2017 (5) TMI 521 - AT - Service Tax

Waiver of Pre-deposit - Software company providing IT services having clientele abroad - reverse charge - The case of the department is that these branch offices of the applicant are providing support services of business or commerce to the applicant in furtherance of their business of the IT services. Since a branch office established in other country by a person in India is treated as a separate person for the purpose of charge of service tax under reverse charge mechanism under section 66A of FA, 1994, therefore the applicant is required to discharge the liability of service tax on the consideration paid to their branch offices, in lieu of such services - the contention of the applicant is that they have reimbursed the salary and other expenses to their overseas branch offices on which the department is asking to the applicant to pay service tax as per section 66A under BSS. Held that - the applicant is not liable to pay service tax on the amount reimbursed to the branches located overseas - reliance placed in the case of Milind Kulkarni M/s.Tech Mahindra Ltd. vs. CCE, Pune 2016 (9) TMI 191 - CESTAT MUMBAI , where on similar issue, it was held that mere existence as a branch for the overall promotion of the objectives of the primary establishment in India which is essentially an exporter of services does not render the transfer of financial resources to the branch taxable under section 66A - appellant not liable to pay tax on amount reimbursed to the branches located overseas. Insurance service - demand - Held that - the insurance service providers are not registered with the IRDA, therefore, these services are not taxable under the category of life insurance service under section 65 (105) (zx) and general insurance service under section 65 (105) (d) of the Act - demand set aside - the requirement of pre-deposit of the amount of service tax on this account also waived. With regard to the service tax on visa facilitation under BSS, we find that the services have been received outside India consumed outside India. Therefore, prima facie service tax is not payable by the applicant. Accordingly, the applicant has made out a case of waiver of pre-deposit, we do as the same. The applicant has already made deposit of ₹ 7,28,22,020/-. For compliance of the provisions of section 35F of CEA, 1944 read with section 83 of the FA, 1994, the same is sufficient, we waive the requirement of pre-deposit of balance amount - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Reimbursement to Overseas Branches under Business Support Services (BSS) category.
2. Insurance Service.
3. Visa Facilitation under BSS category.
4. Revenue Neutrality.
5. Extended Period of Limitation.
6. Incorrect Calculation of Demands.
7. Pre-deposit of Service Tax.

Issue-wise Detailed Analysis:

1. Reimbursement to Overseas Branches under BSS Category:
The applicant, a software company providing IT services, established branch offices abroad to facilitate their foreign clients. The department contended that these branches provided support services to the applicant, thus requiring the applicant to discharge service tax under the reverse charge mechanism per Section 66A of the Finance Act, 1994. The applicant argued that Section 66A does not apply as branches cannot provide services to themselves, supported by various tribunal decisions (e.g., Milind Kulkarni M/s.Tech Mahindra Ltd., Torrent Pharmaceuticals Ltd., Tata Technologies Ltd., KPIT Cummins Infosystems Ltd., Infosys Ltd.). The Tribunal agreed, referencing the legal fiction of branches being separate entities for tax purposes, but not for internal corporate operations, thus waiving the pre-deposit requirement of ?1,49,40,50,324.

2. Insurance Service:
The applicant challenged the service tax demand of ?56,00,159 for insurance services, arguing that these services were received outside India and that the foreign service providers were not registered with the Insurance Regulatory Development Authority (IRDA). The Tribunal found merit in this argument, noting that the services were not taxable under the relevant sections of the Act, thus waiving the pre-deposit requirement for this amount.

3. Visa Facilitation under BSS Category:
The applicant contested the demand of ?1,65,77,692 for visa facilitation services, asserting that these services were received and consumed outside India and thus not taxable under the BSS category. The Tribunal agreed, noting that such services were provided by authorized agents abroad and were not outsourced services as defined by the CBEC Circulars. Consequently, the pre-deposit requirement was waived.

4. Revenue Neutrality:
The applicant argued that the entire exercise was revenue-neutral as any service tax paid could be claimed as Cenvat credit, making the entire amount refundable under Rule 5 of the Cenvat Credit Rules, 2004. The Tribunal acknowledged this point, supporting the applicant’s stance.

5. Extended Period of Limitation:
The applicant contended that the extended period of limitation was not applicable since they regularly filed their ST-3 returns with all relevant details. The show cause notice was issued beyond the stipulated period, making the demand time-barred. The Tribunal noted this argument but did not explicitly rule on it in the waiver decision.

6. Incorrect Calculation of Demands:
The applicant highlighted errors in the demand calculations, claiming that ?16,95,82,287 was incorrectly calculated. The Tribunal considered this but focused primarily on the broader legal arguments for waiving the pre-deposit.

7. Pre-deposit of Service Tax:
The applicant had already deposited ?7,28,22,020 towards service tax for services provided by third parties to their branch offices. The Tribunal found this sufficient for compliance with Section 35F of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994, and waived the requirement for further pre-deposits of the balance amount, interest, and penalties.

Conclusion:
The Tribunal, after considering the submissions and relevant case law, waived the requirement for pre-deposit of service tax, interest, and penalties, allowing the appeal to proceed without additional financial burden on the applicant.

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