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TMI Blog2017 (7) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... s offered by providers located in those countries. Branch have independent status and operate under the laws applicable in those countries. The establishments service the personnel who are posted abroad for long-term projects; the operational costs of these establishments are met by remittances from the headquarters of the appellant. Proceedings were initiated against the appellant for non-payment of tax on services allegedly received by them from the branches as well as the services availed by the permanent establishment for which payment has been made by the headquarters of the appellant. 2. The appellant had been discharging tax liability under section 66A of Finance Act, 1994 on consideration paid for services obtained from overseas providers but not for services that were availed by overseas branches/permanent establishments; the expenses so incurred were reflected in the financial statements of the appellant. 3. The show cause notice dated 19th April 2013 issued to the appellant demanded tax of Rs. 6,38,87,630 for the period from January 2012 to December 2012 being the value of services rendered by the branches to overseas customers on behalf of the appellant. Tax of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the location of the service provider should not place an entirely domestic transaction at a disadvantage. Thus, tax on services that are procured within India is applied to countervail services that are procured from outside India. At the same time, equity also mandates that the service so received from abroad should be accorded a national treatment to overcome the cascading effects. Hence the levy of tax upon services that are provided by a person situated outside India. Under section 66 of Finance Act, 1994, the responsibility and obligation for discharge of the tax liability devolves on the provider of the service but, bearing in mind the lack of jurisdiction over the service provider, the legal fiction of the recipient being the provider in section 66A of Finance Act, 1994 enables the transfer of that responsibility and that obligation to the recipient of the service in India. There is, therefore, a substantial difference between 'reverse charge' that is applicable for certain domestic transaction services. In cross-border service transactions, unlike that in goods, the moment of entry into the taxable jurisdiction is not amenable to ascertainment, and the statutory power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in section 65 (19) of Finance Act, 1994. The impugned order has held that the service rendered by the branch is that of 'provision of service on behalf of the client' with the appellant as the client if the branch and the service being 'software development' and 'information technology software service'. The consideration that has been pinpointed by the adjudicating authority is the amount that has been collected from the customers for remitting to the appellant; the adjudicating authority also finds that the appellant has been remitting money to the branches. Taking this argument to its logical conclusion, the impugned order finds : '41.4... However, I find that the assessee have not been able to show the amount being remitted by them to their branches abroad and therefore, in the absence of any such details, I find that, as the overseas branches are providing service on behalf of the assessee, the amount collected by them from the clients, constitute the amount received by them from the assessee, because the amounts received by them are in fact the charges for the service provided by them on behalf of the assessee. Hence, it cannot be said that there is no consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service has been provided to the person in India, a monetary transfer is not sufficient to invoke section 66A of Finance Act, 1994. The cited decision has also ventured to appreciate the context in which section 66A (2) has been legislated: to ensure that the mutualisation inherent in the branch-headquarters relationship does not offer an avenue to evade tax that is otherwise leviable. In other words, it has to be evidenced that the transaction between the branch and the overseas customer is one by which service of a third-party is received by the entity in India through the branch. Such is not the nature of the allegations here. The allegation pertains to what is undoubtedly an export of service which is attempted to be taxed by summary reference to section 66A (2) which, incidentally, is not the charging provision. The adjudicating authority has failed to read section 66A (2) in conjunction with section 66A (1) of Finance Act, 1994 and, thus, incorrectly invoked the former as the charging section. Our examination of the transaction is merely intended to exhibit this contradiction and not to ascertain the provision of 'business auxiliary service' by the branch to the headquarte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which, in accordance with the Rules of 2006 and Rules of 2012, are identified as not taxable. The services that are taxable have been subject to the levy on the amount of remittance that has been made by the headquarters of the appellant to the branches in the presumption that the services have been received by the headquarters of the appellant and for which payment is made by the headquarters of the appellant. This conclusion has been arrived at as the financial statements of the appellant indicate the reimbursement towards such expenses incurred by the overseas branches. Undoubtedly, as a branch or as a permanent establishment, which may be a profit centres or cost centres, the ultimate liability for expenditure lies with the appellant entity. The question, therefore, for determination is whether the service procured by the branch/permanent establishment abroad is for the appellant. The provisions of section 66A of Finance Act, 1994 make it abundantly clear that the establishment outside the country is independent of the establishment in the country for the purposes of the levy of tax in the hands of the deemed provider of service. A natural corollary is that taxable service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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