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TMI Blog2025 (1) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... 73/2018 being aggrieved against the dropping of demand for the period prior to 01.05.2011 in the same impugned order dated 25.05.2018. 2.1 The brief facts of the case are that the appellants herein is a banking company operating through various branch offices situated across India and having their head office in London, United Kingdom i.e., Standard Chartered Bank, UK (for short, referred to as "SCB-UK"). The SCB-UK has an extensive global network of its branches all over the world including India. The appellants provide various services to their customers such as trade services, cash management operations, utilities, loans processing, securities services, credit risk control, financial market operations and compliance & assurance, handling transaction processing activities across various product lines including credit cards, personal loans, current account and savings account, mortgage raising and corporate Finance solutions across all its domains. In order to provide support to all its global branches SCB-UK being the head office incurs certain expenses under the various heads such as advertising, auditing fees, donations, entertainment, gross emoluments, insurance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17), had confirmed service tax demands of Rs. 366,46,36,354/- out of the total demand proposed in show cause notices of Rs. 396,30,85,469/- along with interest on the appellants under Section 73(2) read with proviso to Section 73(1) of the Finance Act, 1994 and also imposed penalties on the appellants under Sections 76, 77 and 78 ibid. 2.4 Further, learned Commissioner had dropped the demand for an amount of Rs. 29,84,49,115/- in the course of adjudication, on the ground that the services in the nature of operational or administrative assistance were included in the taxable service of "Business Support Services" vide a prospective amendment to the definition w.e.f. 1.5.2011. Therefore, for the period prior to 1.5.2011, the term "Business Support Services" did not include the phrase "operational or administrative assistance in any manner" and thus he held that service tax demand under the head "Business Support Services", prior to 01.05.2011, does not get covered under the scope of definition of 'support services of business or commerce' and therefore the tax demands to that extent is not sustainable on merits as well as on limitation. 2.5 Feeling aggrieved with the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No consideration has been charged in the present case as no amount is actually paid by the appellants to SCB-UK towards the allocation of head office expenditure. Therefore, he claimed that the appellants are not liable to discharge service tax in absence of consideration. 3.4 Learned Advocate further stated that SCB-UK has allocated the expenses incurred by them among global branches based on appropriate allocation drivers such as turnover, head count etc. Such apportionment of head office expenses is only for the limited purpose of compliance with income tax laws and it does not put an obligation on the appellants to make payment to SCB-UK. The allocated amounts were not paid by the appellants to SCB-UK. Also, the allocated expenditure is merely on cost basis without any mark-up. Hence, he stated that such an arrangement of cost sharing will not be liable to service tax. 3.5 Learned Advocate further submitted that Section 66A (prevailing upto 30.6.2012) deals with a scenario when a taxable service is provided by a person located outside India and the same was received by an Indian recipient, then the burden to comply with the provisions of Finance Act, 1994 is cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 1994 is correct. He further stated that if no expenses have been incurred by the head office (SCB-UK), then in that case no deductions will be available under section 44C of Income Tax Act, 1961. Since SCB has claimed such deduction, he stated that the appellants have actually incurred the HOA expenses attributable and allocated to the SCB-India for providing business support. The expenses incurred by SCB-UK are intrinsically and essentially linked to their business operation in India. 4.2 Further, he stated that SCB-UK, located in a non-taxable territory i.e. outside India was providing services and the same was subject to service tax under reverse charge as per Section 66A of the Finance Act, 1994. The said services qualified as import of service under section 65(105)(c) of Finance Act, 1994 prior to 1.7.2012 and qualified as import of services as per Rule 3 of Place of Provision of Services Rules, 2012 post 1.7.2012. 4.3 Since the Appellant and SCB-UK are associated enterprises, the point of taxation as per Rule 3 of Point of Taxation Rules, 2011 would be date of debit in the bank accounts by recipient or date of making payment whichever is earlier. The head offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6A, 66B and 67 of the Finance Act, 1994 read with Place of Provision of Services Rules, 2012 (POPS). The services which are in dispute are Business Support Services (BSS) or 'support services', which were earlier covered under the specific category of taxable service viz. 'support services of business or commerce'. 6.2 It can be seen from the factual matrix of the case that the appellants have been allocated with certain costs towards the general administrative expenses incurred by their head office (SCB-UK) situated at London in United Kingdom. These expenses have been allocated at cost i.e., without any mark-up by SCB-UK to all its branches inter alia including the appellants, in compliance with Income Tax Act, 1961 and the extant regulations framed by the Reserve Bank of India in respect of remittance of profit by foreign banks operating in India. There is no service provider identified by the department, in the present case so as to bring the appellants liable for payment of such services, if any, availed by them through their head office; and to treat the said expenses which are allocated on certain criteria like gross revenue, employee headcount, profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Jammu and Kashmir. (2) It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. (3) It shall apply to taxable services provided on or after the commencement of this Chapter. Interpretations Section 65B (44) service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1.- For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,- (A) the functions performed by the Members of Parliamen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-6-2015] [fourteen per cent] on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Determination of place of provision of service. Section 66C. (1) The Central Government may, having regard to the nature and description of various services, by rules made in this regard, determine the place where such services are provided or deemed to 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. Power to make rules. Section 94. (1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Chapter. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely :- (hhh) the date for determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is located or intended to be located. Place of provision of services relating to events. Rule 6. The place of provision of services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, or entertainment or a celebration, conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall be the place where the event is actually held. Place of provision of services provided at more than one location. Rule 7. Where any service referred to in rule 4, 5 or 6 is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided. Place of provision of services where provider and recipient are located in taxable territory. Rule 8. Place of provision of a service, where the location of the provider of service as well as that of the recipient of service is in the taxable territory, shall be the location of the recipient of service. Place of provision of specified services. Rule 9. The place of provision of following services shall be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above, we find that the Government had clearly stated that the scope of taxable services under Section 65(105)(zzzq) ibid is being expanded and the scope of services to be covered w.e.f. 01.05.2011 are explained as those services which are in the nature of support activities for the ongoing business support functions. As these services are distinct from operational assistance for marketing which was covered earlier under the scope of taxable services, for the limited purpose of understanding and for coming to a conclusion about the date of effect of bringing into tax net the scope of comprehensive services of 'operational or administrative assistance', we come to the conclusion that such expansion of services were brought under the tax net only with effect from 01.05.2011 and not earlier, as argued by the special counsel and appealed by the Revenue in the appeal filed by them before us. Therefore, we are of the considered view that the appeal filed by Revenue, for charge of service tax on the disputed activity, prior to 01.05.2011 do not have the support of law and therefore such appeal is liable to be dismissed. Further, post 01.07.2022, services were interpreted to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d purpose of date for determination of rate of service tax and the place of provision in certain services in specified situations, these POPS Rules have been framed. The place of provision shall in general be the location of recipient of service, except in certain circumstances specified therein. These exceptions include performance-based services, situations where services have been provided relating to immovable property, certain events such as celebration, conference, fair, exhibition etc., and certain specific services. In such cases, the place of provision of services is stated therein in the respective Rules. In the factual matrix of the present case, Rule 9 ibid is relevant as it provides for the situation where the services are provided by a banking company. In terms of Rule ibid, in respect of services provided by a banking company to account holders, it shall be the place of service provider. 6.7 In the present factual matrix of the case, the appellants by themselves or the Head office through the appellants have not provided any of the disputed service to their account holders in India. As the appellants have only been shared with the expenses relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In case there is no remittable surplus profit for any year, then there is no remittance done by the appellants. For instance, the learned Advocate had pointed out that the appellants have not remitted any surplus to SCB-UK during the financial year 2011-12. The amount of surplus profit or the remittable surplus in respect of banking company incorporated outside India (foreign company) is subject to certain regulations prescribed under the Banking Regulation Act, 1949 and the circular issued by the Reserve Bank of India, which state that an amount calculated at twenty per cent. of profit for that year in respect of all business transacted through bank's branches in India, shall be deposited by such banking company with the Reserve Bank, either in cash or in the form of unencumbered approved securities, or partly in cash and partly in the form of such securities. These capital adequacy regulations have been complied with by the appellants and these do not have any relation with the taxation of services for the purpose of payment of service tax. 7. Further, under the scheme of Negative List regime, the essence of indirect taxation is that a service should be taxed in the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x as having been made without authority of law. In view of the categorical decision of the Tribunal, the issues under dispute in the present case is no more open to debate, and a different view cannot be taken by this Tribunal. The relevant paragraphs of order of the Tribunal in the case of Tech Mahindra Ltd., Milind Kulkarni (supra) is extracted and given below: "9. The primary planks of the confirmation of demand in the impugned older are that the appellant and its branches are different persons, that the purpose and activities of the branches are for rendering service to the head office in India, that the payments made to the branches are not reimbursements but are taxable consideration for taxable service and that there has been suppression of facts by the appellant. xxx xxx xxx xxx 12. At the core of the dispute are four issues, viz., the status of overseas branches vis-à-vis the head office and the limitation thereof, the jurisdiction to classify the services under Section 65(105) of Finance Act, 1994, the receipt of 'business auxiliary service' by the assesseeappellant from its branches and the inclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 service in India... ' That it is to be taken as an indicator arises from the absence of crossborder tax facilitation that extends availment of credit beyond the tax frontiers of the country. For these reasons, it is neither feasible nor necessary to delve into the activities of the overseas entity except where the tax liability of the assessee is sought to be mitigated on grounds of discharge of tax abroad. Correspondingly, the refund of any tax abroad is not necessarily detrimental to the assesse without a clear understanding of the tax laws under which refund was sanctioned. The principles and procedures of the tax statute in India should not be presumed to apply to the overseas tax law for crystallising tax liability in relation to activity that has been undertaken by the overseas entity. 15. However, that does not foreclose the jurisdiction over or preclude necessity of examining an overseas activity from the point of view of the recipient of service. Section 66A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial activity that the principal body is engaged in. Commercial feasibility mandates that such branches exist to render services or to facilitate placement of goods. Therefore, to posit that the overseas branches render services does not require genius of a high order. At the same time, reasonable intelligence suffices to identify the recipient of the service and the nature of the service rendered. 19. The appellant-assessee has established branches for furthering its commercial objectives. The benefit of assigned activities of the branch will, undoubtedly, accrue to the appellant. There is no dispute that it is the appellant-assessee who enters into contractual agreements with overseas customers for supply of 'information technology services' which have 'off-shore' components rendered directly to the overseas entity by the appellant-assessee. 'On-site' activity is undertaken by deputing employees working at the site of the customer. These employees are, without doubt, on the rolls of the appellantassessee which, 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 chargin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orresponding 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. 23. The catena of judgments cited for both sides, viz., British Airways v. Commissioner of Central Excise (Adjn) [2014-TIOL-979CESTAT-Del = 2014 (36) S.T.R. 598 (Tri.-Del.)], Torrent Pharmaceuticals Ltd. v. Commissioner of Service Tax [2015 (39) S.T.R. 97 (Tri.-Ahmd.)] and Infosys Ltd. v. Commissioner of Service Tax [2014-TIOL-409-CESTAT-Bang = 2015 (37) S.T.R. 862 (Tri.Bang.)] does support the proposition that a service is taxable under Section 66A of Finance Act, 1994 only when such service is rendered in India. The question that arises then in the context of the present dispute is whether the branch renders a service is rendered in India wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise 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 be substituted by any other entity. The activity of the head office and branch are thus inextricably enmeshed. Its employees are the employees of the organization itself. There is no independent existence of the overseas branch as a business. The economic survival of the branch is entirely dependent on finances provided by the head office. Its mortality is entirely contingent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot correct. The charging section is section 66 of the Act and not section 66A, as was observed by the Allahabad High Court in Glyph International Ltd. v/s Union of India xxx xxx xxx xxx 23. The confirmation of demand under the impugned order, therefore, cannot be sustained." 8.3 We find that in the case of Cathay Pacific Airways Ltd. Vs. Commissioner of Service Tax-I, Mumbai, the Larger Bench of the Tribunal in Interim Order No.23/2024 dated 02.09.2024 have held that transactions between both the service provider and service receiver located outside India cannot be leviable to service tax. The relevant paragraph of the said order is extracted and given below: "39. The aforesaid discussion would lead to the inevitable conclusion that the branch office in India is not the recipient of OIDAR services provided by CRS companies. It is the head office which is contractually entitled to receive the services rendered by the CRS/GDS companies and it is the head office which is contractually obligated to make payment for the services rendered by the CRS/GDS companies. 40. The reference would, accordingly, have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice rendered to its head office. On the same ratio, we hold that even service if any received by the branch office cannot be subjected to tax. 8. We note that the appellant has not received any service to be taxed in the present situation. The debit entries are for maintaining complete financial transaction on behalf of SNC, Canada. Further, it is clear that SNC, Canada cannot be categorized as a manpower recruitment or supply agency while involving deputing their own staff to execute their own contract in India. We find no justification to hold against the appellant for service tax liability. In view of the above discussion and analysis, we find the impugned order is not legally sustainable. Accordingly, the same is set aside. Appeal is allowed." 8.5 We also find that the Tribunal in the case of Haldiram Marketing Pvt. Ltd. Vs. Commissioner, CGST, GST Delhi East Commissionerate - 2023 (71) G.S.T.L. 414 (Tri. Del.) have held that sharing of expenditure by associated enterprises cannot be held to be treated as service rendered by one to another. The relevant paragraph of the said order is extracted and given below: "26. The goods of the associated enterprises are also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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