By TIOL News Service

MUMBAI, OCT 23, 2013: THE appellants are engaged in providing various services such as Business Auxiliary Services, Business Support Service, Information Technology Software Service, Management Consultancy Service, Maintenance or Repair Service, Renting of Immovable Property Service, Transport of Goods by Road Service, etc. They have their branch office in three countries outside India, namely, Japan, Singapore& South Africa. These branch offices are engaged in ‘Software Development and Consultancy Service' and these services are provided to overseas customers.

The consideration for the services rendered abroad were received by the branches who raised bills on the customers. After deducting the expenditure incurred for rendering the services abroad, excess of income over expenditure of the branches is remitted to their head office in India.

The department was of the view that the services rendered by the overseas branches on behalf of the parent-company falls under the category of ‘Business Auxiliary Service' and accordingly, the entire amount received by the overseas branches is liable to service tax. Therefore, a show cause notice was issued demanding service tax of Rs.17,29,61,546/- on the total receipt of the overseas branches amounting to Rs.1,55,22,06,404/-.

Similarly, the appellant also had permanent establishment abroad by way of personnel located in the offices of their various clients abroad. These personnel rendered the service to the overseas clients and for rendering such services, they incurred various expenditure such as rentals, telephone, insurance charges, vehicle charges, postage and courier charges, conference and event management expenses, software AMC and licence renewals. For meeting these expenses the head office remitted money from India amounting to Rs.1,15,30,16,285/-.

On these monies too, the department was of the view that the appellant is liable to pay service tax, on reverse charge basis, amounting to Rs.13,66,44,081/- during the period October, 2006 to December, 2011.

Vide an order dated 12/10/2012, the CCE, Pune-I confirmed a total demand of Rs.30,72,75,553/- and imposed penalties and interest.

Before the CESTAT, the appellant submitted that the branches are not independent entities and they are part of the appellant's organization and, therefore, if the branches have undertaken service to the overseas customers, it will not be considered as service received by the appellant as there cannot be a service to self; even if it is held that the appellants have rendered the service, since service has been rendered to the overseas customers, it amounts to export of service. Moreover, as the appellant has received the proceeds in convertible foreign exchange and they have not made any payments to the branches, the question of payment of any service tax on reverse charge basis under Section 66A of the Finance Act, 1994 would not arise at all. Similarly, in the case of payments made to service providers in USA for services rendered to the permanent establishment, the said service had been rendered in USA and the tax liability such as VAT/GST has been discharged thereon. Therefore, there is no jurisdiction vested with the Indian authorities to levy a tax thereon. Prior to 16/05/2008 ‘Information Technology Service' was not under the tax net, and therefore, the question of demanding any service tax on such services rendered abroad in respect of ‘Information Technology Software Services' would not arise at all. Reliance is placed on the decisions in Aztecsoft Ltd. - (2011-TIOL-1971-CESTAT-BANG), IDS Systems Pvt. Ltd. - (2012-TIOL-1532-CESTAT-BANG), Intas Pharmaceuticals Ltd. - (2009-TIOL-1537-CESTAT-AHM), Tech Mahindra Ltd. - (2011-TIOL-1823-CESTAT-BANG).

The Revenue representative submitted that as per the provisions of Section 66A of the Finance Act, 1994, even in respect of an Indian company, if they have a fixed establishment abroad, the services received by the Indian entity would be leviable to service tax in India on reverse charge basis and, therefore, the demand of service tax is sustainable in law.

The Bench observed –

+ The provisions of Section 66A are attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad. In the present case, the appellant has provided 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. Therefore, prima facie, we are of the view that the provisions of Section 66A are not at all attracted.

+ 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. The appellant has assured that they will be able to lead evidence regarding payment of GST/VAT on the services rendered abroad if opportunity is given to them.

+ Even if it is assumed that the appellant has received the service from abroad from their branches, since the service have been consumed by the clients abroad, it would amount to export of service under Rule 3 of the Export Service Rules, 2005 in which case also there would not be any service tax liability.

Noting that the CCE, Pune-I has not considered any of the issues germane to the matter and in the light of the case laws cited by the appellant, the Bench viewed that the matter has to go back to the adjudicating authority for consideration afresh with regard to the question, whether he has any jurisdiction to demand service tax on activities which are completely rendered outside India and on which tax liability has been discharged under the local laws where the activity has taken place.

Appeal was allowed by way of remand.

(See 2013-TIOL-1568-CESTAT-MUM)