Linde Engineering India Pvt. Ltd. & Ors. Vs Union of India (Gujarat High Court)
Rule 6A of the Service Tax Rules, 1994 provides that services rendered would be treated as ‘Export of services’ when clause (a) to clause (d) refers to provider of service is located in the taxable territory and recipient of service is located outside India and the service is not a service specified in Section 66D of the Act and the place of the provision of the service is outside India and as per clause (e) the payment for such service has been received by the provider of service in convertible Foreign Exchange. It emerges that the petitioner is fulfilling all the conditions, however, so far as the clause (f) of Rule 6A of Rules, 1994 is concerned, it provides that the provider of service and recipient of service are not merely establishments of a distinct person in accordance with Item (b) of explanation 3 of clause (44) of Section 65B of the Act. As per clause (44) of Section 65B of the Act, 1994 “service” means any activity carried out by a person for another for consideration, and includes a declared service. Item (b) of the explanation 3 stipulates that an establishment of a person in taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Therefore, a question arises in the fact of the present case, whether the services provided by the petitioner No.1 located in India which is a taxable territory and the recipient of the service i.e. holding Company of the petitioner No.1 located outside India which is a non- taxable territory, whether both of them would be two establishments of the same Company or not so as to treat them as distinct persons liable for service tax. If the answer to this question is in affirmative, as interpreted in the impugned show cause notice that providing the services by the petitioner No.1 to its parent Company would be to the establishment of the petitioner and therefore it would be a distinct person. then rendering of service by the petitioner No.1 cannot be treated as “Export of Services” as per Rule 6A (f) of Rules, 1994 because as per explanation 3(b) to Section 65B(44) of the Act, 1994, the petitioner and holding Company are to be treated as distinct person as per the understanding of the respondent No.3, and therefore the petitioner would be liable to pay service tax.
However, on analysis of the aforesaid provisions, it appears that the respondents have assumed the jurisdiction on mere misinterpretation of the provisions of explanation 3 (b) to Section 65B(44) of the Act,1994 read with Rule 6A of the Rules, 1994 as by no stress of imagination, it can be said that the rendering of services by the petitioner No.1 to its parent Company located outside India was service rendered to its other establishment so as to deem it as a distinct person as per Item (b), explanation 3 of clause (44) of Section 65B of the Act, 1994, the petitioner No.1 which is an establishment in India, which is a taxable territory and its 100% holding Company, which is the other company in non taxable territory cannot be considered as establishments so as to treat as distinct persons for the purpose of rendering service. Therefore, the services rendered by the petitioner No.1-Company outside the territory of India to its parent Company would have to be considered “export of service” as per Rule 6A of the Rules, 1994 and Clause (f) of Rule 6A of the Rules, 1994 would not be applicable in the facts of the case as the petitioner No.1, who is the provider of service and its parent Company, who is the recipient of services cannot be said to be merely establishment so as to be distinct persons in accordance with Item (b) explanation 3 of Clause (44) of Section 65B of the Act, 1994.
In such circumstances, the respondents would not have any jurisdiction to invoke the provisions of the Act, 1994 read with Rules, 1994 to bring the services rendered by the petitioner No. 1 to its parent Company within the purview of levy of service tax under the provisions of the Act, 1994.
Moreover, the impugned show cause notice is also not tenable in law as the same is issued invoking Section 73 of the Act,1994 for extending the period for the issuing the Notice on the ground of alleged willful mis-statement or suppression of the facts on the part of the petitioner No.1. The petitioners cannot be said to have made any willful mis-statement or suppressed any fact as the petitioners cannot be made liable for levy of service tax by wrongly treating the petitioners and its parent Company as establishment of the same Company. It is trite law that the petitioner no.1 Company, which is incorporated under the provisions of the Companies Act, 1956 and its holding Company incorporated at Germany are both distinct persons and therefore, both cannot be treated to be establishments of the same Company distinct artificial jurisdiction person.
In view of the above facts and circumstances of the case and the discussion, the impugned show cause notice issued by the respondent No.1 is without jurisdiction and as such the petition is maintainable under Article 226 of the Constitution of India. Notice is held to be issued without jurisdiction as the respondents could not have issued the same invoking the provisions of Section 73 of the Act, 1994 read with Section 65B(44) and Rule 6A of the Rules, 1994.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Rule, returnable forthwith. Mr. Nirzar S. Desai waives service of notice of Rule for and on behalf of respondents.
2. Having regard to the controversy in narrow compass and with the consent of the learned advocate for the respective parties, the matter is taken up for hearing.
3. By this petition under Articles 226 of the Constitution of India, the petitioners have prayed for the following reliefs:
“9 (a) This Hon’ble Court may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction quashing the Show Cause Notice (F. N. V ST(Adj) 15/Linde/Commr-I/2017-18) dated 10.11.2017 issued by the Respondent No.3 to the Petitioner No. 1;
b) Pending the present Petition, this Hon’ble Court may be pleased to stay further proceedings against the Petitioner No.1 pursuant to the Show Cause Notice (F. No. V ST(Adj)15/Linde/Commr-I/2017-18) dated 10.11.2017 issued by the Respondent No.3;
c) Ex-parte ad-interim relief in terms of prayer (c) may kindly be granted;
d) Such other and further reliefs as may be deemed appropriate by this Hon’ble Court.”
4. The facts giving rise to this petition may be summarized as under:
4.1 The petitioner No.1 is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 and is engaged in the business of providing taxable output services under the category of consulting engineer services, erection, commissioning and installation service, construction services other than residential complex, including commercial/industrial buildings or civil structures and works contract services etc. to various entities located in and outside India. Petitioner No.1 is subsidiary of Linde AG, Germany. The petitioner No.1- Company was filing its returns regularly and was paying appropriate service tax in accordance with law.
4.2 It is the case of the petitioners that the petitioners received a communication dated 25.02.2016 from the Superintendent (R-II), Service Tax Division- II, Vadodara on the basis of the letter of Assistant Audit Officer/CERA-(iv), directing the petitioner No.1 to submit various document.
4.3 According to the petitioners, the Audit Objection was on the following issues :
“i. That the Petitioner No.1, which was a 100% subsidiary of Linde AG, Germany, and which was rendering consulting engineering services outside India and claiming the benefit of export of service, without the payment of Service tax;
ii. That during the scrutiny of records of the Petitioner No.1 for the period 2012-13 to 2014-15, it was found that the Petitioner No. 1 was rendering services to other establishments of the Linde Group, more particularly Linde Engineering Gmbh and was raising an invoice in foreign currency;
iii. That the Linde Group Companies, including Linde AG, Germany would be establishments of the Petitioner No.1, and therefore the provision of service by the Petitioner No.1 would not fall within the ambit of ‘Export of Service’ under Rule 6A of STR and would therefore be and ‘exempted service’ in terms of the provisions of Rule 2(e) of the Cenvat ”
4.4 The petitioner No.1 submitted its reply dated 13.05.2016 as under :
“i The transaction of provision of service by the Petitioner No.1 to the recipient outside India would clearly fall within the ambit of Rule 3 of the Place of Provision of Service Rules, 2012 (hereinafter referred to as “the PPSR”);
ii. The petitioner No. 1 would not be covered by any of the exceptions, namely Rule 4 to rule 12 of the PPSR;
iii. The provision of the service by the Petitioner No.1 would qualify as ‘Export of Service’ in terms of the provisions of Rule 6A of the STR, and all conditions mandatorily required to be satisfied under the said Rule, stand satisfied by the Petitioner 1;
iv. The place of provision of the service, admittedly, was outside India, and the payment in relation to the same was also received in convertible foreign exchange;
v. The Petitioner No. 1 and the recipient of service, i.e. Linde AG, Germany are independent legal entities and that the latter are not an establishment of the Petitioner No. ”
4.5 It is the case of the petitioners that after the petitioner No.1 filed the reply dated 13.05.2016, there was no further inquiry or response from the respondent Nos.2 and 3. The petitioner No.1 was therefore, under a bona fide belief that the respondents were satisfied with the response submitted by the petitioner No.1. However, the petitioner No.1 again received communication dated 18.08.2017, which was replied by the petitioner No.1 vide its reply dated 28.08.2017.
4.6 It is the case of the petitioners that thereafter, the petitioner No.1 was served with the show cause Notice dated 10.11.2017 based upon the observations of the Audit Officer leveling following allegations against the petitioner No.1 :
“i. Linde AG, Germany which are legal entities, were mere establishments of the Petitioner No.1, as contemplated under Rule 6A of the STR read with Explanation 3 of the Section 65B (44) of the Act;
ii. in view of (I) above, the services rendered by the Petitioner No.1 to Linde AG, Germany would not fall within the ambit of “Export of Services” and would therefore fall within the definition of the term ‘exempted service’ as defined in Rule 2(e) of the Cenvat Rules;
iii. in view of (ii) above, according to the SCN, Rule 6(3) of the Cenvat Rules becomes applicable and it is therefore alleged that the Petitioner No.1 is in wilful violation of the aforesaid.”
4.7 The petitioner No.1 was directed to show cause as to why an amount of Rs. 62,51,39,050/-, inter alia, should not be recovered for the period from 2012-13 to 2016-17.
4.8 Being aggrieved by the aforesaid show cause Notice, the petitioners have preferred this petition with the aforesaid prayers.
5. Mr. Mihir Joshi, the learned senior advocate assisted by Mr. Parth Contractor appearing for the petitioners submitted at the outset that following substantial questions of law are being raised by the petitioners in this petition :
“i. Whether in terms of Explanation 3 to Section 65B(44) of the Act, a holding company of the Petitioner No.1 being Linde AG, incorporated in Germany, or any other subsidiary of Linde AG, can be construed as ‘establishments of the Petitioner No. 1’?
ii. Whether in the facts and circumstances of the present case and on a reading of the provisions of Rule 6A of the Service Tax Rules, 1994 (hereinafter referred to as ”STR”)read with the provisions of Section 65B(44) of the Act, the constituting engineering services rendered outside India by the Petitioner No.1 to any other subsidiary of Linde AG or holding company would qualify as ‘Export of Services’ as contended by the Petitioner, or Exempted Service under Rule 2(e) of the Cenvat Rules, thereby requiring proportionate reversal of Credit under Rule 6A of the STR as is contended by the Department”?”
5.1 It was submitted that the action of respondent No.3 is not only without jurisdiction, as being contrary to Rule 6A of the Service Tax Rules, 1994 (for short “the Rules, 1994”) read with Section 65B(44) of the Finance Act, 1994 (for short “the Act, 1994”), but would be against public interest since it would act as a deterrent to the trust given for export of services out of India by the respondent No.1, through its various scheme such as “Served from India Scheme” and “Make in India”.
5.2 It was submitted that the respondents are seeking to bring within the ambit of service tax law, all services provided by any Indian Company, outside India, to its holding Company or its other group Companies located outside India in an arbitrary manner, despite the fact that the same would qualify as an “export of service” which is not liable for levy of service tax.
5.3 It was submitted that the interpretation made on the part of the respondents is contrary to the purpose and object of the statute as well as the same is contrary to the language of the provisions, which requires strict interpretation.
5.4 Learned senior advocate submitted that the respondent No.3 has no jurisdiction to issue show cause notice under the provisions of the Act, 1994 and if the proceedings are permitted to continue, it would only lead to a multiplicity of the proceedings and would cause grave and irreparable loss, harm and injuries to the petitioners.
5.5 It was submitted that the plain reading of Rule 6A of the Rules, 1994 with Explanation 3 to Section 65B (44) of the Act, 1994, which clearly stipulates that in the event, the conditions prescribed there under stands fulfilled, the provision of service by a service provider in India to a service recipient outside India shall be considered as an “export of service” amenable to the benefits available under the law. It was submitted that the conditions prescribed under Rule 6A of the Rules, 1994 and as to how the conditions stand fulfilled in the facts of the present case are tabulated as under:
