2017 (3) TMI 120 - AT - Service Tax

Services received from foreign entities - Section 66A of FA, 1994 - reverse charge mechanism - appellants engaged M/s Baker Bott of U.S.A. in connection with extension project of their LNG terminal - Held that - the law firm engaged by the appellant rendered service including advisory, legal opinion, documents and correspondence, reviewing etc. All these are in the field of contract law - the appellants received mainly legal consultancy service and not management or business consultant service. The finding of the Original Authority that the said legal firm did not represent the appellant in any Court or legal proceeding and, hence, the service is not legal consultancy, is fallacious. Transaction with International Financial Corporation (IFC) - whether liable to tax? - Held that - the appellants have approached IFC for a loan arrangement and in connection with the same expenditures were incurred by them directly with IFC and also with third party appointed by IFC for due diligence. We note that the IFC Act 1958 clearly provides for immunity of all transactions and operations of IFC. Apparently transaction will involve another person with IFC - there is no separate exemptions required as the transaction of IFC were made immune to tax in terms of IFC Act. Appeal allowed - decided in favor of appellants.

Summary

Issues:
1. Service tax liability on services received from foreign entities under reverse charge mechanism.
2. Classification of services received from M/s Baker Bott, U.S.A. and International Financial Corporation (IFC) for tax purposes.

Analysis:

Issue 1:
The appeal challenged the service tax demand on services received by the appellants from foreign entities under the reverse charge mechanism. The Revenue contended that the appellants did not discharge service tax obligations, resulting in a confirmed service tax liability along with penalties. The appellant argued that the demand was related to services received in 2006-2007 and 2007-2008. The services from M/s Baker Bott, U.S.A. were considered as Management or Business Consultant Services by the Revenue. However, the appellant clarified that M/s Baker Bott provided legal services for the extension project of the LNG Terminal. The Tribunal analyzed the scope of services based on proposals and invoices, concluding that the services were mainly legal consultancy and not management or business consultancy. The Tribunal found the Original Authority's reasoning flawed and unsustainable.

Issue 2:
Regarding services received from the International Financial Corporation (IFC), the appellant incurred expenses directly with IFC and a third party appointed by IFC for due diligence in connection with a loan arrangement. The IFC Act of 1958 provides immunity to all transactions and operations of IFC. The Original Authority incorrectly held that the immunity granted to IFC does not extend to parties dealing with IFC. The Tribunal referenced a previous decision where it was established that the IFC Act's immunity to tax liabilities of service providers must be honored. The Tribunal concluded that there is no separate exemption required as transactions with IFC are immune to tax under the IFC Act. Consequently, the impugned order was deemed legally unsustainable and set aside, allowing the appeal.

In summary, the Tribunal ruled in favor of the appellant, determining that the service tax demand was unjustified for services received from foreign entities under the reverse charge mechanism. Additionally, the classification of services from M/s Baker Bott, U.S.A. and the tax liability related to transactions with IFC were clarified, leading to the appeal being allowed.