellant that it is the liaison office, who is the recipient of the service or going even to the extent of suggesting that it is the client in the USA, who is the recipient of the service, is not tenable in the facts of the case and going by the agreements between the appellant and all these parties. 18. A great deal of reliance has also been placed on the fact that there has not been any actual receipt of manpower services in India and therefore, it has not been partly or wholly consumed in India. In other words, the argument is that even if they are recipient of service, it also needs to be consumed in India, then only they will be covered within the ambit of section 66A. We find that this argument is not tenable inasmuch as the plain reading of section 66A would itself indicate that there is no such requirement that it must also be consumed in India. The mere fact that the basic conditions that the service recipient should be located in India, service provider is located outside India and the services are received by the recipient would bring it within the ambit of section 66A, which is the deeming provision or a legal fiction to bring the recipient o....
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....a), the Hon'ble High Court of Allahabad, inter alia, held that section 66A of the Finance Act, 1994 creates legal fiction to deem import of service so that the provisions of Chapter V can thereon be applied. The facts have been summarized at Para 41 & 42 of the order of the Hon'ble High Court, which are cited below for ease of reference. "41. The charge of the Service Tax to be levied under Section 66A with the enactment of the Finance Act, 2006, is on the services received from outside India. It is not denied that the petitioner company has a fixed business establishment in India. The services by the foreign company, however, it is stated, are not received by the petitioner in India, and is in fact being rendered outside India for promotion of its business. The petitioner is specialised in providing customized solutions to publishing industry which includes publishing related services, composition, art and media services. The SSLC is a Corporation having its presence in Florida, USA and is promoting such services in USA under which SSLC provides front end support to USA based clients. Both the companies have a shared working relationship, under which SSLC has to promote p....
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.... has to be rendered in India as well as utilised in India. Where both these conditions are not satisfied, the income is excluded from the ambit of taxation in India. It was further held that only such part of income as is attributable to operations carried out in India, can be taxed in India. For profits to be attributable directly or indirectly, permanent establishment must be involved in activity giving rise to profits. The Court while interpreting Section 9 (1) (vii) of the Income Tax Act held that it is necessary that the services not only be utilised within India, but also rendered in India or have such a live link with India that the entire income from fees as envisaged in Article 12 of the Double Taxation Avoidance Agreement (Between India and Japan) becomes taxable in India. In the facts of the case the Court held that there was nothing to show that the income derived by a non-recipient company irrespective of were rendered was utilised in India and since the entire services were rendered outside India have nothing to do with the permanent establishment, could not be held to be attributable to the permanent establishment and therefore not taxable in India. The case was deci....
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....in the USA. Therefore, they would also not help the argument of the appellant. 22. Insofar as the argument of revenue neutrality is concerned, we find that they have relied on the judgment of coordinate bench at Mumbai in the case of Jet Airways (I) Ltd Vs CST, Mumbai (supra), wherein the Tribunal has relied on the earlier judgment of Tribunal in the case of British Airways [2014-TIOL-979-CESTAT-Del], Thai Airways International Public Co. Ltd [2013-TIOL-1117-CESTAT-Del] and Austrian Airways [2014-TIOL-1574-CESTAT-Del], wherein, by majority decision, it was held that in the facts of the case, Cenvat credit was admissible, which could have been further utilized for discharge of service tax liabilities and therefore, the demand is not sustainable on this ground of revenue neutrality even though on merit, it is sustainable. As against this reliance, the Revenue has relied on catena of judgments to support their argument that revenue neutrality cannot be a defence for not paying service tax, if otherwise found legally tenable. They have placed reliance on the decision of coordinate bench at Delhi in the case of Max Tech Oil & Gas Services Pvt Ltd Vs CST, Delhi [2017 (52) STR 508 (Tri....
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.... service. Accordingly, following the ratio of the Hon'ble Apex Court judgment in the case of BSNL cited above, I have no hesitation to hold that this is a service contract and is leviable to a tax of service. Once that is clear, what remains to be seen is whether the above service merits to be termed a taxable service and particularly under BSS, as alleged in the notice. It is seen that by definition, 'Support services of business or commerce' means 'services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation for customer service and pricing policies, infrastructural support services and other transaction processing.' Explanation:- For the purposes of this clause, the expression 'Infrastructural support services' includes providing office along with office utilities, lounge, reception with competent personnel to handle messag....