Case Law Details

Case Name : Kalpataru Power Transmission Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Appeal Number : Service Tax Appeal No. 11064 of 2015
Date of Judgement/Order : 10/06/2022
Related Assessment Year :

Kalpataru Power Transmission Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Held that 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 and such establishment situated abroad as a ‘separate person’.

Facts-

The intelligence was gathered that appellant received various services from abroad but had not been paying service tax appropriately on the value of services received from the service providers who are not having fixed establishment in India under the provisions of Section 66A of the Finance Act, 1994. Investigation against the Appellant was initiated. As a result of investigation, it is found that Appellant have not paid /short paid service tax amounting to Rs. 10,01,69,147/- under different services. Resultantly, the appellants were issued notice dated 17.04.2013 demanding service tax during the period July 2007 to March 2012 from the abroad.

The Adjudicating Authority vide impugned order confirmed the above demand of Service Tax amounting to Rs. 10,01,69,146/- along with interest and imposed penalty at the rate of Rs. 200/- per day or 2% per month, whichever is higher u/s. 76 and also imposed a penalty equal to tax demanded u/s. 78 of the Act. In addition, he also imposed penalty of Rs. 10,000/- in terms of the provisions of Section 77(2) of the Finance Act,1944. Separate penalty also imposed of Rs. 10,000/- or Rs. 200/- per day, whichever is greater, in terms of the provisions of Section 77(1)(C) of the Finance Act, 1994 on Shri M K Harsh. Hence, the appellants have filed present Appeals before this Tribunal.

Conclusion-

Supply of tangible goods services – as the said services was provided and consumed outside India. Demand of service tax is not sustainable.

Cargo handling services – These payment are exclusively related to the services at overseas country for the business and commerce at overseas country. in the light of the judgment of M/s. British Airways v. CCE, held that 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 and such establishment situated abroad as a ‘separate person’. Therefore, demand of service tax confirmed by the Ld. Commissioner on above ground legally not correct.

IT Services – held that the services provided by the overseas service provider to the overseas site offices of the appellant cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India, consequently demand is not sustainable.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The present appeals have been filed by Appellants against the Order-in-Original No. AHM-EXCUS-003-COM-029-14-15 dated 20.01.2015

2. Briefly stated the facts of the case are that the intelligence was gathered that appellant received the various services from abroad but had not been paying service tax appropriately on the value of services received from the service providers who are not having fixed establishment in India under the provisions of Section 66A of the Finance Act, 1994. Investigation against the Appellant was initiated. As a result of investigation, it is found that Appellant have not paid /short paid service tax amounting to Rs. 10,01,69,147/- under different services. Resultantly, the appellants were issued notice dated 17.04.2013 demanding service tax on the following services received during the period July 2007 to March 2012 from the abroad. Following are the services for which demands are raised.

Sr. No. Service Category Demand amount
1. Banking and Other Financial Services Rs. 3,69,11,891/-
2. Business Auxiliary Service Rs. 3,61,80,696/-
3. Legal Consultancy Service Rs. 9,06,692/-
4. Supply of Tangible Goods Service Rs. 1,33,62,965/-
5. Technical Testing and Analysis Service Rs. 16,51,412/ –
6. Cargo Handling Service Rs. 95,92,040/-
7. General Insurance Service Rs. 12,92,403/-
8. Information Technology Software Service Rs. 2,71,047/-

The Adjudicating Authority vide impugned order confirmed the above demand of Service Tax amounting to Rs. 10,01,69,146/- along with interest and imposed penalty at the rate of Rs. 200/- per day or 2% per month, whichever is higher under Section 76 and also imposed a penalty equal to tax demanded under Section 78 of the Act. In addition, he also imposed penalty of Rs. 10,000/- in terms of the provisions of Section 77(2) of the Finance Act,1944. Separate penalty also imposed of Rs. 10,000/- or Rs. 200/- per day, whichever is greater, in terms of the provisions of Section 77(1)(C) of the Finance Act, 1994 on Shri M K Harsh. Hence, the appellants have filed present Appeals before this Tribunal.

3. Shri Prakash Shah and Shri S.J Vyas, Learned Counsel appearing on behalf of the appellant submits that the demand includes the service tax on the provision made at the end of the year for preparation of financial account of the company in order to maintain the books of account on mercantile systems. The provision is only the adjustment entry to derive the correct profit of the company at the end of the financial year in view of legal provisions to follow mercantile systems of accounting. It is nowhere provided in the statute that the service tax is liable to be paid on provisions made at the end of the year.

3.1 He submits that Cenvat Credit of input services available to the Appellant, the disputed service tax is available as credit to the Appellant and entire exercise is revenue neutral. During the period of dispute, Appellant paid both service tax and excise duty in cash in excess of impugned demand. Further, no service tax is payable under reverse charge for the services used in relation to exports of goods or services. He placed reliance on the following decision:-

  • 3i Infotech Ltd – 2017 (51) S.T.R. 305
  • Genom Biotech Pvt. Ltd. Vs. Commissioner – 2016(42) STR 918
  • Jet Airways – 2016 (44) STR 465 (Tri. Mumbai)
  • P.P. Mills Pvt. Ltd. -2016 (46) STR 317

3.2 He also submits that Ld. Commissioner has confirmed the demand of Rs. 3,69,11,891/- under the “Banking and Financial Service” allegedly received by the Appellant by Foreign banks on the reverse charge basis under Section 66A of the Finance Act, 1994. The said demand comprises of two activities. First demand pertains to the bank charges charged by the foreign banks to the Appellant’s bank in India for collecting and remitting the proceeds of the goods/ services from the overseas buyer/customers of the Appellant. The second demand pertains to the commission charged by the overseas banks to the Appellant’s bank in India for providing bank guarantees to the overseas customers of the Appellant both prior to and post the award of contracts. Appellant is required to give bank guarantees to its overseas customers in regard to the contract of supply and /or erection and commissioning of high-tension transmission towers to be executed outside India. None of the bank guarantees provided by the foreign banks were in relation to the business and commerce of the Appellant in India. The Appellant approached its bankers in India to provide the bank guarantees of overseas bank to Appellant’s overseas buyers. The Banks in India approached foreign bank to provide the guarantee and enter into contract with foreign bank to issue guarantee to overseas buyers of the Appellant. The Appellant does not enter into any contract with the foreign bank and there is no privity of contract between the foreign bank and the Appellant. The Appellant availed the services of Indian Bank. The foreign bank does not provide any services to the Appellant. Ld. Commissioner committed an error of law in holding that the foreign bank charged bank guarantee commission from the Appellant. There is nothing on record to reach these findings. The Chief Commissioner of Central Excise, Mumbai issued trade notice No. 20/2013 -14 S.T. -1 dated 10.02.2014 clarifying that, in cases where the foreign Banks are recovering certain charges for processing of Import/ Export documents regarding the remittance of foreign currency, the banks in India would be treated as recipient of service and therefore required to pay Service tax. He also placed reliance on the following decisions:-

  • Dileep Industries Pvt. Ltd. 2017(10)TMI 1231
  • Themis Exports Pvt. Ltd. 2019(26) GSTL 104
  • Greenply Industries Ltd. 2015(38) STR 605
  • Final order No. A/85816/2018 dtd. 23.03.2018 – Raymond Ltd.
  • KPIT Cummins Info Systems Ltd. Vs, CCE – 2014 (33) STR 105

3.3 As regard the demand of Rs. 3,61,80,696/- under the taxable service of “Business Auxiliary Service” provided by the overseas service providers to the Appellant‟s branch in relation to the overseas projects, he submits that Ld. Commissioner has proceeded on the footing that the Appellant employed sales commission agent, marketing agents, technical advisors for liasoning activity with various customers and agencies, advisory or consultancy for settlement of disputes in connection with promotion of their business interest abroad. Admittedly neither the SCN nor the impugned order specify sub-clause of Section 65(19) under which service tax is demanded. In the absence of invocation of specific sub-clause, the impugned demand cannot be sustained. He placed reliance on the following decisions:-

  • United Telecom Ltd. -2011(21)STR 234
  • Sharma Travels – 2017 (52) STR 272 (Tri. Del)
  • Amrit Foods – 2005 (190) ELT 433 (SC)

3.4 He also submits that Appellant has paid service tax on reverse charge basis when service have been received from nonresident service provider in India under the taxable service category of business auxiliary service, for which payment has been made by the Appellant to the nonresident service providers. However, the services which have been provided by the nonresident service providers directly to the overseas site office of the Appellant and payment of which has also been made by the overseas site officers, no liability to pay service tax would arise on the part of the appellant as recipient of the service on reverse charge basis. Therefore, the Appellant did not pay service tax on commission or fees paid by the site officers of the appellant in foreign countries. Since the foreign site officers are paying all the applicable taxes/ duties, applicable in the foreign country. He submits the sample copy of invoices raised by the commission agent on the foreign site offices for providing services in respective foreign countries.

3.5 He also submits that Ld. Commissioner has confirmed the demand claiming that the overseas office of the Appellant is a temporary arrangement made for the convenience of the Appellant and the overseas branch worked under the umbrella of the office of the Appellant in Gandhi Nagar and that the income and expenditure of the overseas office are finally incorporated in the balance sheet of the Appellant. In any event and without prejudice, the Appellant’s office in India its overseas site office are distinct entities under Section 66A (2) and any service availed by the overseas branch/ office in relation to business outside India cannot be said to have been received by the Appellant in India and subjected to service tax in India. He placed reliance on following decisions:-

  • Steel Authority of India – 2020 (4) TMI 346 -CESTAT, New Delhi
  • 3i Infotech Ltd. – 2017 (51) STR 305

3.6 Without prejudice he also submits that demand on the provisions made in the books of account is liable to be set aside. Ld. Commissioner failed to appreciate that the department had already issued show cause notice for the part of the demand for the years 2007 to 2009 on 29.09.2010 which was duly adjudicated by the Ld. Additional Commissioner vide Order No. 11/ADC (SC)/ 2011 dated 03.02.2011. The overseas service providers have paid local VAT/GST. This aspect is not disputed by the department. It is settled position of law that for the services rendered abroad, if the tax liabilities such as GST/VAT etc. have been discharged in accordance with the local laws, on the same transaction, the authorities in India do not have any Jurisdiction to impose Service tax. He placed reliance on the following Judgments:-

  • M/s Torrent Pharmaceuticals Ltd. Vs. CST 2014-TIOL-2647-CESTAT-AHM
  • KPIT Cummins Info Systems Ltd. Vs CCE 2014(33)STR 105(Tri. Mumbai)

3.7 As regard the demand of Rs. 9,06,692/- under the Legal Consultancy Service’ under reverse charge for the services provided by the overseas service providers he submits that non-resident service provider had provided the service to the overseas site offices and the payment has been made by the overseas site offices. When the service provider as well as service recipient (overseas site offices) both are located outside India, no tax is payable in India. Further, Legal Consultancy service has become taxable with effect from 01.09.2009. Consequently, the demand prior to 01.09.2009 is liable to be set aside.

3.8 He also submits that Ld. Commissioner has confirmed the demand under the Legal Consultancy Service on the ground that Appellant has accounted for in the books of accounts as Legal and Professional Services. There is a general term in the books of account named as Legal and Professional Expenses‟ which is not exactly similar to the definition of the Legal Consultancy Fees‟ as defined in the Finance Act, 1994. Therefore general terms cannot be considered as strict definition in the statute. Some of expenses in Legal and Professional Services are for registration fees in Ukraine, Municipal tax is Saudi Arabia, Fees for land, chamber of commerce etc. These expenses are not for providing legal and consultancy services. The Ld. Commissioner has completely overlooked the aforesaid facts and wrongly confirmed the demand under legal consultancy service. It is settled position in law that prior to 01.07.2012, the service tax was payable under the defined taxable services from the date notified by the Government of India.

3.9 As regard the demand of Service tax of Rs. 1,33,62,965/- under the supply of Tangible Goods Services he submits that appellant had imported pipe layer machine /caterpillar pipe layer machine on lease/rent from outside India for execution of laying of long distance pipe line work in India. The said transaction were import of goods and not import of services. The Appellant on import of machinery paid the appropriate customs duty Further, the machinery imported by the Appellant on lease/rent no service tax was payable as the effective control and possession of the machinery was with the Appellant. The Appellant was required to pay to any damage to the machine was sufficient to show that the effective control and possession of the imported machine was with the Appellant.

3.10 Without prejudice, he further submits that in any event, the Appellant had an agreement with Saygili P.D.C. Ltd., Cyprus, for providing the technical/machine operators etc. at site for operating machinery of CRC Evans. The service provided by Saygili cannot be covered by supply of tangible goods as they did not provide any goods to the Appellant. They only provided engineers. The demand of Service tax on the consideration paid to Saygili under supply of Tangible Goods is liable to be set aside. The demand under Supply of Tangible goods Service‟ for the services provided by HIDELECO for carrying out the survey and providing technical consultancy service for the transmission line project at Algeria Soinelgaz is clearly untenable in law. No goods were supplied by HIDELECO.

3.11 As regard the demand of Service tax of Rs. 16,51,412/- under the taxable service category of Technical Testing and Analysis Service‟ on reverse charge basis he submits that Ld. Commissioner held that the Consultants of EdD and PB towers visited Bangalore in connection with the tower test witness of tower type ED for WO-126 and they were paid in Euros in Bangalore. The Ld. Commissioner relied upon the Journal Voucher dtd. 31.01.2009 and emails reproduced in impugned order to confirm the above demand. The Ld. Commissioner rejected the contention of the Appellant that the payment made to the foreigners were reimbursement of travel expenses. In order to tax the services under technical testing and analysis, it is necessary that such services are in relation to physical, chemical, biological or any scientific testing or analysis of goods or materials. In terms of the contract with the overseas buyers for supply of material, the Appellant has to perform testing of tower parts in its factory in the presence of the representative of the overseas buyers. The representatives of the overseas buyers merely witnessed testing process at the factory of the Appellant. The Appellants were required to and reimbursed only travel expenses. The payment is not for any services provided by the representative of overseas buyers. In addition to the visit of the representatives of the buyers in Bangalore, India, the representative of the buyers had also visited to witness testing of the towers parts in China. The testing took place in China. The representatives of the overseas buyers were paid travel expenses for remaining present during the testing. Travel expenses paid for visiting Bangalore and China to witness the testing of the tower parts are not covered by taxable services of technical testing and analysis services. Alleged testing by the representatives of the buyers at China are covered by Rule 3(3)(ii) of the Import of Service Rules and the alleged services are provided outside India and no part of services are provided in India and no service tax is payable on the alleged services in China.

3.12 He further submits that Journal Voucher dated 31.01.2009 showing the description of testing expenses cannot by itself mean that the consideration was paid for rendering technical testing and analysis services. The contract does not provide for any technical testing and analysis services to be provided by the overseas buyers. The contract with the buyers clearly provides for payment of travel expenses to witness the testing of the tower parts.

3.13 As regard the demand of Rs. 95,92,040 under taxable service of cargo handling services he submits that Ld. Commissioner held that Appellant had availed services of M/s World Wide Logistics Partners Inc USA, for providing custom clearing and handling charges and freight forwarding charges both India and abroad and the services rendered by the World Wide Logistics is taxable under Cargo Handling under Section 65(105)(zr) of the Finance Act. The Ld. Commissioner has further held that cargo handling Service fall in Rule 3 (ii) of the Import of Service Rules and Services are partly performed in India and partly outside India and therefore liable to pay Service tax. The consideration paid to World Wide Logistics is for the services rendered outside India and no part of the services are rendered in India. The Appellant paid the cargo handling charges from the overseas sites, having permanent establishment overseas. These payment were exclusively related to the services overseas for the purpose of business and commerce overseas. During the impugned period, the Appellant received contracts from the following parties wherein cargo handling was in the scope of the Appellant.

  • Ethiopian Electric Power Corporation, Ethiopia
  • Tanzania Electric Supply Co. Ltd., Tanzania
  • SocieteNetionale D‟ Electrricite (SNEL), Congo

All the payment made by the overseas site office of the Appellant from the bank account of overseas country. In case of Ethiopian Electric Power Corporation, it was mandatory to have the shipment through Ethiopian Shipping Line. The Appellant had provided support to the overseas customers in handling of the materials as per contractual terms and conditions, from the overseas port to the premises of the customers for which the customers had paid directly to overseas site offices of the Appellant. Thus, for handling of the material from overseas port to the premises of the customers, the Appellant have engaged local clearing and forwarding agency and payment of which were made directly from the overseas site offices from the consideration received from the overseas customers. Further the Appellant have also engaged an agency namely M/s World Wide Logistics Partner Inc, USA, to cater the need of handling of goods at the both the end that is from factory of the Appellant to the Indian port and from the destination port in overseas country to the premises of the overseas customers. For handling of the materials from the factory to the Appellant to the Indian Port and for carrying out activity of handling of material in India, M/s World Wide Logistics Partner Inc, USA, had engaged their Indian Partner M/s Pisces Container Line Pvt. Ltd. , Thus M/s Pisces has provided clearing and forwarding services for clearing of material from the factory premises of the Appellant to the Indian port. Thus to that extent clearing and forwarding services were performed in India and received in India. For provision of said service M/s Pisces has charged service tax from the Appellant and raised invoices on the head office of the Appellant directly. The foreign site office in Congo has availed the service of M/s Gectrans for the clearance from port in Congo and transportation of the goods from port to the site of customer. The payment has been made directly by the foreign site office to the Foreign Service provider. Further, the activity has been performed wholly in Congo i.e. outside Indian and is part and parcel of the balance sheet maintained by the foreign site office at Congo, which is to be considered as business income and expenditure of Congo, for the purpose of Income tax and accordingly the same is for the purpose of business and commerce carried out in congo. No service tax is payable on said amount by the Appellant.

3.14 He also submits that the foreign site offices had availed the service for the purpose of clearance of the exported goods at the foreign country port and transportation to the site of customer. The activity have been performed wholly outside India and is part and parcel of the balance sheet maintained by the foreign site office, which is to be considered as expenditure of the foreign site office, for the purposes of Income tax and accordingly the same for the purpose of business and commerce carried out in foreign country.

3.15 He also submits that CBEC vide circular F.No. B.11/1/2002-TRU dated 01.08.2002 clarified that services provided in relation to export cargo and passenger baggage are excluded from tax net. It is not in dispute that the Appellant have exported goods to the foreign customers and the services of M/s Pisces Containers (I) Ltd. has been received with respect of export goods only. Thus, without admitting that the services of M/s Worldwide Logistics and M/s Pisces Containers (I) Ltd. falls under the scope of cargo handling services but the same is carried out for export cargo, hence the amount paid by the foreign site office is not chargeable to service tax. Hence, in any case, the Appellant were not liable to pay Service tax.

3.16 In respect of service tax demand of Rs. 12,93,403/- under the category of General Insurance Service on reversed charge basis he submits that during the relevant period appellant had paid the Insurance Premium from the overseas site and is part of overseas insurance of the material during the period of erection in the overseas country. The expenses has been incurred in relation to business or commerce carried out outside India and not in relation to business or commerce carried out in India. The Insurance charges paid directly from the site office in the local currency of the overseas country, the Appellant is not liable for payment of service tax as said services cannot be considered as service received in India.

3.17 As regard the demand of Rs. 2,71,047/- on the information and technology services, he submits said demand pertains to the expenses shown in foreign currency under the headComputer Expenses‟. The said expenses related to the maintenance of computer, replacement of part etc in the foreign site offices. Therefore, no service tax is payable. Further, the internet charges incurred by the foreign site offices cannot be taxed under the category of Information Technology Software Service‟.

3.18 He also submits that extended period of limitation is not invokable in the present case as there was no suppression of facts with an intent to evade payment of service tax. The Department had carried out audits regularly of the records maintained by the Appellant during the disputed period. Appellant also filed Service tax return regularly. Hence extended period cannot be invoked. He placed reliance on the various decisions.

3.19 Without prejudice he also submits that the Central Excise officer empowered to issue show cause notice under Section 73 of the Finance Act 1994 is only the Jurisdictional officer of the Appellant. The DGCEI officers are not the Central Excise Officers empowered to issue show cause notice. Thus the present show cause notice is without Jurisdiction. He placed reliance on the decision of Canon India (P) Ltd. Vs. Commissioner of Customs 2021-VIL-34-SC.

4. Shri T.G Rathod, Learned Additional Commissioner (AR) appearing for the Revenue relies on the impugned order and he submits that the foreign banks charged fees in the name of bank charges. These charges are in the nature of charges towards providing Banking and Financial Services and service tax is sought to be recovered on such charges paid by the Appellant.

Appellant has availed the services from the foreign entities and the local banks merely acted on the instructions of Appellant. Appellant have not disputed the facts that they have incurred expenditures in foreign currency towards bank guarantee commission and foreign bank charges for remittance in India. Further, the facts that the service providers do not have an establishment in India is also not disputed. Thus Appellant is liable to pay service tax under the Banking and other financial service.

4.1 He also submits that the arrangement to set up an overseas office is a temporary arrangement made for the convenience of Appellant. The ultimate facts are that the site offices abroad work under the umbrella of the head office located in Gandhinagar. The income /expenditure of the overseas offices are finally incorporated in the balance sheet of Appellant. This fact has been admitted by Shri M K Harsh. The facts remains that Appellant is the entity who is availing such services for the business. The appellant has not disputed the facts that the alleged services are covered under the Business Auxiliary Service. Further, the facts that the service providers do not have an establishment in India is also not disputed. Thus, Appellant are required to pay service tax on such expenses incurred by them under the reverse charge mechanism in terms of the provisions of Section 66A of the Finance Act 1994.

4.2 He also submits that Appellant have failed to drive home the point as to how the services availed by them were not classifiable under the legal consultancy charges. There is no dispute regarding the facts that such expenses had been booked under the head Legal and Professional Expenses‟ in the books of account and as such it has to be construed that such legal & professional consultancy service have been received and the same is liable to be classified as Legal Consultancy Service.

4.3 Further as regard the demand of service tax under the category of Supply of Tangible Goods Services he submits that in the agreement entered with foreign entities, the value of hiring charges and other charges are separately specified. Appellant was to pay hiring charges and other charges separately. But in case of agreement entered with the other two companies the value of hiring charges included all expenses. Further, if the machineries were fully under the control of Appellant, hire charges would have been uniform for the period of hiring. But, the hiring charges varied from month to month depending upon the usage of the machineries in that period. These factors disprove Appellant‟s claim of having effective control of the equipment during the period of hire. The overseas offices were an integral part of the Appellant and were nothing but an extended arm of the Indian entity. Thus, the argument put forth by the appellant that services of HIDELECO was related to the immovable property and used outside India, therefore the service tax was not payable is not sustainable. In the instant case the goods were obtained on hire basis, however for their entry into India the customs formalities call for payment of appropriate duty since no exemption has been provided for such situation. However, such situation has been encompassed under Section 74 of the Customs Act, wherein the Customs Duty paid at the time of importation of such goods is off-set by way of duty drawback at the time of re-export of such goods. Accordingly, the argument that both customs duty and service tax cannot be levied fails to impress.

4.4 As regard the demand of Service tax under Technical Testing and Analysis Services he submits that emails indicate that consultants from companies viz. EdD and PB Power visited Bangalore in connection with the towers test witness of tower type ED for WO-126. These technicians were paid in Euro at Bangalore. This proves that Appellant has also received services from foreign entities in India towards testing of towers. The argument of Appellant that they had reimbursed traveling allowance as per their contractual obligation is not sustainable.

4.5 He also submits that since the overseas offices were an integral part of the Appellant and were nothing but an extended arm of the Indian entity, the contention of Appellant found to be incorrect that they had paid the cargo handling charges from their overseas site have permanent establishment at overseas country and these payments are exclusively related to the services at overseas country for the purpose of business and commerce at overseas country. Cargo Handling Service fall in category (ii) of Rule 3 of import rule and as such even if this service is partly performed in India, it shall be treated as Services provided from outside India and received in India. Thus, Appellant are required to pay service tax on such expenses incurred by them under the reverse charge mechanism in terms of the provisions of Section 66A of the Finance Act, 1944 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

4.6 He also submits that General Insurance Service as defined under Section 65(105)(zl) of the Finance Act, 1994 is covered under Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rule, 2006. For the services covered under Rule 3(iii), if the services are received by the recipient located in India for use in relation to business or commerce shall be treated as services provided from outside India and received in India. Appellant are required to pay Service tax on such expenses incurred by them under reverse charge mechanism.

4.7 He also submits that the expenses pertain to annual maintenance of software, software licence fees, software purchase, internet charges etc. are covered under the definition of “Information Technology Services‟ as defined under clause 65(105)(zzzze) of the Finance Act, 1994. The argument of Appellant that said expenses related to the foreign site offices and they are not liable to pay service tax on said expenses is not sustainable, since the overseas offices were an integral part of the Appellant.

4.8 He placed reliance on the following decisions in support of his arguments.

  • 2016(41) STR 689 (Tri. Mum) -Tata Steel Ltd. Vs. CST, Mumbai -I
  • 2018(8) GSTL 386 (Tri. Del) – Air India Ltd. Vs CST, Delhi
  • 2015(39) STR 97 (Tri. Ahmd)- Torrent Pharmaceuticals Ltd. Vs CST, Ahmd.
  • 2019 (29) GSTL 304 (Tri. Mum)- Board of Control for Cricket In India Vs CST, Mumbai -II
  • 2005(183) ELT 241(SC) – Dharampal Satyapal Vs CCE, New Delhi
  • 2011(265) ELT 81 (Tri. Del)- CCE, Chandigarh Vs Dharampal Prem Chand Ltd.
  • 2019(20)GSTL 198 (Bom) -McKinsey & Company INC Vs CCE.
  • 2016 (46) STR 297 (Tri. Del) Lakhan Singh & Co. Vs. CCE Jaipur
  • 2015 (40) STR 993 (Tri- Mum) -Axis Bank Ltd. Vs CST Mumbai -I
  • 2010 (256) ELT 369 (Guj) -CCE, Surat -I Vs Neminath Fabrics Pvt. Ltd. (xi) 2013 (290) ELT 322 (Guj) SalsarDyg&Ptg Mills Pvt. Ltd. Vs. CCE, Surat -I
  • 2015(38)STR 884 (Tri. Mum) -Star India Pvt. Ltd. Vs. CCE Thane-I

4.9 He also submits that the Appellant has misplaced themselves in making a plea that officers of DGCEI neither have the Jurisdiction’ nor are they Proper Officer’ for issuance of show cause notice. There exists no ambiguity in as much as the DGCEI officers are given the Jurisdiction’ and are also declared as the proper officer’ by way of investing them with powers of Central Excise officers’ vide Notification No. 38/2001- Central Excise (N.T.) dated. 26.06.2001. The Appellant have misplaced themselves while relying on the Judgment in the case of Canon India (P) Ltd., in as much as there was not assessment’ as such by any Central Excise Officers which has been proposed to be reassessed’ in the Appellant’s case by the officers of DGCEI by way of a show cause notice. The captioned show cause notice was adjudicated by the Ld. Commissioner of Service tax who exercised Jurisdiction over the appellant. Thus, the reliance placed by the Appellant on the ratio of decision of the Hon’ble Apex Court in the case of Canon India (P) Ltd. entirely misplaced. He also placed reliance on the decisions of M/s National Building Construction Company W.P. (C) 1144/2016 -High Court of Delhi.

5. We have considered the submissions made by both the sides and perused the records. We find that from the arguments advanced by both the sides, the issue to be decided in this case is whether the appellant are liable to pay Service tax under reverse charge mechanism on above 8 services which have been provided by the service providers who are not having fixed establishment in India under the provisions of Section 66A of the Finance Act, 1944 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

5.1 We now deal with the above issues and decide on each service -wise basis as under:-

Banking and Other Financial Services.

5.2 The case of the department is that the Appellant was required to furnish Bank Guarantee in respect of the work of erection, commissioning and installation of high-tension power transmission towers abroad. For this the foreign banks charged bank guarantee commission. Also while remitting foreign currency earning in India, the foreign bank charged bank charges. These charges are in the nature of charges towards providing Banking and Financial Service and Service tax is sought to be paid on such charges paid by the Appellant. We find that no documents have been produced by the department showing that foreign bank has charged any amount from the appellant directly. Therefore, to presume that they are receiving services from the foreign bank is not correct. The facts as narrated in the impugned order clearly indicate that it is the Indian Banks who had paid the charges to the foreign banks. We find that the Appellant solely deal with the Indian Bank and appellant do not have any kind of interaction with foreign banks. Clearly, in this matter service if any has been received it is by the Indian Bank and not by the appellant. Hence, amount charged by foreign banks to Indian banksprima facie cannot be considered as service received by the appellant.The following judgments relied upon by the appellant squarely applicable to the facts of the present matter.

  • Dileep Industries Pvt. Ltd. 2017(10)TMI 1231
  • Themis Exports Pvt. Ltd. 2019(26) GSTL 104
  • Greenply Industries Ltd. 2015(38) STR 605
  • Final order No. A/85816/2018 dated 23.03.2018 – Raymond Ltd.

In view of this, the appellant cannot be treated as service recipient and no service tax can be charged from them under Section 66A of the Finance Act.

Business Auxiliary Service.

5.3 The demand for Service Tax under the category of “Business Auxiliary Services” has been made on the ground that Appellant employed sales commission agent, marketing agent, technical advisors for liasoning activity with various customers and agencies, advisory or consultancy for settlement of dispute in connection with promotion of their business interest abroad. The revenue alleges that service tax ought to be paid on such expenses under the Business Auxiliary Service under reverse charge mechanism. However, we observe that definition of Business Auxiliary Services‟ contained numerous sub-heads and it was necessary for Revenue to point out under which head of the said definition the demand was raised. It is important to classify the activity under the specific sub-clause before confirming the demand. We find that the same has not been done in the present matter. In the absence of the specification of the exact sub-clause under which the demand was raised the said demand cannot be sustained. In this regard, the judgment relied upon by the appellant in the case of United Telecoms Ltd. v. Commissioner of Service Tax – 2011 (22) S.T.R. 571  (supra) , Sharma Travels – 2017(52) STR 272 (supra) and Balaji Enterprises V. C. Ex. & S.T. – 2020 (33) G.S.T.L. 97 (supra) support their case. The said decisionsare squarely applicable to the facts of the present case and hence we find that the demand for service tax cannot be sustained on this ground alone.

5.4 Without prejudice, we also find that provisions of Section 66A(1) of the Finance Act, 1994 reproduced below provide as under.

‘‘66A. Charge of service tax on services received from outside India. – (1) Where any service specified in clause (105) of section 65 is,

(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and

(b) received by a person (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 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 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.‟‟

Above Section 66A(2) and its Explanation -I make it clear and to fix service tax liability on recipient of services under reverse charge mechanism that both the permanent establishments in India and abroad of a business person are to be treated as separate persons. The above clarification made in Section 66A is only for making an identification to determine whether a service is provided and consumed in India or abroad.A comprehensive reading of Section 66A of the Finance Act, 1994, make it clear that 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 and such 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. In the present matter we find that department has not disputed the facts that the payment to overseas consultant/ agents/ service providers was made from the overseas projects site branch/ office of the Appellant and said Foreign Service providers have charged local VAT/GST/Service tax as applicable in the respective foreign countries in invoices issued by them to foreign site /project office /Branch office of Appellant. The said facts clearly established that the services have been provided by the foreign agents to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India. Therefore, demand of service tax in the impugned matter legally not correct on this ground also.

5.5 We also find that in this matter Ld. Commissioner has confirmed the demand on the ground that the arrangement to set-up an overseas office is a temporary arrangement made for the convenience of Appellant. The ultimate facts is that the site office abroad work under the umbrella of the head office located in Gandhinagar. At this stage it will be relevant to examine the judgment of M/s. British Airways v. CCE (Adj.), Delhi 2014 (36)  S.T.R. 598 (Tribunal) (supra). The facts of this case were that M/s. British Airways PLC (BA, UK); with its registered office at Harmondsworth, UK; were an Airline engaged in providing the service of transportation of passengers and Cargo by air throughout the world. BA (UK) also had a branch office in India (BA, India). BA (UK) entered into agreement with several CRS/GDS companies for maintaining database regarding flight schedules of BA (UK)

Flights, fares, seats availability etc. and this information was made available to IATA agents of British Airways all over the world including BA (India). All the CRS/GDS companies were located outside India and had no branch office in India. CRS/GDS companies also provided certain hardware to IATA agents for providing connectivity for retrieving data and bookings etc. Entire payment to CRS/GDS was made by BA (UK) based on the number of tickets issued by IATA agents. It was the view of the Revenue in that case that services availed by IATA agents in India are liable to service tax under reverse charge as services received in India. Para 31.2 (5) and (6) of this case law is the view recorded by Member (Technical), which became majority view and is reproduced below :-

31.2 …

(5) When the service has been received by the Head Office of the appellant at UK against its agreements with CRS/GDS Companies and as accepted in the impugned order, entire payment has been made abroad by the Head Office directly to CRS/GDS Companies and when in view of the provisions of Section 66A (2), the appellant-BA, India and their Head Office at UK, BA, UK are to be treated as separate persons, the entire transaction of provisions of service has to be treated as having taken place outside India and the service received by the Head Office at UK cannot be treated as service received by the Appellant, in India.

(6) In my view, the only situation where in respect of the service provided by a service provider Alocated outside India against as agreement/ contract with Head office of a company B, incorporated outside India i.e. located outside India, the service tax can be charged from the branch office B-lin India of the Company Bwhen :-

(a) the Headquarter of the Company Bhas entered into a framework agreement/ contract with the service provider Aby 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.have charged any amount from the Appellant directly or indirectly by way of the debit/ credit notes, account adjustment or by other indirect means, for any services provided by the CRS/GDS Companies.

From the above interpretation made in the case of M/s. British Airways v. CCE (Adj.), Delhi (supra) it has to be seen in the present proceedings whether while procuring services branch offices /site offices of the appellant abroad have acted only in the capacity of facilitators‟ and the services so procured were consumed in India or the services so availed were consumed outside India. In the light of the judgment of M/s. British Airways v. CCE (supra), the foreign branches/establishments of the appellant have not acted as facilitators‟ but have actually consumed those services abroad for which local VAT/GST/ Service tax of the respective country has been paid. Therefore, payment of local tax abroad will be an indicator to decide whether a service is provided and consumed outside India or has been consumed/received in India.

In view of the above discussions and analyses we find that the impugned order confirming the service tax liability on the appellant cannot be sustained

Legal Consultancy Service

5.6 On the third issue regarding Service Tax liability on legal consultancy Service, we find that Ld. Commissioner hasnot disputed the facts that the payment to overseas consultant/professional was made from the overseas projects site branch/ office of the Appellant on the basis of invoices issued by the said service providers to site office /branch office. Therefore, as already discussed the issue in above paras, the said services have been provided by the foreign consultants /professionals to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India by the Appellant when the same is provided outside India to site office of appellant, used outside India by the site office of the appellant and paid outside India by the site office of the Appellant. The services were provided and consumed outside India, therefore, demand of service tax in not sustainable.

5.7 Without prejudice, we also noticed that in the impugned matter revenue demanded the service tax on the basis of expenses booked under the accounting head of Legal and Professional Expenses” under the service category of Legal Consultancy Service as defined in Section 65(105) (zzzzm) of the Finance Act, 1994 which reproduced below.

(105) “taxable service” means any service provided or to be provided,

(zzzzm) (i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;

(i) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;

(ii) to any business entity, by an arbitral tribunal, in respect of arbitration.

Explanation. —For the purposes of this item, the expressions “arbitration” and “arbitral tribunal” shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996 (26 of 1996);]

As per the above provisions, it is clear that the services in relation to advice, consultancy or assistance in any branch of law and representational services before the court and authority are taxable under this category. However without verifying the vital facts related to above services only on the basis of expenses booked under the accounting head “Legal and Professional Expenses‟ demand of service tax from the Appellant not sustainable. Moreover, Appellant also provided the reasons for which their overseas office /branch office paid the amount to services providers. For example – fees for documents certification for submission to customers, local registration fees paid in Ukraine, Local municipal tax paid in Saudi Arabia, Fees for land for Brazil, paid to Saudi Chambers of Commerce for office maintenance and electricity charges, consultancy for CIS market for country Armenia etc. The said expenses cannot be concluded that the same was paid for the Legal Consultancy Service as defined in the Act. Hence the demand of service tax under wrong classification of service is not sustainable in law. Accordingly, we decide this issue also in favour of the Appellant.

Supply of Tangible Goods Services

5.8 The next issue relates to demand of Service tax under the head of “Supply of Tangible Goods Services” in respect of machinery imported by the Appellant on lease /rent basis in India for their required purposes. The Section 65(105)(zzzzj) of the Finance Act, 1994 defines “supply of tangible goods services” as follows :-

“any services provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances”.

5.9 The Appellant claims that transfer of possession and effective control of the machinery was with them, consequently the said transactions do not fall under the above service provision and they are not liable for payment of Service tax. The Adjudicating Authority, however, did not accept the contention of the appellant and observed that the agreement entered with overseas party, the value of hiring charges and other charges are separately specified and in case of agreement entered with the two overseas party, the value of hiring charges included all expenses. The agreement does have provision that the machinery supplier would make available service engineers from beginning to end of period of hire. Further, if the machineries were fully under control of Appellant, hire charges would have been uniform for the period of hiring. These factors disprove Appellant‟s claim of having effective control of the equipment during the period of hire. However, we find from the facts on record that the appellant had entered into agreement with overseas parties for lease of machineries required for laying of long distance pipe line and for use of such machineries in India accordingly the Contract Law governed under International Chamber of Commerce. We find that during the lease period appellant has full right to use equipment in India as per their wish and in India for their required purpose, further we also observed that department nowhere disputed the facts that Appellant operated the machineries through their own operators and lessor had no control over the use of the machinery leased to the Appellant. Thus, it is clear that under the lease rental agreement exclusive right to use along with effective control and possession of the equipment has been transferred to the Appellant during the lease period. We also note that Tribunal in the case of Kinetic Communications Vs. Commissioner2017 (3) G.S.T.L. 319 (supra) in which the Tribunal has set aside the demand for service tax under above category has observed as follows :-

7. It is seen from the records that there is no dispute as to the fact that the capital goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellants. Ongoing through the clauses of agreement, as produced before us, we find that the appellants had handed over the capital goods‟ possession to the lessee as also the right to use. These two important factors that determine the requirement as to whether the service is a taxable service or otherwise under supply of tangible goods for use services‟. We find strong force in the contentions raised by the appellant that the case does not fall under supply of the tangible goods for use service. We also find that identical issue is settled by the Tribunal in the case of Praveen Engineering Works and Bhima SSK (supra).

8. In the facts and circumstances of this case and the authoritative judicial pronouncements on issue, we find that the impugned orders are unsustainable and liable to be set aside and we do so.

5.10 In view of the above facts and decisions we hold that the appellant‟s transactions are not covered under the entry “supply of tangible goods Service”. Accordingly, we set aside the demand on this service.

5.11 We also observed that service tax demand is related to services received by the abroad site office /branch office of Appellant from HIDELECO, confirmed by the Ld. Commissioner on the ground that the overseas offices were an integral part of Appellant and were nothing but an extended arm of the Indian entity. As per the invoices submitted by the Appellant, we find that the overseas site office of Appellant has received the service from HIDELECO for carrying out the survey and provided technical consultancy services for the transmission line project at Algeria Sonelgaz. Since the service of survey and technical consultancy is in relation to erection, commissioning and installation of transmission line, prima facie demand of service tax under the category of supply of tangible goods services is wrong. Further, the said service was provided and consumed outside India, therefore, demand of service tax is not sustainable.

Technical Testing and Analysis Service

5.12 As regard the service tax demand under the taxable service category of Technical Testing and Analysis Service, we find from the para 11 of the impugned show cause notice that service tax demand was related to re­imbursement expenses made to the overseas technical persons on account of their travel expenses, accommodation charges etc. In terms of the contract with the overseas customers for supply of materials it is mandatory on the part of Appellant to conduct the testing of the equipments and parts manufactured by Appellant. The representative of the overseas buyers merely witnessed the testing process carried out by the Appellant at factory. The Appellant paid the traveling and accommodation charges to representative of overseas buyers and did not pay service tax on said re­imbursements expenses. We find that the said amounts cannot be considered as taxable under Technical Testing and Analysis service‟, as under the category of said service, the amount can be taxed as a testing fees or technical testing and analysis fees paid by the appellant, if any, to representative of overseas buyers. On perusal of the details submitted by the Appellant, we find that there are no such type of service charges paid by the appellant. The appellant has not paid any testing charges / testing fees and has only reimbursed the expenses incurred by representative of overseas buyer, in our view, the said expenses cannot be taxed under Technical Testing and Analysis service‟.

5.13 We observed that the CESTAT in the matter of Geno Pharmaceuticals Ltd. Vs. Commissioner of Central Excise, Goa, 2017 (47) S.T.R. 264 (Tri. – Mumbai) held that

“2. Heard both sides and perused the records.

3. The appellant herein appointed an agent named Shri S. Gupta by an agreement dated 3-3-2006. The said agreement provided that the agent shall provide services of promoting and marketing of the product sold to M/s. Nebula Trading Co. in the interior parts of Myanmar and the expenses to be incurred for travelling tickets, telephone charges, postage, hotel accommodation, fooding, etc.; appellant reimbursed the expenses incurred by Shri S. Gupta on the actuals as per the bills raised by Shri S. Gupta. It is the case of the Revenue that the appellant is liable to pay service tax under the reversecharge mechanism under the category of business auxiliary servicesas it is undisputed that Shri S. Gupta has rendered services of promoting and marketing of the appellants goods.

4. The learned counsel brings to our notice the factual matrix of the case and takes us to the e-mails which have been sent by Shri S. Gupta to the appellant. It is his submission that these e-mails indicate that they were actually reimbursable expenses. It is his further submission that the Hon‟ble High Court of Delhi in the case of Intercontinental Consultants &Technocrafts Pvt. Ltd. reported in 2013  (29) S.T.R. 9 (Del.), has struck down the provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which mandated for inclusion of reimbursable expenses, also for paying the service tax liability.

5. The learned departmental representative reiterates the findings of the lower authorities.

6. In our considered view, the Revenue has no case on merits for more than one reason. Firstly, on perusal of the various e-mails sent by Shri S. Gupta to the appellant they clearly indicate that the said Shri Gupta has claimed tour expenses monthly and it indicates only the air fare, car hire, hotel charges and petrol charges incurred by him for a particular month. The said e-mails or the expenses statement seem to have been accepted by the Revenue authorities as they are claiming service tax on the amount claimed as reimbursement by Shri S. Gupta.

6. If the amounts which are claimed by Shri S. Gupta, are actual expenses, we find that the said amounts cannot be considered as taxable under business auxiliary services‟, as under the category of BAS, the amount can be taxed as a commission paid by the appellant, if any, to Shri S. Gupta. On perusal of the agreement entered into by the appellant with Shri S. Gupta, we find that there is no mention of any commission payable to Shri S. Gupta by the appellant. If the appellant has not paid any commission and has only reimbursed the actual expenses incurred, in our view, the judgment of the Hon‟ble High Court of Delhi in the case of Intercontinental Consultants &Technocrafts Pvt. Ltd. (supra) will directly apply and the said expenses cannot be taxed under business auxiliary service‟.

8. In view of the foregoing, we hold that the impugned order is unsustainable and liable to be set aside and we do so.”

5.14 We also find that provisions of Rule 7(1) of the Service Tax (Determination of Value) Rules, 2006 would apply to this case. The said Rule 7(1) is reproduced below:

7. Actual consideration to be the value of taxable service provided from outside India – (1) The value of taxable service received under the provisions of Section 66A, shall be such amount as is equal to the actual consideration charged for the services provided or to be provided.”

It can be seen from the above reproduced Rule 7, as this rule is specifically applicable for reverse mechanism under Section 66A and for the purpose of discharge of Service Tax for the service provided from outside India, the value is equal to the actual consideration charged for the services provided or to be provided. In the impugned matter it is on records that in case of fees/ remunerations paid to overseas technicians Appellant have paid the service tax. Since the alleged amount was not paid for services but paid for travelling expense, accommodation charges etc. clearly said expenses cannot be considered as value of taxable service. Hence, demand of service tax not sustainable on said expenses.

Cargo Handling Service

5.15 As far as the demand of service tax under the head Cargo Handling Service‟ is concern, we find that the argument put forth by the Appellant before the Ld. Commissioner was that they had paid the cargo handling charges from their overseas site office. These payment are exclusively related to the services at overseas country for the business and commerce at overseas country. However Ld. Adjudicating authority rejected the contentions of the Appellant on the ground that the overseas office were an integral part of the Appellant and were nothing but an extended arm of the Indian entity. In this context, we already in above paras and in the light of the judgment of M/s. British Airways v. CCE (supra), held that 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 and such establishment situated abroad as a separate person‟. Therefore, demand of service tax confirmed by the Ld. Commissioner on above ground legally not correct.

5.16 We also find that there is no dispute that Appellant manufactured the goods at their factories located in India and then taken the goods from India to overseas site location of customers and carry-on erection, commissioning and installation work. In this process they take the services of companies for handling goods at ports. The term cargo handling service‟ has been defined under Section 65(23) of the Finance Act, 1994 which reads as follows :

“cargo handling service” means loading, unloading, packing or unpacking of cargo and includes, –

(a) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking, but does not include, handling of export cargo or passenger baggage or mere transportation of goods.

The perusal thereof makes it clear that for anything to be defined as cargo handling service, it should be a bundle of activities as that of loading, unloading, packing or unpacking of the cargo along with providing for freight with or without the containers. The definition itself has an exclusion clause for excluding handling of export cargo or passenger baggage. Even mere transportation of goods is also specifically excluded. In the present matter it is not dispute that the Appellant have exported the goods to foreign customers and alleged services have been received for export purpose. Clearly, the handling of export cargo not taxable under the Cargo Handling Service‟. After having gone through the aforesaid definition, it leaves no amount of doubt in our mind that such a service tax could not have been levied on the cargo handling services availed by the Appellants for export purpose.

5.17 We also find that the Board vide Circular No. 11/1/2002-TRU, dated 1­8-2002 as regard the cargo handling service had also clarified as under:-

6. All goods meant for export are excluded from the scope of this levy. There may be cases where goods may be transhipped at a place other than the place of packing before reaching a place from where it is exported. For example goods are packed say at Agra for transportation to Bhopal where it is transhipped and ultimately reaches Mumbai, from where it is exported. A doubt has been raised as to whether service tax would be leviable on cargo handling service at Agra. It is clarified service provided in relation to any cargo which is meant for export, would not be taxable irrespective of the fact that it reaches the place of export after transhipment. However, the relevant documents should show that the Goods are for export

In view of above, there is no merit in the impugned order on the issue with regard to the demand of service tax on Cargo Handling Service. Consequently, the demand on this service is set aside.

General Insurance Service

5.18 On the said issue the case of the department is that Appellant have shown expenditures in foreign currency under the head “Insurance Charges” and appellant accepts order from the overseas customers with the conditions to Door delivery price, in such contract appellant pays insurance charges. General Insurance Service as defined under Section 65(105)(zl) of the Finance Act, 1994 is covered under Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rule, 2006. We find that in impugned show cause notice in para 12 department rely upon the statement of Shri M. K. Harsh, Vice President (Taxation) of the company. Against the question 34 he stated as under :

Question No. 34: Foreign currency expenditure in the head of “Insurance Charges” is shown. But for the past years no such expenses are separately shown. What are these expenses relates to ? Answer- 34 : I state that insurance charges are related to insurance of goods during the transportation of goods from overseas custom port to site of customer.

5.19 We also find that the said insurance charges paid directly from the overseas site office of the Appellant to overseas insurance company. The Appellant also produced documents in this support. However, the finding of the Ld. Commissioner that overseas offices were an integral part of the Appellant and were nothing but an extended arm of the Indian entity, Thus the Appellant’s contentions do not merit consideration. We do not agree with the finding of Ld. Commissioner as per our detailed discussion made in above paras that the comprehensive reading of Section 66A of the Finance Act, 1994, clearly provide that 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 and such 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. In the present matter we find that department has not disputed the facts that the payment to overseas insurance company was made from the overseas projects site branch/ office of the Appellant and said service was used only for the transportation of goods from overseas custom port to site of overseas customer. Moreover the overseas insurance company directly raised invoice on the foreign site office of the Appellant along with applicable taxed in respective foreign countries. The said facts clearly established that the services have been provided by the foreign Insurance Company to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India. In view of the above, we find that the impugned order is not sustainable with reference to the above-mentioned Service Tax liability confirmed against the appellant.

Information Technology Software Service

5.20 We find that Ld. Commissioner confirmed the demand of Service tax under the service category Information Technology Software Service pertains to the expenses shown in foreign currency under the head Computer Expense‟. The said expenses related to the maintenance of computer, replacement of part, internet charges, etc in the foreign site offices of the appellant. The services provided by the overseas service provider to the overseas site offices of the appellant cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India, consequently demand is not sustainable.

5.21 Since the demand of service tax itself not sustainable in the present case on merit, we are not going into the other issues such as jurisdiction, revenue neutral, limitation etc., addressed and raised by the Appellant in appeal memo/ submissions and during the course of arguments.

6. In result, the impugned order is set aside and the appeals filed by the Appellants are allowed with consequential relief, if any, as per law. MA also stands disposed off. MAs also stands disposed off.

(Pronounced in the open court on 10.06.2022)

Download Judgment/Order

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Service Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

August 2022
M T W T F S S
1234567
891011121314
15161718192021
22232425262728
293031