2014 (8) TMI 711 - AT - Service Tax

Import of services - Whether a branch of a corporate body situated abroad can be said to have rendered a service to the head office of the body corporate situated in India - Software Development and Consultancy Service - Held that - Section 66A in our prima facie view, does not provide for such a situation. In the facts of the case before us, the branch situated abroad has rendered service to the foreign clients and tax liability has been discharged abroad. The branch situated abroad has incurred certain expenditure which has been reimbursed by the head-office to its branch office. Such reimbursements of expenditure by way of salaries or other expenses cannot be said to be consideration paid for any service rendered by the branch to the head office. The purpose of Section 66A is for taxing the import of services and not for taxing monetary transactions between the branch and head-office. For e.g. if a branch of an Indian bank is situated abroad, Section 66A does not envisage treating the foreign branch as a separate entity so far as the internal transactions are concerned, if the head-office reimburses to the foreign branch expenses incurred by them abroad. It cannot be said to be a consideration for any services rendered. The reason is that the service provider, service recipient and place of performance of service are all located abroad. The purpose of Section 66A is not to tax service transactions taking place abroad. Such transactions are beyond the taxing jurisdiction of the Indian authorities - certain expenditure incurred abroad, the adjudicating authority has granted relief holding that they are not taxable in India. If that be so, we do not understand, why in respect of the some other items of expenditure, the same treatment cannot be accorded. Thus, there is an inherent contradictions in the findings of the adjudicating authority - Thus, the appellant has made out a prima facie case for grant of stay - Stay granted.

Issues:
1. Jurisdiction to demand service tax on activities rendered outside India.
2. Tax liability on services provided by overseas branches.
3. Tax liability on services provided by personnel located in foreign offices.
4. Interpretation of Section 66A of the Finance Act, 1994.
5. Consideration for services rendered by overseas branches.
6. Applicability of service tax on reimbursements of expenditure between branches.

Analysis:

Issue 1: Jurisdiction to demand service tax on activities rendered outside India
The Tribunal examined whether the Indian authorities have jurisdiction to demand service tax on activities completely rendered outside India. The matter was remanded to the adjudicating authority to consider if service tax can be imposed on activities already taxed under local laws where they were conducted. The Tribunal emphasized that all issues were to be considered afresh, allowing the appellant to provide evidence of tax discharge under local laws.

Issue 2: Tax liability on services provided by overseas branches
The appellant, engaged in various services, had overseas branches providing services to foreign customers. The department demanded service tax on the total receipts of overseas branches, considering them as 'Business Auxiliary Service.' The appellant argued that services to foreign customers amounted to export of service, and tax liabilities were discharged under local laws, thus challenging the jurisdiction of Indian authorities to impose service tax.

Issue 3: Tax liability on services provided by personnel in foreign offices
The appellant had personnel in foreign offices providing services to overseas clients, incurring various expenses remitted from India. The department sought service tax on reverse charge basis, alleging tax liability during a specific period. The appellant contested the tax imposition, citing tax discharge under local laws and challenging the jurisdiction of Indian authorities.

Issue 4: Interpretation of Section 66A of the Finance Act, 1994
The Tribunal analyzed Section 66A, emphasizing that it pertains to taxing the import of services, not internal monetary transactions between branches and head offices. It clarified that reimbursements of expenditure between branches do not constitute consideration for services rendered, supporting this interpretation with legal precedents and highlighting the purpose of Section 66A.

Issue 5: Consideration for services rendered by overseas branches
The appellant argued that branches, being part of the organization, did not render services to themselves, and services to foreign customers constituted exports. They highlighted receiving proceeds in foreign exchange without payments to branches, challenging the applicability of service tax on reverse charge basis under Section 66A.

Issue 6: Applicability of service tax on reimbursements of expenditure between branches
The Tribunal noted contradictions in the adjudicating authority's findings regarding taxable expenditure, granting relief on some items but not others. It emphasized the need for consistent treatment of expenditures, indicating a prima facie case for granting a stay on the tax dues adjudged against the appellant.

In conclusion, the Tribunal granted unconditional waiver from pre-deposit and stayed recovery of dues during the appeal, considering the appellant's arguments challenging the jurisdiction and applicability of service tax on overseas activities and reimbursements between branches.

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