Fees paid to foreign institutions having permanent establishment in India is not covered under RCM

Commissioner of GST & Central Excise Vs Vedanta Limited (CESTAT Chennai)

CESTAT Chennai held that tax under Reverse Charge Mechanism (RCM) doesn’t apply to fees paid to foreign institutions for External Commercial borrowing as such financial institutions have permanent establishment in India.

Facts- The issue is whether appellant is liable to pay service tax under ‘Banking and Other Financial Services’ on the fees paid to foreign banks for the External Commercial borrowings under the Reverse Charge mechanism.

Conclusion- Held that such financial institutions have a permanent establishment in India. Some amounts relate to the period prior to 18.04.2006 which is before the introduction of Section 66A of the Finance Act, 1994 and therefore not taxable under reverse charge mechanism. From the details furnished by the Ld. Counsel in the synopsis we are able to find that department has failed to adduce any evidence that the figures of Rs.51,75, 733/- is subject to service tax and these banks and financial institutions do not have permanent establishment in India. In the result, we do not find any grounds to interfere with the impugned order passed by the original authority. Impugned order is sustained. Appeal filed by department is dismissed.

FULL TEXT OF THE CESTAT CHENNAI ORDER

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