TMI Blog2017 (5) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... CE, Pune [2016 (9) TMI 191 - CESTAT MUMBAI], where on similar issue, it was held that 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 - appellant not liable to pay tax on amount reimbursed to the branches located overseas. Insurance service - demand - Held that: - the insurance service providers are not registered with the IRDA, therefore, these services are not taxable under the category of life insurance service under section 65 (105) (zx) and general insurance service under section 65 (105) (d) of the Act - demand set aside - the requirement of pre-deposit of the amount of service tax on this account also waived. With regard to the service tax on visa facilitation under BSS, we find that the services have been received outside India consumed outside India. Therefore, prima facie service tax is not payable by the applicant. Accordingly, the applicant has made out a case of waiver of pre-deposit, we do as the same. The applicant has already made deposit of ₹ 7,28,22,020/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are providing support services of business or commerce to the applicant in furtherance of their business of the IT services. Since a branch office established in other country by a person in India is treated as a separate person for the purpose of charge of service tax under reverse charge mechanism under section 66A of Finance Act, 1994, therefore the applicant is required to discharge the liability of service tax on the consideration paid to their branch offices, in lieu of such services. Accordingly adjudication took place and demands referred to para 1 hereinabove were confirmed. 3. Learned Counsel appearing for the applicant submits that the service tax is not payable on reverse charge mechanism basis on the reimbursement made to overseas branch officers. It is his submission that section 66A ibid is not applicable to the instant case as the said provision provided for collection of service tax from the recipient of service in cases where the service provider is located outside India. The branch offices cannot provide service to oneself. To clarify this, he submits that a company situated in India having branches within India and the services provided through their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /4/2006-TRU dated 20.2.2006 clarifies the scope of BSS which is undertaking services outsourced by business organization which are capable of doing themselves. The services provided by work permit consultants cannot be carried on by the applicant in India nor can it be outsourced as only authorized person under the foreign country s regulations are capable of providing such services. Therefore, the services provided by work permit consultants are services provided its own accord and not outsourced services and hence not covered under BSS as per CBEC Circular No.109/03/2009 dated 23.2.2009. 6. He further submits that the entire exercise is revenue neutral even otherwise the services are held to be taxable the applicant is entitled to cenvat credit of the service tax paid. The entire cenvat credit is available as refund to the applicant under Rule 5 of Cenvat Credit Rules, 2004. 7. He submits that the extended period of limitation is not invokable as the applicant is filing their ST-3 return regularly giving all the details of their activity. Moreover the show cause notice has been received on 20.10.2011 which one year after the relevant date as defined under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, - (a) provided or to be 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Activities of the overseas entity cannot be subject to ascertainment of classification of service 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 Torrent Pharmaceuticals Ltd. V. Commissioner of Service Tax Ahmedabad (2015 (39)STR 97 (Tri-Ahmd) and KPIT Cummins Infosystems Ltd. V Commissioner of Central Excise, Pune-I (2014 (33) STR 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 constructed 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice rendered. 19. The appellant assessee has established branches for furthering its commercial objectives. The benefit of assigned activities of the branch will, undoubtedly, accrue to the appellant. there is not dispute that it is the appellant assessee who enters into contractual agreements with overseas customers for supply of Information technology services which have off-shore components rendered directly to the overseas entity by the appellant-assessee. On-site activity is undertaken by deputing employees working at the site of the customer. These employees are, without doubt, on the rolls of the appellant-assessee which, save for the specific and limited role of section 66A(2), encompasses the branches within its corporate structure. As section 66A(2) is limited to being a charging section in a specific context, it is not elastic enough to govern the corporate intercourse and commercial indivisibility of a headquarters and its branches. Therefore, any service rendered to the other contracting party by branch as a branch of the service provider would not be within the scope of section 66A. Merely because there is a branch and that branch has, in some way, contri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch 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 officer 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces/establishments as service providers held by Revenue as a separate legal entities under the provisions contained in Section 66A(2) of the Finance Act, 1994. Senior Advocate appearing on behalf of the appellant strongly argued that in the light of provisions contained in Section 66A(2) of the Finance Act, 1994, the explanation-I has to be read only to clarify the place of services provided and not for the purpose of creating another service tax liability for an activity provided to self. For the remaining demand of service tax, it is the case of the appellant that this demand pertain to services availed abroad by the branch offices/establishments as separate legal entities, on which VAT/GST of the relevant country was discharged by branch offices directly and receipt of these services is nothing to do with the appellant situated in India. It was fairly agreed by the learned Advocate that where local VAT/GST of a foreign country was not paid by the branch offices and billing was directly made by the foreign service providers to the appellant then in such cases service tax on reverse charge basis is required to be paid, which is being paid by the appellant even if the payment of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availed were consumed outside India. Learned Senior Counsel appearing on behalf of the appellant relied upon guidelines of 2006 2008, issued by Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy Administration, Paris; on Emerging concepts for Defining Place of Taxation on VAT/GST to cross Border Trade in Services and Intangibles . Para 8 to 13 of this paper of January 2008, reproduced below, give a glimpse of international thinking on the place of taxation of services and its underlying concepts :- 2. Underlying concepts 8. VAT/GST is generally charged at all stages of the economic process, but with the provision of a mechanism enabling firms to offset the tax they pay on their own purchases of goods and services (input tax) against the tax they charge on their sales of goods and services (output tax). Accordingly, most businesses can recover all, or most, of the input tax they pay as an offset against the output tax they charge. However, customers who are not identified for VAT/GST, or are not required to be so identified and report (e.g., businesses below the turnover thresholds that apply in some countries or private consumers), c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e national consumption tax system. Once the place of taxation is determined, the country that has the right to tax the supply decides whether any tax is actually due. For example, countries may wish to consider dispensing with the requirement to reverse charge the tax in circumstances where the customer would be entitled to fully recover it through deduction or input tax credit. However, the examples that follow assume use of this mechanism as the means of accounting for the tax. There may well be issues connected to reverse charge that will need addressing at a later stage, but for the moment the working assumption is that this mechanism is appropriate. 13. In these circumstances the reverse charge mechanism has a number of key advantages. Firstly, the tax authority in the country of consumption can verify and enforce compliance since that authority has jurisdiction over the customer. Secondly, the compliance burden is shifted from the supplier to the customer and is minimised since the customer has full access to the details of the supply. Thirdly, the compliance costs for the tax authority are also low because the supplier is not required to meet tax obligations in the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omponents - onsite services rendered by TTL Korea and offshore services rendered by TTL. Nevertheless, the service recipient remained TDCVL and not anybody else, for which they have paid the consideration. As per the agreement, the invoices for the services rendered are raised by TTL Korea on TDCVL for both onsite as well as offshore services. It is also confirmed by the Counsel that VAT/GST liability has been discharged by TTL Korea at the time of supply of services to TDCVL. If that be so, the question of subjecting the same transaction to Service Tax in India at the hands of TTL would not arise at all. 5.2 Secondly, the C.B.E. C. in the case of M/s. Tech Mahindra relating to IT Software services had clarified that onsite services rendered abroad would not be treated as service provided from India. In other words, the question of subjecting such transactions under Service Tax in India would not arise at all. 17. in the case of KPIT Cumnins Infosystems Ltd. (supra) wherein the facts of the case are as under:- 2.2 The appellant had also permanent establishment abroad by way of personnel located in the offices of their various clients abroad. These personne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re completely rendered outside India and on which tax liability has been discharged under the local laws where the activity has taken place. All issues are kept open. The appellant is at liberty to produce evidence of discharge of tax liability on the transactions rendered abroad under the local laws before the adjudicating authority. 18. Prima facie we are of the view that the facts of the case are covered by the decisions of this Tribunal as discussed hereinabove and the applicant is not liable to pay service tax on the amount reimbursed to the branches located overseas. Therefore, the applicant has made out a case for complete waiver of pre-deposit of ₹ 1,49,40,50,324/- at this stage. Therefore, we waive the requirement of pre-deposit of the said amount. 19. We take note of the demand of service tax of ₹ 56,00,159/- has been confirmed against the applicant on account of insurance service. Admittedly the insurance service providers are not registered with the IRDA, therefore, these services are not taxable under the category of life insurance service under section 65 (105) (zx) and general insurance service under section 65 (105) (d) of the Act. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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