TMI Blog2024 (3) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... ent a permanent establishment of the foreign company exists in India. It is worthwhile to look into the provisions of Section 66A as with satisfaction of the said provision only the rules containing taxable services provided from outside India and received in India could be scrutinized. In the instant case the Appellants have received goods from entities located outside India whereas the services in respect of the said goods have been provided to the Appellants by the parent company s branch in India by the nature of the services rendered like placing processing of order, negotiation done with customers by Sarin India on behalf of Sarin Israel, installation of the HASP software etc. it can be observed that Sarin India are entrusted with providing such services of higher order that are integral to the smooth functioning of the machines used by the Appellants. As it is entrusted with such crucial responsibilities it cannot be denied that Sarin India operates in the capacity of an Agent/ Branch office of that of Sarin Israel. The Tribunal in the case of M/s Lakshmi Electrical Drives Ltd. v Commissioner of CCE ST, Coimbatore [ 2023 (4) TMI 610 - CESTAT CHENNAI] has held a similar view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lful suppression of facts on the part of the Appellants. Therefore, demand beyond normal period in those show cause notices issued invoking extended period cannot sustain. Hence the Appellants succeed on limitation as well. Thus, under the purview of Section 66A of the Finance Act,1994 when a permanent establishment of the foreign service provider exists in India the recipient of service in India cannot be made liable to pay service tax under reverse charge mechanism - the impugned orders are not sustainable in law and in fact - appeal allowed. - MR. RAMESH NAIR, MEMBER (JUDICIAL) AND MR. RAJU, MEMBER (TECHNICAL) Shri J C Patel, Shri Hardik Modh Shri Amit Laddha, Advocate for the Appellant Shri Rajesh R Kurup, Superintendent (AR) for the Respondent ORDER The common issue involved in all these appeals, hence all the appeals are taken together for disposal. 1. The brief facts of the case are that the Appellants are engaged in the export of cut and polished Diamonds. In the impugned order the Learned Commissioner (Appeals) upheld that the Appellants are liable to pay Service Tax under Reverse charge mechanism in terms of Section 68 (2) of the Finance Act, 1994 read with Rule 2(1) (d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween parent company and the subsidiary company, the subsidiary company will have no effective independence from the parent in conduct of the business. 2.3 He further submits that from the legal structure, rendering of different services and audit report of Sarin India it can be established that Sarin Israel has been providing services to the Appellants in India through their permanent establishment functioning under Sarin Technologies India Pvt. Ltd and therefore by applicability of Section 66A of the Finance Act, the Appellants shall be discharged of the demand raised against them for recovery of Service Tax. He has relied upon Circular B1/6/2005 TRU dated 27.07.2005 in support of the same. 2.4 As regards to the second issue, he submits that the Department was unable to adduce evidence in support of their claim to invoke section 73 that could establish that the Appellants had malafide intentions to evade their duty of paying tax thereby not fulfilling basic conditions required under the said provision before applying it. That a mere omission would not constitute suppression of facts when under given circumstances the Appellants were under bonafide belief that there was no liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be the taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply: Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply: Provided further that where the provider of the service has his business 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning, repairs and maintenance, promotion, marketing on behalf of Sarin Ltd, Israel. Based on the types of services being provided by Sarin India, it can be inferred that the point of contact in India for rendering the services in furtherance of those required by their products is Sarin India Technologies and therefore by fulfilling these essential trading and service activities on behalf of Sarin Israel, it has been acting as an agent of Sarin Israel. 4.3 For more clarity about the activities of Sarin India, the details of such activities for the appellants is given below: 1. The Engineers from Sarin India brought software alongwith them for installation into the machines imported from Sarin Israel. Sarin India does not merely facilitate Sarin Israel towards the sale of software but also undertakes all the major activities independently, which are listed as follows: Marketing Promotion : By way of demonstrations or through telephone, Sarin India markets and promotes the said software to the clients in India; Point of interaction : Sarin India acts as the sole point of interaction to the Indian Clients for any information / price / terms and conditions, etc. of the software; Order : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business establishment in India in the title of Sarin India in terms of Section 66A read with explanation 1 attached thereto. 2. Explanation 1 to Section 66A of the Finance Act 1994 provides that if a person is carrying on business in India, through an agency or branch in India, such person shall be treated as having business establishment in India. It would therefore follow that in respect of services provided in India by such person, since such person has establishment in India, that person as provider of service is liable to pay service tax in India and not the recipient of service in India. The recipient of service would be liable only when the service provider does not have a business establishment in India. In view of the said provision, Sarin India is to be considered as an Agency carrying on business in India for Sarin Israel and Galatea Israel and therefore, service tax is liable to be paid by the service provider and not by the service recipient. 3. It is observed that Sarin India was performing all the activities in regard to supply of software, starting from placing of order till installation, upgradation and maintenance of software, installation and other relevant p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith providing such services of higher order that are integral to the smooth functioning of the machines used by the Appellants. As it is entrusted with such crucial responsibilities it cannot be denied that Sarin India operates in the capacity of an Agent/ Branch office of that of Sarin Israel. In this regard we accept the submissions made by the Appellants towards the legal structure and discharge of essential trading activities conducted by Sarin Israel making it manifestly clear that Sarin Isarel has through its agent/branch in India been providing services for the products sent by it. Thereby fulfilling conditions as enumerated under clause 2 read with Explanation 1 of Section 66A. 4.5 Our above view is supported by the decision of Nagarjuna Oil Corporation Ltd. v CCE Puducherry, 2017 (47) STR 96 (Chennai) wherein this Tribunal has taken the following view: 5. The only point for determination is the Appellants's liability to service tax on reverse charge basis in terms of Section 66A. The admitted facts are that there is an agreement between the Appellants and NOC BV, Netherlands. NOC BV, Netherlands has an establishment in India recognized by various authorities in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a business establishment in that country. In this appeal, facts clearly indicate that M/s. CSA International, Canada has its 100% Subsidiary viz. M/s. CSA Private Limited, Bangalore, who is registered with Service Tax R.C. No, AABCC2605FST001. ...At the same time, in his findings at para-20 and 21, it was mentioned as under: - 20. It may be a fact that the service provider (Canadian Establishment) has an establishment in Bangalore as per extract copy of the Ministry of Corporate Affairs provided by them during the personal hearing. But no records were brought forth by M/s. LEDL to show that they had received such services from the Bangalore establishment. All the invoices pertaining to the receipt of services had been duty issued by the service provider viz. M/s. CSA International, Canada, whose establishment (Canadian Establishment) is found in Foreign Country. 21. In terms of second proviso to Section 66A (1) (b), which reads as where the provider of the service has his business 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly clear that the Sarin India is pure agent of the Sarin Israel. 4.8 In the light of varied literature available towards interpretation of permanent establishment we observe that interpretations under the following instances hold persuasive value. In the landmark decision of CIT Vs. Vishakhapatnam Port Trust [(1983), 144-ITR-146 (AP)] on the subject of Permanent Establishment , the Andhra Pradesh High Court has observed as under: The words Permanent Establishment postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another, which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country onto the soil of another country. Article 5 of the DTAA entered into between Israel and India has been referred to by the Appellants in their submissions. It reads as under:- Article 5 - Permanent Establishment 1. For the purposes of this Convention, the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term permanent establishm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered a Permanent Establishment of Sarin Israel. It can be observed from the records that Sarin had head office in Israel and that Sarin India Technology Ltd. was operating as an agency to carry out business of trading in a different country that in the instant case is, India and by flow of that we are of the considered view that by way of Section 66A discharge of liability of service tax cannot be made applicable to the Appellants. Therefore there is no second thought required to be arrived at the conclusion that the Appellants had received goods from a foreign country and services in its extension from service provider in India through the said foreign company s Branch office at that time one of which is located in India thereby sufficiently establishing that they have a permanent establishment hence the Appellants cannot be fastened with the liability of service tax for being a recipient of service under section 68(2) of the Finance Act read with rules 2(1)(d) as a deemed service provider in India. 4.9 As regards the second issue, the Learned Counsel for the Appellants has made submissions on the grounds of both revenue neutrality and limitation. 4.10 It is observed from record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the Appellant to evade the payment of any Service tax nor had any proof towards this end been adduced by the Revenue. It is settled that mere omission would not constitute suppression of facts and the Appellant was under bona fide belief that there was no liability to pay Service tax. This proposition is supported by Hon ble Apex Court judgment in Uniworth Textiles Ltd. v. CCE, Raipur reported in 2013 (288) E.L.T. 161 (S.C.) , wherein it was held that the extended period of limitation is not invokable for mere non-payment and requires a deliberate default on the part of the assessee, is also applicable. 4.14 It is trite law that the extended period of limitation can be invoked only if there is an allegation of collusion, willful misrepresentation or suppression of facts against the Appellant. It is an admitted position that the Appellant filed the statutory returns providing all relevant details therein. The Appellant submits that the payment made to Sarin Israel, Galatea Israel and Diamsoft Company Inc. of UAE were shown as capital goods (Tangible Assets) under the Plant Machinery and the Appellant was claiming depreciation on them. Further, the amount paid to foreign co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also fact on record that statements authorized signatory were recorded from time to time. The statements were exculpatory in nature to the extent that no one stated that the Appellant had any intention to evade the liability for payment of Service Tax. In such circumstances, when the Appellant has no malafide intention to evade the payment of Service Tax, larger period of limitation is not invocable. 4.19 We also find force in the submissions on behalf of the appellants that the issue involved is an interpretational issue and the bonafide interpretation of the Appellants was that they were not liable to pay Service tax as the suppliers were providing service through their Indian arm having a fixed establishment in India and therefore, based on a strict reading of the provisions of law, the Appellant was not liable to pay Service Tax. Being similar circumstances involved, the following case laws support the appellants case: Tata Consultancy Services Vs. Commissioner, 2018 (18) GSTL 478 Hindalco Industries Ltd. Vs. CCE,2018 (10) TMI 392 - CESTAT New Delhi Uni Ads Ltd. Vs. CCE, [2016 (42) STR 547 (Tri. Bang.)] 4.20 This is pertinent to note that the entire diamond industry did not pay ..... 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