2013 (12) TMI 792 - AT - Service Tax

Demand of service tax - Service rendered abroad - Application of Section 66A - Held that - appellant has provided services through their branches abroad to customers located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has received proceeds of the service rendered abroad by their branches, after deduction of expenditure incurred for rendering of services abroad - service has been rendered to the clients abroad and, therefore, the consumption of the service is not in India but abroad. Therefore, the question of subjecting the said activity to service tax in India does not appear to be sustainable in law. Appellant has received the service from abroad from their branches, since the service have been consumed by the clients abroad, it would amount to export of service under Rule 3 of the Export Service Rules, 2005 in which case also there would not be any service tax liability. In the case of permanent establishment of the appellant situated abroad, the service has been provided by foreign service providers abroad and the service has also been consumed abroad - matter has to go back to the original adjudicating authority for consideration afresh - Decided in favour of assessee.

Summary

Issues:
1. Tax liability on services rendered by overseas branches.
2. Tax liability on services provided through permanent establishment abroad.
3. Jurisdiction of Indian authorities to levy service tax on transactions abroad.
4. Applicability of Section 66A of the Finance Act, 1994.
5. Interpretation of law regarding export of services.

Issue 1 - Tax liability on services rendered by overseas branches:
The appellant, engaged in various services, faced a service tax demand on the total receipts of its overseas branches, alleging the services fall under 'Business Auxiliary Service'. The appellant argued that services to overseas customers amount to export of service, as they receive proceeds in foreign exchange without making payments to branches. They cited precedents and the non-taxable status of Information Technology Service before a certain date.

Issue 2 - Tax liability on services provided through permanent establishment abroad:
The appellant remitted funds for services provided by personnel at clients' offices abroad, facing a reverse charge service tax demand. The department claimed the liability under Section 66A of the Finance Act, 1994. The appellant contended that local taxes were already paid on these transactions abroad, challenging Indian authorities' jurisdiction to levy additional service tax.

Issue 3 - Jurisdiction of Indian authorities to levy service tax on transactions abroad:
The appellant argued against the Indian authorities' jurisdiction to impose service tax on transactions already taxed abroad. They highlighted the principle of destination-based consumption tax and the absence of dual taxation jurisdictions for the same transactions.

Issue 4 - Applicability of Section 66A of the Finance Act, 1994:
The appellant contested the applicability of Section 66A, emphasizing that services were rendered abroad, not received in India. They argued that the provision does not apply when services are provided abroad and consumption occurs outside India.

Issue 5 - Interpretation of law regarding export of services:
The Tribunal analyzed the legal positions and precedents cited by both sides. They concluded that the matter required reevaluation by the adjudicating authority to determine the jurisdiction to demand service tax on activities conducted entirely outside India, where tax liabilities were discharged under local laws. The appellant was granted the opportunity to present evidence of tax discharge abroad.

In the final judgment, the Tribunal allowed the appeal by remanding the case for fresh consideration regarding the jurisdiction to demand service tax on activities conducted abroad. The stay application was also disposed of.

Judges: P R Chandrasekharan And Anil Choudhary