2014 (9) TMI 779 - AT - Service Tax

Waiver of pre deposit - Import of services - service to self - IT enabled services - Support Services for Business and Commerce - Business Auxiliary Service - Held that - Where the service provider has no permanent establishment in India or he has no branch providing service in India but the service is received in India, tax would be paid by the receiver. Naturally what this means is that the service provider should not be having an establishment in India and then only this provision is attracted. In this case, the service provider is the branch and it cannot be said that overseas branch does not have an establishment in India assuming that it is providing the service classifiable under SSBC. This is because the branch has an establishment in India in the form of their Head Office and abroad as a permanent establishment in that country - When service is provided by a company which has a permanent establishment in India or when the service is provided by a person who has an establishment in India, provision of Section 66A do not get attracted. In this case, if it is assumed that the branch has provided SSBC, service tax demand has to be made on their establishment in India which is nothing but the assessee himself. it is nothing but a self-service and therefore a service to self is not taxable also is valid. Further, the amount received by the appellant as a result of services rendered by the branches abroad for the appellant would be more than what they have paid to the branches, in which case, it will be a negative consideration for the service rendered by the branch to the principal. This is another complexity that gets created because of the stand taken by the Revenue that payment of salaries and other expenses of branches by the appellant is in return for consideration received. In the absence of actual earnings that arise because of the branches and its analysis by either side, no conclusion can be clearly laid down and the fact remains that this is a complexity that should not arise in a case of tax transaction like service tax. If service has been rendered and there is no consideration is determined, how can we say entire amount incurred as expenses is consideration, in the absence any enquiry or a question about the income earned and the nature thereof. Prima facie conclusion goes in favour of the assessee on this issue at this juncture - Stay granted.

Summary

Issues Involved:
1. Classification of services under 'Manpower Supply Service' versus 'Support Services for Business and Commerce' (SSBC).
2. Taxability of 'Business Auxiliary Service' (BAS) provided to Infosys Technologies Ltd.
3. Taxability of services provided by subcontractors outside India under Section 66A.
4. Taxability of expenses incurred by overseas branches treated as SSBC.
5. Levy of penalties under various sections of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellant contended that the activity classified under 'Manpower Supply Service' to Infosys Technologies Ltd. should be categorized under 'Support Services for Business and Commerce' (SSBC), which became taxable only from 1.5.2006. The appellant argued that they have been paying service tax under SSBC since 1.5.2006, and the show-cause notice issued on 22.10.2010 should not invoke the extended period for demand. The tribunal noted that the rate of service tax for both categories was the same, and the appellant had a bona fide belief regarding the service category, thus negating the extended period for demand.

2. Taxability of Business Auxiliary Service (BAS):
The appellant provided services to Infosys Technologies Ltd. to support the export of software, claiming these services should not be taxable as they were secondary services merged with the primary export services. The appellant relied on CBEC Circular No.56/5/2003, which stated that secondary services used for exporting primary services are not taxable. The tribunal found that the appellant had a bona fide belief in the applicability of the circular and that the extended period for demand could not be invoked without clear evidence from the Revenue.

3. Taxability of Services Provided by Subcontractors:
The demand for service tax on services provided by M/s. Vocative Systems Inc. and ePLDT of Philippines to Ingram Micro USA was challenged. The appellant argued that the services were rendered and received abroad, and they were only responsible for ensuring the subcontractors' performance. The tribunal found no clear evidence that the services were received in India, thus making the demand under Section 66A unsubstantiated and granting a prima facie case for waiver.

4. Taxability of Expenses Incurred by Overseas Branches:
The Revenue treated expenses incurred by overseas branches and reimbursed by the appellant as SSBC, invoking Section 66A. The appellant argued that overseas branches should be considered separate legal entities, and reimbursements should not be taxable. The tribunal referred to a previous decision in the case of Infosys Technologies Ltd., where it was held that services received by overseas branches could not be taxed in India unless it was shown that the services were received in India. The tribunal found the appellant's argument valid, indicating that taxing reimbursements would be akin to taxing self-service, which is not taxable.

5. Levy of Penalties:
Penalties were imposed under various sections of the Finance Act, 1994. The tribunal noted that the appellant had a prima facie case for waiver of pre-deposit of service tax, interest, and penalties. The tribunal granted a stay against recovery for 180 days from the date of the order, recognizing the complexity and bona fide belief in the appellant's arguments.

Conclusion:
The tribunal found that the appellant made a prima facie case for waiver of the service tax demands, interest, and penalties across all issues. The tribunal granted a stay on the recovery of the disputed amounts for 180 days, highlighting the appellant's bona fide belief and the complexities involved in the classification and taxability of the services provided.