Case Law Details
Honey Well Technology Solutions Lab Private Limited Vs Commissioner of Central Excise and Service Tax (CESTAT Bangalore)
As regards the ‘Telecommunication Service’, it is undisputed fact that the service provider is located outside India in respect of service received from M/s. AT & T and Genysis through data link / leased circuit. As per the definition of Telecommunication Service in Section 65(105)(zzzx) of the Finance Act, 1994, the taxable service means any service provided or to be provided to any person by the Telegraph Authority in relation to ‘Telecommunication Service’, In the present case, the service provider is located outside India. He cannot be treated as Telegraph Authority as Telegraph Authority has to be recognised by an authority of law prevailing in India, therefore, service provider cannot be treated as Telegraph Authority. Accordingly, the condition of the definition is not satisfied. In the facts of the present case, service is provided by a foreign entity will not fall under the definition of ‘Telecommunication Service’. Therefore, the appellant is not liable to pay service under Reverse Charge Mechanism.
From the decision of CESTAT in TCS E-Serve Ltd. Vs. Commissioner of Service Tax, Mumbai: 2014 (33) STR 641 (Tri.- Mumbai), we find that the issue is absolutely identical and the Tribunal held that the foreign service provider being not covered under the term ‘Telegraph Authority’, the service provided by them will not fall under the definition of ‘Telecommunication Service. Accordingly, respectfully following the above decision, we are also of the view that in the present case since the service provider is not a Telegraph Authority and the appellant being a service recipient cannot be fastened with service tax demand under Telecommunication Service. Accordingly, the demand on Telecommunication Service is also not sustainable and the same is set aside.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The brief facts of the case are that the appellant is wholly owned subsidiary of Honeywell International Inc. (hereinafter referred to as HII).
The appellant is engaged in the business of development and export of Software and Information Technology enabled support service and other auxiliary and support services to HII in the filed of Aerospace, Automation and Control Solutions, New Product Development, IT Service and Solutions in terms of an Assignment Agreement dated 1.1.2003.
2. The appellant in terms of an arrangement had received leased circuit service from M/s. AT & T and Genysis through data link. This data link/leased circuit of M/s. AT & T / Genysis allowed the appellants to access the servers located abroad for which specific amount was paid by the appellant periodically based on invoices issued. On this service, the demand was confirmed under the head of Telecommunication Service for the period from April 2007 to March 2011.
2.1 The agreement was entered into between HII and the appellant on 1.1.2007 effective from 1.4.2003 with an objective to secure the services of managerial and technical personnel to assist the appellant in its business. The terms and conditions stipulated in Assignment Agreement are summarily as follows:
- The appellant shall request HII to provide employees who have the expertise required by HTSL.
- In order to help HII make the selection, HTSL shall provide HII with a description of the qualifications required by HTSL.
- Based on the list provided by HTSL, HII shall identify the people and select the employees.
- The employees seconded to HTSL shall continue to be on payroll of HII only for the purpose of continuation of social security / retrial benefits and for all practical purposes, HTSL shall be the employer.
2.2 As per the above agreement, the appellant has agreed to reimburse HII inter alia all renumeration of the employees including but not limited to salary, bonuses and social benefits of the employees paid by HII and all out-of-pocket expenses incurred by the seconded employees paid by HII including business travel expenses and other miscellaneous expenses, directly related to the secondment of the employee.
2.3 In pursuance of the Secondment Agreement, HII deputed one Dr. Krishna to the appellant-company. Dr. Krishna functioned as the CEO of the appellant during the impugned period. The salaries and other expenses of Dr. Krishna were originally disbursed by HII. Subsequently, HII furnished a statement periodically along with debit notes detailing the expenses on this account which was reimbursed by the appellant. The appellant also deducted TDS on account of salary paid to Dr. Krishna and remitted the same to the exchequer of the Indian Government under personal income tax. The adjudicating authority considered the said arrangement as Manpower Recruitment or Supply Agency Service and accordingly, confirmed service tax. Therefore, the present appeal was filed by the appellant.
3. Shri Syed Peeran, learned advocate appearing on behalf of the appellant at the outset submits that in respect of the demand on Manpower Recruitment or Supply Agency Service, this Tribunal in the appellant’s own case as reported at Honeywell Technology Solutions Lub Pvt. Ltd. Vs. Commissioner of Service Tax, Bangalore: 2020-TIOL-1277-CESTAT-BANG. has dropped the demand for the earlier period. The facts, in that case and the present case, is similar except difference of period. Therefore, the issue is no longer res integra.
3.1 As regards the demand on Telecommunication Service, he submits that on an identical activity, this Tribunal in the case of TCS E-Serve Ltd. Vs. Commissioner of Service Tax, Mumbai: 2014 (33) STR 641 (Tri.-Mumbai) held that since the service provider is not a ‘Telegraph Authority’ as defined in Section 65(105)(zzzx) of the Finance Act, 1994 as clarified by CBEC’s Circular F. No.137/21/2011-ST dated 15.7.2011, service tax is not payable where service is provided by a foreign vendor. He further submits that the entire demand is time barred as there is no fraud, collusion, wilful mis-statement, suppression of facts or contravention of provisions with an intention to evade tax on the part of the appellant. He also placed reliance on the following judgments:
- M/s. Padmini Products Ltd. Vs. CCE: 1989 (43) ELT 195 (SC)
- P & B Pharmaceuticals (P) Ltd. Vs. Collector of Central Excise: 2003 (153) ELT 14 (SC)
4. Shri P. Gopakumar, Learned Additional Commissioner (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order.
5. We have carefully considered the submissions made by both sides and perused the records. As facts narrated above, the demand was confirmed on Manpower Recruitment or Supply Agency Service and Telecommunication Service. As regards the demand on Manpower Recruitment or Supply Agency Service, in the appellant’s own case, this Tribunal held that arrangement for availing the services of executive appointed in the appellant’s company by the foreign vendor does not amount to Manpower Recruitment or Supply Agency Service. Accordingly, the demand was dropped. In the judgment reported at Honeywell Technology Solutions Lab Pvt. Ltd. (supra), it was passed the following order:
“11. We find that similar issue arose before this Tribunal in the case of M/s. Volkswagen India (Pvt.) Ltd. V. CCE, Pune-I – 2014 (34) S.T.R. 135 (Tri.-Mumbai) upheld in 2016 (42) S.T.R. J145 (S.C) wherein this Tribunal in para 5.1 held as under:
“5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working as their employees and having employee-employer relationship. It is further held that there is no 6 6 supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction.”
Revenue had filed appeal against the order of this Tribunal which was dismissed by Hon‟ble Supreme Court on the ground of limitation.
12. We further take notice that ruling of Tribunal in M/s. Volkswagen India (Pvt.) Ltd. was followed by the Delhi Bench in Nissin Brake India Pvt. Ltd. V. Commissioner of Central Excise, Jaipur-I – 2019 (24) G.S.T.L. 563 (Tri.-Del.) upheld in 2019 (24) G.S.T.L. J171 (S.C) wherein under similar facts and circumstances, the issue was decided in favour of the appellant-assessee. Revenue preferred an appeal before the Hon‟ble Supreme Court against the order of Tribunal in Nissin Brake India Pvt. Ltd. and by order dated 22/02/2019, Hon‟ble Supreme court held that it finds no merit in the appeal and was accordingly pleased to dismiss the appeal. Thus, the principle of law laid down in the case of M/s. Volkswagen India (Pvt.) Ltd. (supra) and followed in Nissin Brake India Pvt. Ltd. have cristalized and attained finality. In this view of the matter, we allow the appeal and set aside the impugned order. Appellant is entitled for consequential benefit in accordance with law.”
From the above decision of this Tribunal in the appellant’s own case the issue is no longer res integra. Accordingly, the demand under Manpower Recruitment or Supply Agency Service is not sustainable and hence, the same is set aside.
5.1 As regards the ‘Telecommunication Service’, it is undisputed fact that the service provider is located outside India in respect of service received from M/s. AT & T and Genysis through data link / leased circuit. As per the definition of Telecommunication Service in Section 65(105)(zzzx) of the Finance Act, 1994, the taxable service means any service provided or to be provided to any person by the Telegraph Authority in relation to ‘Telecommunication Service’, In the present case, the service provider is located outside India. He cannot be treated as Telegraph Authority as Telegraph Authority has to be recognised by an authority of law prevailing in India, therefore, service provider cannot be treated as Telegraph Authority. Accordingly, the condition of the definition is not satisfied. In the facts of the present case, service is provided by a foreign entity will not fall under the definition of ‘Telecommunication Service’. Therefore, the appellant is not liable to pay service under Reverse Charge Mechanism. This identical issue has been considered by this Tribunal in the case of TCS E-Serve (supra) where it has been held as:
“5.1 It will be useful to peruse the provisions of Sections 66 and 66A of the Finance Act at this juncture. The relevant portions of the said sections are extracted below :-
“66. Charge of service tax. – There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a),
(zzzzv) and (zzzzw) of Clause (105) of Section 65 and collected in such manner as may be prescribed.
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.”
5.2 From the above provisions, it is clear that under Section 66 Service Tax is leviable on taxable services referred to in Section 65(105) of the Act. Similarly even under Section 66A Service Tax is payable by the recipient of the service only when a taxable service specified in Clause (105) of Section 65 is received from a foreign service provider. In other words, what has to be seen essentially and primarily for leviability to Service Tax is whether the taxable service is specified in Clause (105) of Section 65. Even the notes on clauses to Finance Bill, 2006 which inserted Section 66A states that “sub-clause (c) seeks to insert Section 66A with a view to levy Service Tax on taxable services provided or to be provided from outside India and received in India.”. In other words, if a service is not specified under Section 65(105), no Service Tax liability would arise whether under Section 66 or 66A.
5.3 Now let us see how the leased circuit services with which we are concerned has been defined in Section 65(105). Prior to 1-6-2007, the taxable service was defined as follows :-
“(105) ‘Taxable service’ means any service provided or to be provided –
(a) to (zc) …………..
(zd) to a subscriber, by the telegraph authority in relation to a leased
circuit.”
With effect from 1-6-2007, leased circuit services got merged into telecommunication service as defined and the taxable service under Section 65(105) read as follows :-
“(zzzx) to any person, by the telegraph authority in relation to telecommunication service.”
In other words, for the leased circuit service to be taxable, it has to be provided by a ‘telegraph authority’. As per Section 65(111), “Telegraph authority” has the meaning assigned to it in Clause (6) of Section 3 of the Indian Telegraph Act, 1885 and includes a person who has been granted a licence under the first proviso to sub-section (1) of Section 4 of that Act.” It is not the case of the department that the foreign service provider or the appellant herein is a telegraph authority as defined in the law. If that be so, leased circuit service provided by a person who is a telegraph authority is not liable to Service Tax either under Section 66 or under Section 66A and we hold accordingly.
5.4 This legal position is evident from the clarification issued by the Board vide letter dated 15-7-2011 cited supra. The relevant portions from the said letter are extracted verbatim below :-
“Sub : Sections 65(104c), 65(105)(zzzq), 65(111), 66A, Rule 2(1)(d)(iv) – Taxability in respect of International Private Leased Circuit (IPCL) charges and amendment in the definition of Telegraph authority u/s 65(111) of the Finance Act, 1994 – reg.
Representations have been received seeking clarification regarding taxability of IPCL charges incurred in foreign currency by BPO/MNCs against receipt of services from the service provider situated outside India/group companies under reverse charge mechanism [Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994].
2. The matter has been examined. The activities are in the nature of Leased Circuit services presently covered under Telecommunication service. However, for getting classified under Telecommunication service, Section 65(105)(zzzx) of the Finance Act, 1994 provides that the service should be provided by a Telegraph authority. Telecommunication service as defined under Section 65(109a) covers services which are provided by a person who has been granted a licence under the first proviso to sub-section (1) of Section 4 of the Indian Telegraph Act, 1885. In this situation in the instant case since the service provider is located abroad, he is not covered under the definition given in Section 65(109a). Thus the service provided by foreign vendors cannot be taxed under Telecommunication service.”
The clarification given by the Board squarely deals with the situation in the case before us. As per the said clarification, no Service Tax is payable under Section 66A if leased circuit service is received from a foreign vendor. The argument of the department that this clarification is only an internal correspondence and not a circular and hence not binding on the department is childish, to say the least.
5.5 The decision of the Hon’ble High Court of Andhra Pradesh in the Karvy Consultants Ltd. case cited supra has relevance. The issue for decision in the said case related to levy of Service Tax on banking and financial transactions undertaken by the petitioner which was registered as an NBFC under the RBI Act, 1934 but whose principal business was not of receiving deposits/lending. The Hon’ble High Court held that to levy Service Tax, the service provider should be both a company and with principal business of receiving deposits/lending. Mere registration as an NBFC is not enough to bring the activity under the purview of Service Tax levy. Applying the ratio to the facts of the present case, it is not enough that the service provider provides the leased circuit services but it should be a ‘telegraph authority’ as defined in the Act. Unless both the conditions are cumulatively satisfied, service tax levy will not apply.
5.6 The reliance placed by the Revenue on the Unitech Ltd. case is of no help as the facts involved are distinguishable. The issue therein was whether services received from a commercial concern engaged in providing architect’s services from abroad would be leviable to Service Tax. The relevant provisions provided that the service should be provided either by an architect registered in the register of architects maintained in India or by a commercial concern engaged in rendering services in the field of architecture. In respect of commercial concerns, there was no requirement of any registration in India. In that context, it was held that architect’s services received from abroad from a commercial concern would be liable to Service Tax in India under reverse charge mechanism. These are not facts obtaining in the present case. As discussed in the preceding paragraphs, only leased circuit services rendered by a telegraph authority is taxable and since the foreign vendor is not such an authority, the question of levy of Service Tax from the recipient of the service under reverse charge basis does not arise.
6. In view of the foregoing, the impugned order is set aside and the appeals are allowed on merits with consequential relief, if any. Since the issue is decided on merits, the other contentions raised by the appellant are not required to be gone into. Cross objections are also disposed of.”
From the above decision of this Tribunal, we find that the issue is absolutely identical and the Tribunal held that the foreign service provider being not covered under the term ‘Telegraph Authority’, the service provided by them will not fall under the definition of ‘Telecommunication Service. Accordingly, respectfully following the above decision, we are also of the view that in the present case since the service provider is not a Telegraph Authority and the appellant being a service recipient cannot be fastened with service tax demand under Telecommunication Service. Accordingly, the demand on Telecommunication Service is also not sustainable and the same is set aside.
6. As per our discussions and findings given herein above, the impugned order is set aside and the appeal is allowed.
(Order pronounced in the Open Court on 11/04/2022.)
