TaxTMI 
TaxTMI 
2025 (12) TMI 516
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....ein after, referred to as "the impugned order") passed by the Commissioner of Central Excise & Service Tax-V, Mumbai. 2. Appellant company has filed this miscellaneous application seeking for change of name and address of the respondent arising on account of change in territorial jurisdiction of the Service Tax authorities after introduction of GST regime vide Notification No.13/2017-C.E. (N.T) dated 09.06.2017 and as the appellants-assessee presently comes under their jurisdiction. As the revised name and address of the respondent correctly reflect the revised jurisdictional departmental authorities, under whose jurisdiction the appellants-assessee is functioning for the purpose of indirect taxes viz., Service Tax/ GST, the miscellaneous application filed by the appellants is allowed. The prayer made by the Appellant is considered and the revised name and address of the respondent is duly incorporated for the purpose of disposal of the appeals. Registry is directed to incorporate the following changed name and address of the respondent in the appeal records for the purpose office records. "Principal Commissioner of Central Goods Service Tax (CGST) & Central Ex....
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....ellants during April, 2009 to August, 2014 on the following specific grounds by issue of Show Cause Notice dated 20.10.2014: (i) Rs.24,56,15,175/- on the taxable services provided by the appellants in respect of remuneration received from Marriott Hong Kong (AnnexureA to SCN); (ii) Rs.5,05,41,954/- in respect of remuneration of employees of hotel owners, since these persons are key persons who run the Marriott brand hotels as per the standards of Marriott group, and the same is includable in the operators fee being service cost for payment of service tax (Annexure-B to SCN); (iii) Rs.3,67,12,501/- in respect of reimbursement of charges made in foreign currency towards services received from foreign entities/affiliates of Marriott group of companies (Annexure-C to SCN); under Section 73(1) ibid along with interest and for imposition of penalty on the appellants under Sections 76, 77, 78 ibid. Further, specific proposals were also made in the SCN for imposition of penalty on appellants Shri Paul Foskey, Director and Shri Rajeev Menon, Area Vice President, of the appellant company under Section 78A of the Act of 1994. The matter arising out of the show ca....
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....ts have submitted certificates from the hotel owners stating that they have discharged their service tax liabilities on these payments made to other Marriott group entities. 3.2 Learned Advocate further stated that the appellant company also entered into operating agreements with hotel owners who agreed to run / operate the hotel under a Marriott brand. The operation agreement enabled appellant company to operate and manage the hotel property belonging to the hotel owners as per Marriott system/standards. The key activities stipulated in the operation agreement are (i) recruitment and supervision of Hotel employees; (ii) establish prices for various services provided by the Hotels; (iii) managing funds (payables/ receivables) of the Hotel; (iv) establishing/monitoring administrative policies; (v) arrange and supervise marketing/ advertisement programs; (vi) overview and maintain the Hotel property at all times and (vii) various other operation related oversight / overview services. The consideration for these services were defined in the agreement as a fixed percentage (generally 0.25%) of the gross revenue of a p....
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.... has been held by the Hon'ble Supreme Court in the case of Paul Merchants Vs. Commissioner of Central Excise, Chandigarh - 2013 (29) S.T.R. 257 (Tri. Del.) and Arcelor Mittal Stainless (I) Pvt. Ltd. Vs. Commissioner of Service Tax - 2023 (8) TMI 107. (ii) For the period 01.03.2010 to 30.06.2012, since the only essential condition of Rule 3(2)(b) of the Export of Service Rules, 2005, being the value of services provided is required to be received by the service provider in convertible foreign exchange, having been fulfilled and the condition of Rule 3(2)(a) ibid having been omitted, there is no ground for sustaining the demand of service tax on the appellants. (iii) For the period 01.07.2012 to 30.06.2012, for confirmation of demand in the impugned order, it has invoked Rules 3,4,7 and 8 of Place of Provision of Services Rules. 2012, whereas the SCN had only invoked Rule 5 and the other rules have not been invoked in the SCN. There is clear distinction between the services provided by them with respect to 'operations agreement' with prospective hotel owners for operation and management of hotels; and with the 'intercompany commercial services agreement' where overv....
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....hat the impugned order upholding confirmation of the adjudged demands cannot be sustained. 4. On the other hand, learned AR appearing for the Revenue reiterated the findings recorded in the impugned order. He submitted that the appellants have not fulfilled the requirement of Rule 3(1)(iii) of Export of Service Rules, 2005 and Rule 6A of the Service Tax Rules, 1994 to claim that the services rendered by them to Marriott Hong Kong, could be treated as exports. The agreements entered into by the appellants viz., 'operations agreement' with prospective hotel owners and 'intercompany commercial services agreement' with Marriott Hong Kong are functionally the same, but structured in an artificial manner, but it directly supports the hotels situated in India. Reimbursement of expenses and consideration for management service, though shown as salaries, are required to be added to the value of services, but was undervalued by suppression of facts with an intention to evade service tax by the appellants and therefore invocation of extended period is appropriate. Therefore, he submitted that the impugned order is sustainable. 5. Heard both sides and perused the case records along with ....
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.... Marriott group entities viz., Marriott International Licensing Company, B.V. Amsterdam for international advertising, marketing, promotion and sales program; license of courtyard trademarks; training program, reservation systems, property management systems and other systems; e-commerce services, with individual hotel owners. Besides this, there is also a 'agency agreement' between Marriott Asia Pacific Management Limited, Hong Kong and Marriott International, Mary Land, USA. 7.2 On going through above referred agreements, it reveals that the various agreements have the following different purposes, viz., (i) Technical Services Agreement is for reviewing the design of the hotel and assistance in developing and construction of hotel as per Marriott standards; and this is entered into between the Marriott USA entity i.e., Marriott International Design & Construction Service Inc. and the hotel owner (placed at Pg.158-212 of Vol. IV of paper book) (ii) License and Royalty agreement (LRA) for obtaining a license to use the brand names, 'Courtyard' trade mark for hotel services and other related goods and services; and this agreement is entered into between the Marr....
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....blish prices for various services provided by the hotels; manage funds (payables/ receivables) of the hotel, Establish/ monitor administrative policies, arrange and supervise marketing/ advertisement programs, overview and maintain the hotel property at all times and various other operation related oversight/ overview services. The consideration for such services are paid to the appellants exclusive of applicable taxes. The consideration for such services are fixed as a percentage of gross revenue of a property. Further, the hotel owner is responsible for payment of all taxes directly into the government account as specifically provided for in clause 11.27 therein (placed at Pg.62-137 of Vol. IV of paper book). (ii) The appellants have also entered into 'shared services agreements' with various hotel owners to provide certain services such as reservation services, e-commerce services and other shared services. The purpose of such agreement was to achieve cost efficiency and effectiveness in performance of certain common services which were required by each hotel owners, in order to maintain the established standards of Marriott. (placed at Pg. 213-230 of Vol. IV of paper b....
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....ppellants to their Marriott Hong Kong entity. In terms of the Export of Services Rules, 2005 for the period prior to the amendment of Rule 3(2)(a) w.e.f. 01.03.2010, i.e., prior to 01.03.2010, in order to comply with the Rules of 2005, for treating the service provided to an entity abroad as 'export of service', the following twin conditions are required to be satisfied viz., (i) such service shall be provided from India and used outside India; and (ii) payment for such service is received by the service provider in convertible foreign exchange. However, subsequent to the amendment w.e.f. 01.03.2010 by omitting the Rule 3(2)(a) ibid, the only condition for treating the service as export is the receipt of consideration for the services provided in convertible foreign exchange. 7.5 In the present case, the receipt of foreign exchange from the Marriott Hong Kong/Marriott foreign entities by the appellants are not in dispute, as the same has been duly recorded in their books of accounts and have been declared to the government authorities. On careful perusal of the various agreements entered into between the appellants with the Marriott foreign entities, it transpires that the relat....
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....4th February 2009 [2009 (13) S.T.R. C87] on the applicability of the provisions of the Export of Services Rules, 2005 in certain situations. It had clarified on the expression "used outside India" in Rule 3(2)(a) of the Export of Services Rules, 2005 as prevalent at that time. The condition specified in Rule 3(2)(a) has since been omitted vide Notification 6/2010-S.T., dated 27 Feb. 2010. In the context of the stated Circular an issue has been raised, whether for the period prior to 28-2-2010 the requirement that the service should be "used outside India" invariably means the location of the recipient? 2. In the stated Circular it was inter alia, clarified that the words, "used outside India" should be interpreted to mean that "the benefit of the service should accrue outside India". It is well known that services, being largely intangibles, are capable of being paid from one place and actually used at another place. Such arrangements commonly exist where the services are procured centrally e.g. audit, advertisement, consultancy, Business Auxiliary Services. For example, it is possible to obtain a consultancy report from a service provider in India, which may be used eithe....
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....ed to be independently satisfied for availing the benefit of an export. 6. These instructions should be given wide publicity among trade and field officers. Please acknowledge receipt. Hindi version follows." On plain reading of the CBIC circular, particularly the clarification at paragraph 4 establish that accrual of benefit from the services provided by the appellants and their use for the benefit of foreign entity would qualify for export. 8.1 In this regard, we find that in the case of Arcelor Mittal Stainless (I) P. Ltd. (supra), the Larger Bench had examined the identical issues under dispute, in a greater detail and have answered all the questions raised on the doubt whether such services would qualify for 'export' or not, in the context of the liability for payment of service tax. The relevant paragraphs of the said decision of the Larger Bench of the Tribunal is extracted and given below: "M/s. Arcelor Mittal Stainless International India Pvt. Ltd. Arcelor India, the appellant, is a wholly-owned subsidiary of Arcelor Mittal Stainless International, Paris, France Arcelor France. It was appointed as a subagent by Arcelor France, a commission agent for....
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....ivision bench, accordingly, referred the following questions of law to be determined by a larger bench of the Tribunal: (i) What is extant and scope of phrase "such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India" used in Rule 3(3)(i) of Export of Services Rules, 2005 upto 18-4-2006. (ii) What is extant and scope of phrase "such service is delivered outside India and used outside India" used in Rule 3(2)(a) of Export of Service Rules, 2005 from 19-4-2006 to 28-2-2007. (iii) What is extant and scope of phrase "services provided from India and used outside India" used in Rule 3(2)(a) of Export of Services Rules, 2005 from 1-3-2007 onwards. (iv) Whether the services rendered to foreign entity located outside India for development of its business in India will qualify as Export of Service in terms of the above phrases used in the Export of Services Rules, 2005 from time to time and the decision of Apex Court in case of GVK Industries? 7. What has to be examined is whether the service provided by Arcelor India would be 'export of service'....
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....siness in India, the services received by Arcelor France, even though it is located outside India, would be in relation to business activities in India in view of the decision of the Supreme Court in GVK Industries. Reliance placed by the division bench on GVK Industries, as noticed above, is misplaced. The decision of Supreme Court in GVK Industries is based on an interpretation of Explanation (2) to section 9(1)(vii)(b) of the Income-tax Act, under which the income is deemed to have accrued in India. The Finance Act and the 2005 Export Rules do not contain a provision providing a deeming fiction. The distinguishing features of the decision of the Supreme Court in GVK Industries have been pointed in the earlier paragraphs of this order. The decision of the Supreme Court in GVK Industries, therefore, cannot be applied to the facts of the present case. 54. The four issues raised in the reference order have been dealt with extensively and as they are intermingled, the reference is answered in the following manner: (i) Arcelor India, a service provider, is providing BAS service to Arcelor France, which is a service recipient. Arcelor India is, therefore, providing se....
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....iew taken by it in the cases of KSH International Pvt. Ltd. v. Commissioner and B.A. Research India Ltd. The case of the present respondent was said to be covered by orders in these two cases. To our mind, once the Hon'ble Supreme Court has taken the view that Service Tax is a value added tax which in turn is destination based consumption tax in the sense that it taxes non-commercial activities and is not a charge on the business, but on the consumer, then, it is leviable only on services provided within the country. It is this finding and conclusion of the Hon'ble Supreme Court which has been applied by the Tribunal in the facts and circumstances of the present case. 25. The view taken by the Tribunal therefore, cannot be said to be perverse or vitiated by an error of law apparent on the face of the record. If the emphasis is on consumption of service then, the order passed by the Tribunal does not raise any substantial question of law." 9. The Division Bench of this Court in Commissioner of Service Tax, Mumbai v. Maersk India Pvt. Ltd. [2015 (38) S.T.R. 1121 (Bom.)] held that "the observations reported in 2014 (34) S.T.R. 554 (Bom.) (supra) aptly apply in the pr....
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....tory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods." 9.2 On careful reading of the definition of BAS as above, and the scope of services enumerated under various category therein, it clearly transpires in order to come under the scope of BAS, there shall be(i) a service provider (ii) a service receiver and (iii) a client, and the services should augment the various activities such as production, sales promotion, marketing etc. In the present factual matrix of the case, the appellants is a service provider and the Marriott Hong Kong entity is the service receiver. However, there is no client exist in terms of the contractual arrangement between the service provider and service receiver. Therefore, we are of the considered view that the services provided by the appellants do not fall under the category of BAS. 9.3 We find that the dispute in respect of similar issue relating to status of overseas office vis-à-vis branches/head office and the jurisdiction to cla....
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....borne by the recipient of service and levy is enforced on the provider of service. As the tax can be collected only from a service-provider within the jurisdiction, undertakings beyond the territory are beyond the ambit of the statute irrespective of the nature of the structural form or the linkage-organic or contractual. In such a taxing law, an entity that is beyond the jurisdiction of the statute has an existence independent of the taxable entity. A branch is, therefore, an entity distinguishable, for purposes of Finance Act, 1994, from its head office. 14. Consequently, an entity that is not subject to a domestic taxing statute is not amenable, by any stretch of argument, to scrutiny for conformity with the provisions of that statute. Activities of the overseas entity cannot be subject to ascertainment of classification of services in Section 65(105) of Finance Act, 1994. More so, as tax authorities are bereft of wherewithal to scrutinize the activities of such an entity and there is, indeed, no cause to embark upon such a venture either. Undoubtedly, such entities are subject to tax in the territory in which they operate. We notice that decisions of this Tribunal in T....
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....ier, customer, supply and place of provision, tax becomes leviable to the extent that receipt of service in India is established. The 'business auxiliary service' that the impugned order has found to have been rendered by the branch office of the appellant-assessee has to cross this hurdle. 16. Section 66A of Finance Act, 1994 taxes all taxable services received by a person who 'has his place of business, fixed establishment, permanent address or usual place of residence in India' from 'a person who has established 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' Revenue has alleged that Explanation 1 in sub-section (2) having designated branches as business establishment overseas and Section 66(2) mandating that - (2) Where a person is carrying on a business through a permanent establishment in India 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. tax liability devolves on the appellant-assessee. 17. Tax-shifting aris....
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....y service' in Section 65(19) of Finance Act, 1994 may not apply. That is where the impugned order has erred in not reading Section 65(105) along with Section 66A and Rules framed for the purpose of charging tax on services received from abroad. Unless both are applied together, the jurisdiction to tax would be in question. 20. It would be worthwhile to look at the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 xxx xxx xxx xxx 21. From the above, it is apparent that mere identification of a service and the legal fiction of separate establishment is not sufficient to tax the activities of the branch. The very existence of a branch presupposes some kind of activity that benefits the primary establishment in India and the organizational structure inherently prescribes allocation of financial resources by the primary establishment to the branch to enable undertaking of the prescribed activity. The books of accounts and statutory filings do not distinguish 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 o....
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.... of Rules limit tax demand only to the extent that these services are received in India in relation to business or commerce. A plain reading would make it apparent that the services referred to must be for pursuit of business or commerce in India. The two sets of Rules provide for availment of Cenvat credit of the tax paid by the Indian entity on 'reverse charge basis.' As an exporter, the Indian entity is entitled to claim refund of taxes lying unutilized in Cenvat credit account. There is no dispute that the activities of the branch are in connection with the export activity of the appellant-assessee. That the legislature would prescribe the collection of a tax merely for the purpose of refunding it subsequently does not pass the test of reason. More so, as there is no inference of any monitorial aspect in undertaking such an exercise. An exporter who operates through branches is clearly not the target of the legal fiction of branches being distinct from head office. The proposition that the intent 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 thereb....
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....et aside. All appeals are, consequently, allowed." 8.2 We also find that this Tribunal in the case of Steel Authority of India Limited Vs. Commissioner of Service Tax, New Delhi in Final Order No.50397/ 2020 dated 26.01.2020 had held that charging section is Section 66 of the Finance Act, 1994 and not Section 66A ibid. The provision of Section 66A is only to determine whether the provision of service is in India or out of India. Therefore, it was held unless that charge of service tax is proved under Section 66 ibid, there cannot be levy of service tax only on the basis of Section 66A ibid. The relevant paragraphs of the said order is extracted and given below: "20. It is clear from the aforesaid two decisions that section 66A (1) refers to 'service provider' and 'service recipient' as 'persons' which would mean different business persons. Section 66A(2) and its Explanation I only fix service tax liability on a recipient of service under a reverse charge mechanism by treating the permanent 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 tr....
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....paid to employees of hotel owners, in the value of services provided by the appellants to their foreign entity, on the ground of under valuation, does not stand the legal scrutiny and therefore it is liable to set aside. 9.5 On the aspect of confirmation of demands on the reimbursements made to overseas entities, we also find that the Tribunal in the case of Haldiram Marketing Pvt. Ltd. Vs. Commissioner, CGST, GST Delhi East Commissionerate - 2023 (71) G.S.T.L. 414 (Tri. Del.) have held that sharing of expenditure by associated enterprises cannot be held to be treated as service rendered by one to another. The relevant paragraph of the said order is extracted and given below: "26. The goods of the associated enterprises are also being sold from same premises and certain portion of the rent is received from the associated enterprise. The associated enterprises is benefiting with respect to the space. This arrangement would, therefore, fall under the category of sharing of expense. In this connection reference can be made to the decision of the Supreme Court in Gujarat State Fertilizers & Chemicals Ltd. v. Commissioner of C. Ex. 2016 (45) S.T.R. 489 (S.C.)/[2016] 76 taxma....
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....bmitted that service tax is a contractbased levy and therefore, it is the contract which determines the relationship between a service provider and a service recipient. Even if certain beneficiaries may be located in India, the service provider has no contractual relationship with such beneficiaries. There is no privity of contract between the beneficiary and the service provider. Therefore, the mere fact that the beneficiary of the service is located in India would not be a determinant factor for the levy of service tax under the Rules as the service is, in fact, provided to a recipient located outside India. 8.1 It was further contended on behalf of the respondent assessees that various preparatory activities, such as sourcing vendors, identifying customers etc. may occur in India but such activities alone would not mean that the service has not been exported to a party located overseas. Even if the customer has requested for some service within India, what is of significance is to whom the service is provided and where the recipient of the service is located and secondly, from whom the payment in convertible foreign exchange is received and whether, the recipient is loc....