TMI Blog2022 (8) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... contractual agreement for the provision of service was between appellant and TDCV Korea, then also the service is provided by the appellant to their client in Korea and no service is provided to any one in India. The appellants have for the provision of the said service has not raised any invoice on their branch office located in Korea. Nor the branch office has raised any invoice on the appellant in respect of any services provided by them to TDCV as per the agreement - Nothing has been brought on record in the impugned order to show that TTL Korea was raising the invoices or receiving payments from appellant in any manner for provision of the onsite services to TDCV. There are no merits in the findings recorded by the Commissioner in para 19.3, highlighting the reasons for payment of service tax, after acknowledging that the services were provided by the TTL, Korea to TDCV, Korea. Commissioner also do not dispute that the entire payment for the services provided by TTL Korea was received by them directly from TDCV, Korea. Having acknowledged so Commissioner could not have come to the finding that these amounts were payment made by the appellant to TTL, Korea, for application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed under Section 78, in para 31.4 above, only if M/s TTL pays the entire amount of Service Tax, as determined/ confirmed, in para 31.1 above, along with interest payable thereon as ordered in para 31.2 above as well as the reduced 25% penalty, within 30 days of the date of communication of this order. 33. This order is issued without prejudice to any other action that may be taken against M/s Tata Technologies Ltd., Pune, under the provisions of Chapter V of the Finance Act, 1994 and/ or the Rules made thereunder and/ or any other law for the time being in force. 2.1 The Appellant is providing software consulting and professional service. They have a branch in Korea ('TTL Korea') which into an agreement with M/s. Tata Daewoo Commercial Vehicle Company Ltd., ('TDCV, Korea') a Company incorporated in Korea, for the purpose of implementation and maintenance of the software and engineering design support services (SAP implementation). The agreement provided for both offshore and on-site services to TDCV Korea. 2.2 TTL Korea executed the onsite component of the services. The offsite component of the services was undertaken by the Appellant in India. 2.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, the question of subjecting such transactions under Service Tax in India would not arise at all. 5.3 As regards the offshore services rendered by M/s. TTL to TDCVL, the same amounts to export of service in terms of Rule 3(2)(a) of the Export of Service Rules, 2005. Information Technology Software service is classifiable under Rule 3(1)(iii) as category-3 service which relates to service consumed abroad by the recipient who is situated outside India. To consider the transaction as export, two conditions have to be satisfied namely the service should be provided from India and should be used outside India and the consideration for the services rendered should be received in convertible foreign exchange. In the present case, it is not in dispute that these conditions have been satisfied for the offshore service rendered by TTL to TDCVL. 5.4 In the impugned order, these issues have not been examined at all by the adjudicating authority. Therefore, we are of the view that the matter has to go back to the adjudicating authority for fresh consideration of all the issues involved, namely, whether the transaction is liable to Service Tax in India at all since the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export of services rules. 2005as in present case both service provider and recipient are located outside India The value of the taxable service is required to be recomputed. The demand, if any, can only be on the portion of on-site services rendered by TTL, Korea. There can at least be no demand on that portion of the activity that was performed by the Appellant themselves and was not at all performed by TTL, Korea. The impugned order has travelled beyond the SCN. Hence, it is liable to be struck down. Levy of service tax on the said services would amount to double taxation, as TTL Korea has paid the Korean VAT. In this regard, reliance is placed on Torrent Pharmaceuticals Ltd. vs. CST, 2015 (39) S.T.R. 97 (T). Extended period of five years is not invokable in the present case. Hence, The demand in dispute seeking to recover service tax beyond normal period of limitation of one year is time barred. As he Appellant is not liable to pay service tax, they cannot be subjected to penalty under section 77 or 78 of the Finance Act, 1994. Similarly, no interest under section 75 can be demanded from the Appellant. 3.3 Arguing for the revenue learned authorized represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s behalf. The fact that VAT has been paid by TTL Korea in Korea has no implications on the taxation in India. These are independent sovereign tax. There is no double taxation agreement between Korea and India regarding this Revenue Neutrality will not be able to help the App. in this matter. As per the findings, in the matter of JAY YUHSHIN LTD. [200 (119) E.L.T. 718 (Tribunal - LB)], where it has been held that Where the scheme opted for by the assessee is found to have been misused (in contradiction to mere deviation or failure to me all the conditions) the existence of an alternate scheme would not be an acceptable defence. While applying Rules 3(1)(iii) and 3(2) of the Export of Services Rules, 2005 in CITI BANK N.A. (2018 (18) G.S.T.L. 580 (Bom.)], in a case of Indian subsidiary which was providing services on behalf of its parent foreign entity, Hon'ble High Court held that : Custodial services provided by banking and financial services provider to foreign institutional clients Covered by sub-clause (iii) of Rule 3 of Export of Services Rules, 2005 and assessee would be entitled to its benefit - C.B.E. C. Circular No. 111/5/2009-ST. dated 24-2-2009 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ii) Whether TTL, Korea were providing Information Technology Software Service; (iii) Whether Head office of M/s TTL in India can be regarded as a 'Permanent Establishment in India'; (iv) Whether the demand is liable to be restricted to the onsite services provided by the overseas branch as contended by M/s. TTL; (v) Whether there is a case of revenue-neutrality and whether the extended period is invokable to demand Service tax for the extended period; (vi) Whether there is any willful suppression of material facts, on the part of the assessee in this case and whether extended period is invokable to demand Service tax for the period beyond one year; (vii) Whether interest is payable by M/s TTL, on the amount of Service tax demanded / payable by them; and (viii) Whether penalty is imposable on M/s TTL under the provisions of Sections 76, 77 and 78 of the Finance Act, 1994, 17. At the outset, it will be appropriate to recap the relevant provisions of the Act, relevant to this Show Cause Notice, which are reproduced as below: . 18. Now, I take up the issues mentioned in para 16 above one by one. Whether TTL Korea, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s located, shall be treated as the country from which the service is provided or to be provided. 19.3 Hence, I hold that as per the above said provisions, M/s TTL are liable to pay Service Tax, being the recipient of service. Here, I find that, TTL Korea was providing services to their client i.e. TDCV Korea, and collecting charges from them on behalf of M/s TTL. As TTL Korea, was providing services to TDCV Korea, on behalf of M/s TTL, the amount collected by them from the said client, were the amount, received by them from M/s TTL, as the amount received by them are in fact the charges of the service provided by them on behalf of M/s TTL. (ii) Whether TTL, Korea was providing Information Technology Software Service : 20.1. It has been contended by M/s TTL that the SAP implementation services provided by TTL Korea, were in the nature of Information Technology Software Service and hence the same are not liable to service tax prior to 16-05-2008. M/S TTL have placed reliance in this regard on the decision of Hon'ble CESTAT in the case of M/s SAP India Pvt. Ltd. Vs CCE, Bangalore, 2010-TIOL-1569 CESTAT-BANG., wherein it was held that SAP implementation service is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell, a query or any other place of extraction of natural resources. (Emphasis provided) 21.2. As per the provisions of section 66A(2) of the Act (as reproduced in para 17.2 above), 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. 21.3. I find that through Explanation-1 to the provisions of Section 66A(2) of the Act, it is clarified that a person carrying on a business through a branch of agency in any country shall be treated as having a business establishment in that country, and hence, it is clear that here permanent establishment means basically a business establishment. Since the Head Office of M/s TTL is a business establishment, the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Korea, and also the entire amount of payment was received by TTL Korea, which confirms the fact that the demand on the entire amount billed by TTL Korea is liable to be raised on M/s TTL, as TTL Korea provided the entire service to TDCV Korea, on behalf of M/s TTL, and hence the amount collected by them from TDCV Korea, were the amount, received by them from M/s TTL, as the amount received by them were in fact the charges of the services provided by them on behalf of M/s TTL. Hence, the assessee s submission that the demand of Service Tax is liable to be restricted to the onsite services provided by the overseas branch cannot be accepted, and hence is liable to be rejected and I hold accordingly. 4.2 The relevant extract of the agreement between the TTL Korea and TDCV reads as under: ARTICLES OF Agreement made on the 27th day of September 2005 BETWEEN TATA TECHNOLOGIES LIMITED, a company incorporated under the Indian Companies Act, 1956 and having its registered Office at Plot No 25, Pune Infotech Park, Hinjawadi, Pune, 411057 and having Branch Office at Rm 1132, Doosan We ve Pavilion Bldg, 58 Sisong-dong Jongno-gu, Seoul 110-140, Korea called or referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in Annexure-l and Annexure-Il. c.... d. TDCV agrees to pay TTL the consideration, including all applicable taxes and other incidentals associated with this agreement. 6. PAYMENT OF CONSULTANCY FEES 6.1 TTL will be paid a lump sum fee of US$ 1,002,000 (US Dollars one million and two thousand only), including living allowance to TTL consultants working on the Project and based in Korea and India, in twelve equal monthly installments of US $ 83,500 each commencing April 2005 until the project is completed or until 12 monthly payment whichever occurs first. If the project extends beyond 12-1/2 months, including post-golive support and does so due to delay caused by TTL, then no additional payments will be made to TTL. TTL will work until all the agreed deliverables have been achieved. 6.2 TTL Korea shall raise twelve monthly tax invoices on a fixed bid basis as given below US$ 83500. This would consist of $45000 for Onsite SAP Implementation service at Gunsan Korea, US$ 38500 for Offshore SAP Implementation Services at STP Unit at Development Center MSD Building, Tata Motors Ltd. Premises, Jamshedpur-831010, India. 6.3 TTL Korea Branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided services through their branches abroad to customers located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has received proceeds of the service rendered abroad by their branches, after deduction of expenditure incurred for rendering of services abroad. Therefore, prima facie, we are of the view that the provisions of Section 66A are not at all attracted. 5.2 Secondly, if the services rendered abroad have been subject to local taxation, the question of levying Service Tax in India on the very same transactions would not arise at all. There cannot be two taxing jurisdictions for the same transactions. Service tax is a destination based consumption tax and taxability would arise only at the place where the consumption takes place. In the instant case, the service has been rendered to the clients abroad and, therefore, the consumption of the service is not in India but abroad. Therefore, the question of subjecting the said activity to Service Tax in India does not appear to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such services availed and consumed in India were routed either through appellant s branch office or distributors. 5.4 Before giving our observations, it is relevant to glance through the provisions of Section 66A(1) of the Finance Act, 1994 reproduced below :- 66A. Charge of service tax on services received from outside India. - (1) Where any service speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to determine whether a service is provided and consumed in India or abroad. It is an accepted legal position that one cannot provide service to one s own self. If the permanent establishment of the appellant abroad is treated as a service provider to its own head office in India then it will amount to charging service tax for an activity provided to one s own self. Similarly placed branches of the appellant undertaking similar activities in India will not be held so. Therefore, a comprehensive reading of Section 66A of the Finance Act, 1994, a permanent establishment situated abroad as a separate person , will be understood to have been prescribed only to determine the provision of service whether in India or out of India. Theoretically it could be possible that a person carrying business through a permanent establishment abroad may like to pay lower rate of local VAT/GST abroad to avoid service tax payment in India by showing the services to have been availed abroad. However, there is no likelihood of such avoidance in case of an assessee who is eligible to Cenvat credit in India for the service tax payable in India for which the assessee is entitled to Cenvat credit. It is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorporated outside India i.e. located outside India, the service tax can be charged from the branch office B-l in India of the Company B when :- (a) the Headquarter of the Company B has entered into a framework agreement/ contract with the service provider A by the way of centralized sourcing of service for Provision of service at various branches located in different countries including India; and (b) the service has been provided at the branch in India and the role of the Headquarter is only as a facilitator. In such a situation service tax can be charged from the branch office in India by treating it as service recipient even if the payment for the service received was made by the head office, as in such a situation, the Indian branch office can be treated as having made the payment indirectly. But in this case, as discussed above, from the agreements of BA, U.K. with CRD/GDS Companies, it is seen that there is nothing in these agreement from which it can be inferred that the CRD/GDS Companies were required to provide location specific service to the branches of BA, U.K. , all over the world. There is neither allegation nor evidence that BA, U.K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumers. 9. The main rule defines the place of taxation on the basis of customer location and in normal circumstances should be applied to determine the place of taxation. The identity and the jurisdiction where the customer to which the supply is made is located will then be normally supported by the relevant business agreements, as it is expected that business agreements generally reflect the underlying transactions and financial flows. Only in specified or exceptional circumstances should the place of taxation vary from the main rule. 10. For VAT/GST, a number of factors must exist before the tax can be charged in a particular place. There has to be, for example, a supplier, a customer, a supply and a place of taxation rule to determine the jurisdiction in which any tax should accrue. To ensure that the basic principles of neutrality, efficiency, flexibility, certainty and simplicity are achieved these, and some other, terms will need to be defined at a later stage, drawing on the lessons learned from the development of these business models and examples. 11. As a first step, it was agreed that the development of guidance on how to implement the main rule in practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e country has been paid. The representative invoices produced by the appellant indicate that local VAT/GST paid is Nil when billing by overseas service providers is directly raised upon the appellant in India on which service tax is paid by the appellant on reverse charge basis. When billing is raised on the branch office for a service consumed abroad then local VAT/GST applicable abroad is paid by the branch offices on such transactions. Therefore, payment of local VAT abroad will be an indicator to decide whether a service is provided and consumed outside India or has been consumed/received in India. The agreements/documents available with the appellant have to be accepted for the purpose of determining place of providing and consumption of a service in India, as no foul play can be anticipated in the case of appellant who is paying thousand of crores of rupees as service tax and is also eligible to Cenvat credit of the service tax payable on reverse charge basis. 4.7 In case of 3i Infotech Ltd. [2017 (51) S.T.R. 305 (Tri. - Mumbai)] tribunal has held as follows: 10. We have addressed this issue in our decision in re Tech Mahindra which examined the nature of overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eover, the Rules draw upon section 93 of Finance Act, 1994 in a manner akin to Export of Service Rules, 2005. It is noticed that the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 also mirrors the Export of Service Rules, 2005. That, however, cannot be taken as intent to tax the inflow of service merely because of a corresponding exemption accorded to the outflow of services. Reference to section 93 as an authority for prescribing the Rules would make it appear that the purpose of the said two sets Rules is to exclude from tax such services that do not fall within the three classifications predicating the import of service. The residuary provision in the Rules of 2006 make it clearly that such services have to be received by a recipient located in India for use in relation to business or commerce. The provisions of the successor Rules are no different. We note that Section 66A of Finance Act, 1994 is a special enabling provision engineered to tax import of services, both to countervail the taxing of domestic transactions and to afford a national treatment to the service, and the determination of taxability is with reference to the R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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