2014 (12) TMI 41 - AT - Service Tax

Demand of service tax on Reverse Charge Mechanism - amount remitted to the branch offices located outside India towards various expenditure and salaries paid to the employees working in the branch offices abroad - Extended period of limitation - Whether a service is provided and consumed outside India or has been consumed/ received in India - Held that - From the interpretation made in the case of M/s. British Airways vs. CCE (Adj.) Delhi 2014 (6) TMI 626 - CESTAT NEW DELHI (LB) it has to be seen in the present proceedings whether while procuring services branch offices of the appellant abroad have acted only in the capacity of facilitators and the services so procured were consumed in India or the services so availed were consumed outside India. Learned Senior Counsel appearing on behalf of the appellant relied upon guidelines of 2006 & 2008, issued by Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy & Administration, Paris; on Emerging concepts for Defining Place of Taxation on VAT/ GST to cross Border Trade in Services and Intangibles . In the light of the emerging international concepts on reverse charge mechanisms and the judgment of M/s. British Airways vs. CCE 2014 (6) TMI 626 - CESTAT NEW DELHI (LB) , the foreign branches/ establishments of the appellant have not acted as facilitators but have actually consumed those services abroad for which local VAT/GST of the respective country has been paid. The representative invoices produced by the appellant indicate that local VAT/GST paid is Nil when billing by overseas service providers is directly raised upon the appellant in India on which service tax is paid by the appellant on reverse charge basis. When billing is raised on the branch office for a service consumed abroad then local VAT/GST applicable abroad is paid by the branch offices on such transactions. Therefore, payment of local VAT abroad will be an indicator to decide whether a service is provided and consumed outside India or has been consumed/ received in India. The agreements/ documents available with the appellant have to be accepted for the purpose of determining place of providing and consumption of a service in India, as no foul play can be anticipated in the case of appellant who is paying thousand of crores of rupees as service tax and is also eligible to cenvat credit of the service tax payable on reverse charge basis. - demand set aside - Decided in favor of assessee.

Issues Involved:
1. Service tax on services availed from service providers situated abroad.
2. Service tax on services availed from associated enterprises situated abroad.
3. Service tax on reimbursement of expenses to distributors appointed abroad.
4. Service tax on remittances to representative offices/branches situated abroad.

Issue-wise Detailed Analysis:

1. Service tax on services availed from service providers situated abroad:
The appellant admitted that services amounting to Rs. 97,85,726/- and Rs. 12,01,088/- were received and consumed directly in India, and service tax on these services remained inadvertently unpaid. The appellant promptly paid these amounts along with interest and took CENVAT credit. The appellant argued that no penalty should be imposed due to the inadvertent non-payment.

2. Service tax on services availed from associated enterprises situated abroad:
The appellant did not dispute the service tax demands for services availed from associated enterprises situated abroad. The amounts were promptly paid along with interest, and CENVAT credit was taken by the appellant.

3. Service tax on reimbursement of expenses to distributors appointed abroad:
The appellant argued that the reimbursements made to distributors for activities like registrations, staff expenses, and promotional costs should be considered as discounts rather than services received. The appellant contended that these reimbursements are akin to discounts and should not attract service tax. However, the Tribunal held that the reimbursements provided by the appellant on an actual basis cannot be considered as discounts. These reimbursements are suitable considerations for the services received and are liable to service tax along with interest. The Tribunal restricted the demand to the normal period of limitation due to the contentious nature of the issue and the appellant's bona fide belief.

4. Service tax on remittances to representative offices/branches situated abroad:
The appellant argued that nearly Rs. 7 Crores of the demand pertains to salaries paid to employees in foreign branch offices, which should not be considered as services and should not attract service tax. The Tribunal agreed that one cannot provide services to oneself and that the permanent establishment abroad should be treated as a separate person only to determine the place of service provision. The Tribunal held that services consumed abroad by the branch offices, on which local VAT/GST was paid, should not be subject to service tax in India. The Tribunal relied on international guidelines and the judgment in the case of British Airways vs. CCE to conclude that services consumed abroad and paid for with local VAT/GST are not liable to service tax in India under the reverse charge mechanism.

Conclusion:
The Tribunal allowed the appeal to the extent that service tax is not payable on services consumed abroad by the branch offices where local VAT/GST was paid. The demand for service tax on reimbursements to distributors was restricted to the normal period of limitation, and the appellant was found eligible for CENVAT credit for the service tax paid under the reverse charge mechanism. The Tribunal emphasized that the appellant's bona fide belief and the contentious nature of the issues justified the restriction of the demand to the normal period of limitation.

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