TMI Blog2022 (2) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... usion is factually not correct. The contract would show that Aker Malaysia was the only establishment concerned with the provision of service and Aker India had no connection with the provision of services. The true test for determining this issue would be who, amongst the various establishments involved in the execution of a service contract, would be liable to be sued for any breach of the contract. Aker India did not even exist when the contract dated 15.09.2009 was executed between Aker Malaysia and RIL and Aker India was not even a party to the said contract. Service provider is one who is contractually obliged to render services - it may be useful to refer to the decision of the Delhi High Court in VERIZON COMMUNICATION INDIA PVT. LTD. VERSUS ASSISTANT COMMISSIONER, SERVICE TAX, DELHI III, DIVISION-XIV ANR. [ 2017 (9) TMI 632 - DELHI HIGH COURT] , wherein it was held that the identity of the service recipient has to be decided with reference to the contract concerned. Learned counsel for the appellant has submitted that Explanation 4 to section 65B (44) of the Finance Act has to be read together with Explanation 3(b) and if so read, the conclusion would be that though a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inspection, testing, maintenance and repairs of sub-sea equipments and tools in India. Till 14.04.2014, the entire service tax liability on the consideration paid by RIL to Aker Malaysia was discharged by RIL, in terms of clause 5.6 the contract, under the reverse charge mechanism. According to the department, the liability of service tax should not have been discharged by RIL under the reverse charge mechanism but should have been discharged by Aker India under the forward charge mechanism. Accordingly, a show cause notice dated 17.04.2015 was issued to Aker India for the period from February 2010 to April 2014 proposing a demand of ₹ 21,56,44,210/- with interest and penalty. This show cause notice was adjudicated upon by the Principal Commissioner of Customs, Central Excise and Service Tax Kakinada Commissionerate [the Principal Commissioner] by order dated 10.06.2016. The proposed demand was confirmed under section 73(2) of the Finance Act 1994 [the Finance Act] with interest under section 75 of the Finance Act and penalties under sections 78, 77(1) and 70 of the Finance Act. 2. The contention of the appellant that service tax was payable in the present case1 by RIL as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses of the contract relating to scope of work are reproduced below: SCOPE OF WORK 1.0 THE SERVICES This Contract shall provide Services for inspection, testing, maintenance and repairs of Subsea Equipment and Company Owned Tools at Support Base. For this Contractor shall provide Contractor's Personnel, spares and functional Support Base. Further Contractor shall also manage Spares and provide software back-up for control systems at CRP and FPSO. 1.1 Outline Scope of Work The Contractor shall carry-out maintenance and repairs of the Subsea Equipment and Company Owned Tools and Spares. Life of field maintenance, repair and life cycle costs are important areas to be addressed during the project phase and thereafter during contract execution phase, Contractor shall mitigate the risks in line with the following outline strategy: Involvement of Contractor Group personnel:- Involvement of Contractor Group personnel deployed for providing technical services for installation and commissioning under the project and continuity of same for execution of this Contract is essential. Contractor shall ensure the continuity of such personnel under this Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gning of the maintenance and repair contract and with a view to provide local support and representational assistance, Aker Malaysia decided to set up a project office at Mumbai and site office at Kakinada, for which purpose it applied for and was granted permission by the Reserve Bank of India. Necessary certificate from the Registrar of Companies was obtained on 18.12.2009 and a bank account was thereafter opened in India in January, 2010. 9. Till 14.04.2014, the entire liability of service tax on the consideration paid by RIL to Aker Malaysia was discharged by RIL under the reverse charge mechanism. From 15.04.2014, by which time human and technical resources present at the Kakinada site office had acquired sufficient degree of permanence, the contract with RIL was amended to provide that the project/site office of Aker Malaysia in India (Aker India) would obtain registration and discharge the applicable service tax. Accordingly, the site office of Aker Malaysia obtained registration with the service tax department at Kakinada and began discharging service tax liability on the consideration paid by RIL to Aker Malaysia. 10. However, a show cause notice dated 17.04.2015 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.12.2009 to intentionally evade the payment of service tax, as from the date of establishment of place of business i.e. from 18.12.2009 onwards, the assessee were liable for payment of service tax and not M/s RIL in terms of the second proviso to Section 66A of Finance Act, 1994 read with Rule 2(h)(iii) and Rule 8 of Place of Provision of Services Rules, 2012 . Since the assesses have willfully suppressed facts with an intention to evaded payment of tax, the proviso to Section 73(1) of Finance Act, 1994 is liable to be invoked for recovery of tax not paid. The details of taxable value and tax thereon are contained in the Annexure to this notice. (emphasis supplied) 11. The appellant filed a reply dated 14.07.2015 to the aforesaid show cause notice clearly stating that RIL had paid the service tax on the consideration paid by it to Aker Malaysia in foreign exchange on reverse charge mechanism and, therefore, recovery of such service tax again on the same service was not tenable. 12. The demand proposed in the show cause notice was confirmed by the Principal Commissioner. It needs to be noted that the Principal Commissioner did not confirm the allegation made in the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate body, it belongs wherever it is legally constituted. This view is also supported by para 26.4 of the Circular No. B1/6/2005-TRU, dated 27 July 2005. Post 01.07.2012 30. Even after the introduction of negative list regime the services of maintenance and repair services for subsea equipment for M/s. Reliance Industries Limited is a taxable service as the same is not covered by negative list. As already discussed taxability of the services undertaken is not disputed by the asseessee. Further, I find that in the instant case India would be the location of the service provider in terms of sub- rule b (iii) of Rule 2 (h) of the Place of Provision of Services Rules, 2012 as the project office is the establishment most directly concerned with the provision of the service. Further, as per Explanation 4 given under the definition of service vide Section 65B (44) of the Finance Act, 1944 a person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory. In the present case, M/s. Aker Solutions India Sdn. Bhd. (ASI) a foreign entity, is carrying on business through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention to evade tax; on the contrary, the entire service tax liability was discharged in cash, instead of by utilising CENVAT credit in case the stand of the Department is accepted. 15. Shri N. Bhanu Kiran, learned authorised representative appearing for the Department, however, supported the impugned order and made the following submissions: (i) As the services were provided by Aker India from Kakinada support base to RIL, Aker India would be liable to pay service tax and RIL was not required to discharge service tax liability on a reverse charge mechanism; (ii) The contention of the appellant that it is not covered by the first part of clause (a) to sub-section (1) of section 66A of the Finance Act is not correct for the reason that the second proviso to sub-section (1) creates an exception to and restricts the applicability of clause (a) to the appellants case, since the establishment of the service provider directly concerned with provision of service is located in India; (iii) Further, when Explanation-1 to section 66A (2) and the second proviso to Sec 66A (1) of the Finance Act are read together, it is very clear that appellant is a business establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order is on the services provided by Aker Malaysia to RIL under the contract dated 15.09.2009. 17. The issues, therefore, that would arise for consideration in this appeal are: (i) Whether Aker India (as held in the impugned order) or RIL(as contended by the appellant) would be the person chargeable with service tax on the services provided by RIL in terms of the contract; (ii) If it is held that Aker India would be the person chargeable with service tax, then what would be the consideration with reference to which liability to tax can be computed. In other words, whether it would be correct to assume that the amount received by Aker Malaysia is the amount received by Aker India; (iii) Even if it is assumed that Aker India was the person liable to pay tax on the services provided to RIL, then can a demand on such tax liability be made from Aker India when the same had already been paid by RIL as the service recipient; and (iv) Whether, in view of the revenue neutral situation, the Principal Commissioner was justified in confirming the demand of service tax by invoking the extended period of limitation and also while imposing penalty. 18. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint. 21. A perusal of the aforesaid provisions of section 66A of the Finance Act would indicate that sub-section (1) has two clauses, namely (a) and (b). While clause (a) relates to the service provider, clause (b) deals with service recipient. There is apparently no dispute with regard to applicability of clause (b) as it is not in dispute that the service recipient i.e. RIL is located in India and is covered by the said clause. The dispute is with regard to the application of clause (a) which deals with the types of service providers governed by the rever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... branch. If there is no business or other fixed establishment in any country and the business is a limited company or another corporate body, it belongs wherever it is legally constituted 26. As noticed above, the Principal Commissioner was required to examine this issue while examining type (i) service providers and not type (ii) service providers. The Principal Commissioner has read into section 66A (1) of the Finance Act, a requirement which is not borne out from the provisions. The provisions of section 66A of the Finance Act were required to be examined and the Principal Commissioner should not have been influenced by the Board Circular, as was observed by the Supreme Court in Orient Paper Mill vs. Union of India [1978 (2) ELT J 345 (SC)] 27. For the aforesaid reasons, it is not possible to accept the contention advanced by the learned authorised representative appearing for the Department that what has to be seen under section 66A of the Finance Act is the place from which the service is provided . This expression from which the service is provided is conspicuously absent in type (ii) service providers in clause (a) of sub-section (1) of section 66A of the Finance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishment of Aker Malaysia is not supported by any evidence. A fixed establishment must have sufficient, technical and human resources necessary for providing services on a permanent basis. The Department has not been able to establish that the project office in India had acquired permanent technical and human resources necessary to provide the services to RIL. The invoices clearly show that expatriates had been deputed in India to provide services and in respect of such expatriates, billing was done as per dollar man day rates specified in Exhibit C. 34. Thus, in view of the aforesaid discussion, it clearly emerges that reverse charge mechanism contemplated in section 66A of the Finance Act was clearly applicable and the tax liability has, therefore, correctly been discharged by RIL as the service recipient located in India. The confirmation of demand against the appellant for the period prior to 30.06.2021, therefore, cannot be sustained. For the Period Post 2012 35. Section 68 of the Finance Act would be relevant for the post 2012 period and it is reproduced below: 68 . Payment of service tax (1) Every person providing taxable service to any person shall pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices provided in India, as both the appellant and the department agree on this. However, according to the appellant it would be under the reverse charge mechanism, while according to the department it would be under the forward charge mechanism. The 2012 Rules, have no relevance for the purpose of deciding who is the person liable to pay such tax . 38. Learned counsel for the appellant also contended that the definition of the location of the service provider in rule 2 (h) of the 2012 Rules would have no application for the purpose of identifying the person liable to pay tax. 39. Though it may not be necessary to examine this contention in view of the aforesaid findings, but even if the said definition is taken into consideration, the conclusion would be the same. Rule 2 (h) of the 2012 Rules is reproduced below: (h) location of the service provider means- (a) where the service provider has obtained a single registration, whether centralized or otherwise, the premises for which such registration has been obtained; (b) where the service provider is not covered under sub-clause (a): (i) the location of his business establishment; or (ii) where the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering connectivity services for the purpose of data transfer. Verizon US is a company located outside India, inter alia engaged in the provision of telecommunication services for which it enters into contracts with its customers located globally. 3. Since Verizon US does not have the capacity to provide such services in all geographical areas across the globe, it utilises the services of other Verizon entities including Verizon India to provide connectivity to its customers. It is stated that such connectivity is provided in the form of: (a) Local Access: where Verizon India facilitates provision of wire line telecommunication circuit between two Verizon Business designated locations. (b) Bandwidth: where Verizon India provides diverse wire line telecommunication circuit of a specified bandwidth at the designated locations. (c) MPLS VPN: wherein a virtual private network is established through a private line. xxxxxxxxxx 5. Verizon India further clarifies that it is not privy to the contracts entered into by Verizon US with its customers in the US . Verizon India maintains that even if the services rendered by it are considered to be telecommunication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 3: For the purposes of this Chapter;- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4 : A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; 42. Learned counsel for the appellant has however submitted that Explanation 4 to section 65B (44) of the Finance Act has to be read together with Explanation 3(b) and if so read, the conclusion would be that though a representational office in any other country is an establishment of the person whom the said office represents (by virtue of Explanation 4), such a representational office is considered as a person distinct and separate from the other establishments of the same person located elsewhere [(by virtue of Explanation 3(b)]. 43. The aforesaid submission deserves to be accepted as the position that would emerge would be the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax, Aker India should have also taken registration prior to 15.04.2014 when the project office had come into existence on 18.12.2009 and should have discharged service tax liability. The issue as to whether the appellant was required to pay service tax under the reverse charge mechanism or straight charge mechanism has to be determined on the basis of the provisions prevailing at that time and not what the appellant believed or the Revenue believed. Even according to the Circular dated 25.05.2005 the project offices of foreign companies become fixed establishment only after necessary human and technical resources for providing services have been acquired on a permanent basis. As seen above, though the project office of Aker Malaysia was set up in India in December 2009 and Aker Malaysia set up human and technical resources at this office over a period of time, it was only in 2014 that the Indian project office acquired sufficient degree of permanence in terms of human and technical resources. It then acquired the status of a fixed establishment and it appears that it is for this reason that the appellant obtained registration on 15.04.2014. 48. Learned authorised repre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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