2014 (12) TMI 911 - AT - Service Tax

Waiver of pre deposit - Consulting Engineer Service - services provided by branch situated abroad - Held that - As per the representative agreement and letter shown, the consulting engineer stationed abroad cannot be considered as a branch and he is nothing but an employee of the appellant. If he is an employee, prima facie the provisions of Section 66A(2) of the Finance Act, 1994 which required a branch to be treated as separate person may not be applicable. Further we also note that in para 68 of the order wherein the Commissioner has reached conclusion that the appellants have branches abroad, there is no clear finding that the persons who were stationed abroad were part of the branch but not employees. - appellant has made out a very strong case on merits on a prima facie basis - on revenue neutrality also the appellant has a strong prima facie case - Stay granted.

Issues:
1. Liability to pay service tax on expenses incurred by branches providing 'Consulting Engineer Service'.
2. Classification of consulting engineers stationed abroad as branches or employees.
3. Applicability of Section 66A(2) of the Finance Act, 1994.
4. Availability of refund on service tax paid.

Analysis:
1. The judgment addresses the issue of the appellant's liability to pay service tax on expenses incurred by its branches providing 'Consulting Engineer Service'. The proceedings were initiated based on the argument that the branches should be treated as different persons under Section 66A(2) of the Finance Act, 1994. The demand for service tax amounting to Rs. 9,48,57,196/- for the period 2006 to 2010 was confirmed, along with penalties and interest. However, the learned counsel argued that the demand was not factually accurate. They presented a representative agreement and an appointment letter to demonstrate that the engineers stationed abroad were employees of the appellant, not branches. The Tribunal found merit in this argument, highlighting the absence of a clear finding that the overseas personnel were part of a branch rather than employees. Consequently, a strong prima facie case was established in favor of the appellant, leading to a waiver and stay on the demand during the appeal process.

2. The classification of consulting engineers stationed abroad as branches or employees was a crucial aspect of the judgment. The Tribunal carefully examined the representative agreement and appointment letter provided by the appellant. It was determined that the engineers stationed abroad should be considered employees of the appellant based on the terms outlined in the documents. This finding played a significant role in the decision-making process, as it influenced the applicability of Section 66A(2) of the Finance Act, 1994. By establishing the overseas personnel as employees rather than branches, the Tribunal leaned towards a conclusion that the provisions requiring branches to be treated as separate entities may not be applicable in this scenario.

3. The judgment delved into the applicability of Section 66A(2) of the Finance Act, 1994 concerning the treatment of branches as separate persons for taxation purposes. By scrutinizing the representative agreement and the appointment letter, the Tribunal concluded that the consulting engineer stationed abroad could not be deemed a branch but was, in fact, an employee of the appellant. This analysis led to a preliminary determination that the provisions of Section 66A(2) might not be relevant in the context of the case. The absence of a clear finding that the overseas personnel constituted branches further supported the argument in favor of the appellant.

4. An additional issue addressed in the judgment was the availability of a refund on the service tax paid by the appellant. The Tribunal acknowledged the appellant's contention that the service tax paid would be eligible for refund since they did not provide any 'output service' within the country. All services received, both domestically and internationally, were categorized as 'input services,' making the appellant eligible for a refund upon demonstrating that they exported the services. This argument, coupled with the prima facie case established on revenue neutrality, further strengthened the appellant's position. Consequently, the Tribunal granted a waiver and stay on the demand during the pendency of the appeal process, considering the strong case presented by the appellant.

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