TMI Blog2021 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... bination of section 65B, section 66B, section 66C, section 66D and section 66E of Finance Act, 1994 with the insertions having been crafted to accommodate the broadened and general description of taxable services , as defined in 65B(51) of Finance Act, 1944. Documentation of the circumstances surrounding this paradigm shift does not offer any scope to infer that the concept which birthed the levy of services provided within the country, as well as those brought into the country, was intended to be re-shaped beyond the significant departure from the delineated description of each of the enumerated services hitherto existing. Rule 2 of Place of Provision of Service Rules, 2012 may well bring the locus back to demutualised relationship between the establishment in India and its branches abroad in much the same as Explanation 1 in section 66A did. And just as the determination of rendering of taxable service in accordance with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was essential for validation of any levy on consideration remitted by principal office before July 2012, the Rules, along with the parent provision in Finance Act, 1994 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovider of services received from abroad, to the transfer of funds as recorded in the books of accounts, the jurisdictional service tax authority initiated proceedings for recovery, initially for the extended period between April 2006 and March 2011 and, thereafter, at regular intervals which culminated in adjudication orders of which two, chronologically preceding the one now impugned before us, were set aside in Kusum Healthcare Ltd v. Commissioner of Central Excise [2018 (2) TMI 1408-CESTAT-NEW DELHI ] and in Kusum Healthcare Ltd v. Commissioner of Central Excise, Alwar [ 2018 (7) TMI 919 CESTAT NEW DELHI ]. 3. Learned Counsel for the appellant relies on these two decisions to contend that that no demand, and attendant statutory detriment, lies against them for the period of dispute in the present proceedings too. He pointed out that the first of the orders, pertaining to the pre- negative list era, has held that the nature of the relationship of overseas branches with the principal office does not render their internal transactions amenable to coverage as consideration merely by concatenation of financial flows and the clarification afforded by Explanation 1 in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a shall be treated as a separate business establishment, the services rendered by such establishment should be treated for tax liability. In this connection, we note, similar dispute came before the Tribunal for tax liability under the very same tax entry in Torrent Pharmaceutical Ltd. - 2015 (39) S.T.R. 97 (Tri.-Ahmd.). The issue of the expenditure incurred by the appellant with reference to the branch office located abroad, which was involved in activities, which may fall under business auxiliary service was considered by the Tribunal. The Tribunal observed as below:- 5.3 On the issue of demand of service tax of ₹ 11,56,32,589/- with respect to remittances made by the appellant to branch offices, both sides have relied upon the case law of M/s. British Airways v. CCE (Adj.) Delhi [2014-TIOL-979-CESTAT-MUM]. It is the case of the appellant that nearly ₹ 7 crore demand is with respect to salary of the employees of the appellant working in the foreign branch offices, treating the branch offices/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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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 is provided or to be provided. (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. Explanation 1. - A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted. 5.5 Section 66A (1) above is talking of service provider and service recipient as persons which has to mean as different business persons. Section 66A(2) and its Explanation I only make a clarification and to fix service tax liability on recipient of services under reverse charge mechanism that both the permanent establishments in India an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, 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, contributed to the activities of the appellant-assessee in discharging its contractual obligations, the definition of business auxiliary 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. 23.The catena of judgments cited for both sides, viz., British Airways v. Commissioner of Central Excise (Adjn) [2014-TIOL-979-CESTAT-Del = 2014 (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an exporter of services does not render the transfer of financial resources to the branch taxable under Section 66A. 8. The ratio of the above decision and also the close reading of the proviso to Section 66A alongwith explanation therein is make it clear that the legal fiction of considering a branch of an assessee as a separate establishment is not to tax a service rendered to its head office. Further, here there is no such service also has been identified with supporting evidence. in the first of the two decisions setting aside the demand in their own appeal for the period prior to July 2012. 6. In the other decision of the Tribunal allowing their appeal against demand for one of the periods after the negative list regime was enacted, it was held that 10. We note that the identical issue in respect of the appellant for the period prior to 01.07.2012 was considered and decided by the Tribunal in the Final Order No. 50314- 50315/2018 dated 12.01.2018. On a perusal of the said order, we find that the Tribunal has considered the issue with reference to the provisions of Section 66A (2) read with the Explanation I, which was on the statute book prior to 01.07.2012. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined. We note here that the whole expenses now sought to be taxed are only with reference to setting up, running and also expenses of that branch incurred by the appellant and not relating to any expenditure in their branches with reference to BAS. 7. In the present dispute too, it is the admitted flow of funds for maintenance and upkeep of the branch offices that has been presumed to be the quid pro quo for rendering of taxable service by the branch to the principal office. That the remittances were made for meeting the establishment costs at the location of the branches is not disputed. 8. In Milind Kulkarni, the Tribunal had been called upon to adjudge the legality of subjecting remittances made by the principal office to tax as consideration for procurement of business auxiliary service from their overseas branches for the period upto June 2012 and for procurement of taxable service thereafter. Elaborating upon the scheme for taxing of services procured from abroad in Finance Act, 1994 read with the relevant Rules, it was held by the Tribunal that the deeming provision in a statute is a temporary suspension of conventional wisdom and existing legislative formulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 27. We do not need to examine whether the flow of funds from the head office to the branch is consideration or reimbursement as the test of services having been received in India fails. Nevertheless, we do so. A branch, by its very nature, cannot survive without resources assigned by the head office. The business of the appellant-assessee is such that credibility in the eyes of its overseas clients lies in the name and style of the appellant-assessee. It cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 service provider or the service receiver or both are located at a place being outside the taxable territory. Neither of these provisions makes passing reference to consideration which finds a place in section 67 of Finance Act, 1994 and, for elaborating of the taxable event in section 66B of Finance Act, 1994 and of taxable service wherever occurring, in (44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include .. of section 65B of Finance Act, 1944. On perusal of Place of Provision of Service Rules, 2012 that, by emphasis or by deeming so under the authority of section 66C of Finance Act, 1994, maps the boundary of services provided or agreed to be provided in taxable territory , it is seen that rule 4 to rule 6 and rule 9 to rule 12 address specific situations of deeming that do not find fitment within the default in rule 3; rule 7 is a determinative weightage for certain circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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