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TMI Blog2022 (9) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1994 in order-in-original no. 01- COMMR/ST-II/PK/2014-15 dated 27th February 2015 of Commissioner of Service Tax, Mumbai-II are also under challenge. To bolster the claim of the tax authorities, it was pointed out that tax on payment of Rs. 165,07,41,250 for the same facilitation had been duly discharged for 2010-11 in accordance with the stipulations in section 66A of Finance Act, 1994 on service procured from outside the country. 2. It was intimated by Learned Senior Counsel appearing for the appellant that they are in the business of rendering 'broadcasting services' and that the present demand pertains to the payments made during 2009-10 to M/s Star L, Hong Kong by M/s Star Asia Region FZ LLC, M/s Star Asian Movies Limited and M/s Star Television Entertainment Ltd, three foreign companies owning television channels. According to him, the three entities had appointed M/s Satellite Television Asian Region Limited, Hongkong as their agent for advertisement sales and channel distribution in India either by themselves or through sub-agents and that the Hongkong entity delegated their agency for India, Nepal and Bhutan to the appellant. It is contended by him that, in pursuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability had been discharged; he relied upon adjudication orders pertaining to 2004-08, in notices issued to them as well as the now merged entities having dropped proceedings, for non-coverage under the alleged service description. He drew attention to section 66A of Finance Act, 1994 to submit that even if, as a branch, the foreign companies did receive services, the levy is restricted to services received in India for which reliance was placed on decisions of the Tribunal in 3i Infotech Ltd v. Commissioner of Service Tax, Mumbai -III [2017 (51) STR 305] and in Infosys Ltd v. Commissioner of Service Tax, Bangalore [2014-TIOL-409-CESTAT- BANG]. Additionally, he submits that every consequence of merger is governed by the order of the Hon'ble High Court which, in clause 8, has made it abundantly clear that all contracts, deeds, licences and approvals prior to the effective date remain unaffected in character as the transferee accepts and adopts these as if done and executed on its behalf. 5. Relying upon the filing by the appellant and which, according to Learned Authorized Representative, is admission that, effective from the appointed date, the expenses incurred are that of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India and Received in India) Rules, 2006. The scope and extent of taxability thereto had been considered by the Tribunal in Coastal Gujarat Power Ltd v. Commissioner of Service Tax, Mumbai-I [2019 (24) GSTL 572 (Tri. - Mumbai)] thus '7. The primary ground in appeal seeking the setting aside of the impugned order is the exemption afforded by the two statutes, referred supra, in pursuance of constitutional obligation under Article 253, specifically covering their activities. As the issue of exemption of the taxable service received by the appellant is uppermost, we take note of the schema of the law relating to levy and collection of service tax. Like every statute enacted for collection of indirect taxation, Finance Act, 1994 is not without inherent exemption, viz., the extra-jurisdictional and that which is not the object of the levy. Other exemptions are, generally, avenues afforded by the taxing statute for deliberate exclusion and implementation of policy prescriptions through instruments such as rules and notifications. The distinguishing feature of this tax is the levy on consumption of service in the hands of persons which is dissimilar to other indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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.' the legal fiction of taxable service and coalescing of recipient and provider in the same entity has been contrived and, notwithstanding the mutuality, the transaction captured in the tax jurisdiction. We see from the provision that there are two elements to the fiction with the existence of both as pre- requisite for other provisions of the Chapter to apply. These are the fiction of taxable service and the fiction of recipient being provider. Service originating outside the country, with the provider being jurisdictionally non-existent, inherently renders the circle of transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Rules being Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Notification No. 11/2006-S.T., dated 19-4-2006 (As notified vide Notification No. 37/2011-S.T., dated 25-4-2011, w.e.f. 1-5-2011) In exercise of the powers conferred by sections 93 and 94, read with section 66A of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely :- 1. Short title and commencement. - (1) These rides may be called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions. - In these rules, unless the context otherwise requires - xxxxxx 3. Taxable services provided from outside India and received in India. - Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services - (i) specified in sub-clauses (d), (m), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz), (zzzza), (zzzzm), (zzzzu), (zzzzv) and (zzzzw) of clause (105) of section 65 of the Act, be such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal agreements and it has also been held that, till such enactment occurs, the agreements remain as unenforceable intentions. Conversely, every law enacted to honour international agreements become binding on every authority in the country. xxxxxx 23. The proposition in the impugned order that appellant is not covered by immunity even if the providers were premised on the fiction of Section 66A that the receiver of service is deemed to have rendered the service. The inference of the adjudicating Commissioner is that if the said service providers had an establishment or office in India, there would have been an exemption to tax because the service rendered by Asian Development Bank and International Finance Corporation are exempt. It cannot be lost sight of that it is the service that is taxable and, owing to its intangibility, the consummation of service is deemed to be complete when a receiver and provider exist. The proposition of the adjudicating Commissioner would create a new dimension to the tax, viz., the geographical location of the provider, which is not envisaged in Finance Act, 1994. The national treatment for service rendered by Asian Development Bank and Internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is resorted to. The canvas is not unlike a palimpsest with tax authorities limiting themselves to the surface visual and the appellant insisting that the true picture lies beneath. The order of the Tribunal in re ITC Hotels Ltd, cited by Learned Authorized Representative, decided the issue of eligibility to refund arising from service rendered to self not being taxable consequent upon a merger of corporate entities comprising the provider and receiver of service in domestic transactions. The observation that '10. The law declared by the Apex Court is binding and is required to be followed. The submission of the learned DR that the ratio of the above judgment given in the context of income tax would not be applicable to the facts of the present case as there is no specific provision to that effect under the Central Excise Act or under the Chapter V of the Finance Act, 1994 cannot be appreciated inasmuch as the law declared by the Supreme Court is binding on all the Courts, in terms of the Article 141 of the Indian Constitution. The Hon'ble High Court of Delhi and the Kolkata having held the date of amalgamation as 1-4-2004 has to be considered as the correct date of amalgamation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e equation in a deeming fiction is invoked to construe importation of service. For one, reliance was placed on the decision of the Hon'ble Supreme Court in re Marshall Sons & Co (India) Ltd as the order impugned therein had held it to be applicable to the dispute therein. For another, in re Marshall Sons & Co (India) Ltd, it was not a case of not subjecting themselves to the tax jurisdiction but that of not offering the entirety of profits of the subsidiary company to tax by operation of the amalgamation scheme in much the same way that, in re ITC Hotels Ltd, tax authorities attempted to add an element of intra-group engagement as legally amenable to tax. In brief, the tax liability in their separated avatar was not in dispute in either of the two cases whereas in the dispute before us, the pre-amalgamated existence excluded the impugned transaction from the ambit of levy both under section 66 and section 66A of Finance Act, 1994. In re Marshall Sons & Co (India) Ltd, the relevant finding is '14. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation /transfer shall take place. The scheme concerned herein does so provide viz., Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment or shares etc. may have all taken place subsequent to the date of amalgamation/ transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal v. The Bank of Upper India Ltd. [AIR 1919 PC 9].' and even more relevant to the context is '15. Counsel for the Revenue contended that if the aforesaid view is adopted when several complications will ensue in case the Court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the Transferee Company taking into account the income of both the Transferor and Transferee Company. Secondly, and probably the more advisable course from the point of view of the Revenue would be to make one assessment on the Transferee Company taking into account the income of both of Transferor or Transferee Companies and also to make separate protective assessments on both the Transferor and Transferee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts is for taxable service. Such determination is necessary as the agreement before the commencement of the amalgamation scheme was between two entities outside India and entirely beyond the ken of tax authorities. The absence of any efforts in that direction is demonstrative of any exercise undertaken to find fitment within the three-way determination envisaged in Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 without which section 66A of Finance Act, 1994 cannot be invoked. 10. In any case, deeming that the amalgamated entity came into being on 1st April 2009, the status of the amalgamating entities outside India needs to be borne in mind and it is not seen from the records that they have ceased to operate at those locations after the appointed date. That would have been impossible considering that the effective merger occurred in April and May 2010. Therefore, the consequence of deemed amalgamation from 1st April 2009 would be to deem the foreign companies as overseas offices of the appellant. Section 66A(2) of Finance Act, 1994 and the Explanation therein make it abundantly clear that, for the purposes of the levy thereof, such units a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to CRS/GDS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office i.e. BA, India. xxxxxxx In my 31.3.1 view, as discussed earlier paras, for the purpose of Section 66A, the airline head office - 'BA, U.K.' and its Indian branch office - BA, India cannot be treated as one entity in view of the provisions of Section 66A, but have to be treated as two different persons. Therefore, it would be wrong to treat the services received from CRS/GDS Companies by 'BA, U.K.', as the services received by their Indian branch-BA, India. Similarly the payments made to CRS/GDS companies by 'BA, U.K.' cannot be treated as payments made to CRS/GDS Companies by BA, India or on behalf of BA, India, unless it is proved that the services provided by CRS/GDS Companies were Indian branch specific services which satisfied the business needs of BA, India and the role of 'BA, U.K.' was of facilitator only. xxxxxxx Ld. Member (Technical) has also discussed in para-31 of the proposed order as to how the British Airways, India a branch office of British Airways, U.K. cannot be considered as a temporary establishment. The same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than Rs. 12,000 crores as taxes during the periods 2007-2008 to 2011-2012.' For a clearer appreciation of Section 66A(2) of Finance Act, 1994, we must place it in the context of the status of appellant as an 'export oriented unit' and the nature of the transaction that were subject to tax in the impugned order. In re British Airways, the issue for consideration was whether the existence of a business establishment of a foreign airline in India was sufficient to fasten tax liability on 'reverse charge' on consideration paid to foreign service provider arising from agreement of the overseas headquarters with the service provider. In re Torrent Pharmaceuticals, the issue for consideration was whether the services rendered by overseas branch was liable to tax owing to the disaggregation of branch and headquarters by Section 66A(2) of Finance Act, 1994. The present dispute is on entirely different footing, viz., that the payment for service rendered by foreign service provider, though claimed to be effected by branch in Dubai, was, in effect, made by the appellant. We draw a distinction in designating the Indian operation as appellant and the Dubai operation as branch. 10. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted supra are framed under the general provision in section 94 of Finance Act, 1994. Moreover, 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 treatme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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