2017 (12) TMI 1376 - AT - Service Tax

Reverse charge mechanism - services availed by them from foreign companies under the category of Banking and Other Finance Services - Section 66A - case of appellant is that the service provider in UK is having a permanent establishment in India and as such, the appellant is not covered by Section 66 A - whether the presence of such an establishment in India is relevant to determine the tax liability of the appellant u/s 66 A? - Held that - the permanent establishment of the service provider in India has no role or connection with the provisions of service - the appellants received service provided by a legal entity separately recognized and established in a foreign country, this is a case covered u/s 66 A - the appellants are liable to pay service tax on reverse charge basis w.e.f. 18.04.2006. Time limitation - Held that - the appellants having received service from foreign entity and having been aware of the provision of Section 66 A, should have examined the tax liability for due discharge, extended period rightly invoked. Penalty - Held that - the provision of Section 80 can be invoked for waiver of penalty in the facts and circumstances of the case as the appellants have been pleading regarding the payment of consideration through Indian affiliates of the service provider situated in UK - penalties set aside. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Liability to pay service tax on reverse charge basis under Section 66 A for services availed from foreign companies.
2. Applicability of Section 66 A in the case where the foreign service provider has a permanent establishment in India.
3. Validity of demand for extended period and imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.

Analysis:

Issue 1:
The dispute in the appeal revolved around the liability of the appellants to pay service tax on a reverse charge basis for services received from foreign companies under the category of "Banking and Other Finance Services." The Revenue demanded service tax from the appellants under Section 66A, amounting to ?4,46,22,000, along with penalties under Sections 77 and 78 of the Finance Act, 1994.

Issue 2:
The appellants argued that the foreign service providers had a permanent establishment in India, which, according to them, exempted them from the liability under Section 66 A. However, the Tribunal, after examining the provisions of Section 66 A, concluded that if a service provider has establishments in both India and a foreign country, they are treated as separate entities. In this case, the services were provided by the foreign entity, not through its Indian establishment, making the appellants liable to pay service tax on a reverse charge basis.

Issue 3:
Regarding the extended period of demand and imposition of penalties, the appellants contended that they had paid consideration inclusive of service tax to the Indian affiliates of the foreign service providers and that there was a bonafide reason for non-payment of service tax. The Tribunal noted that the appellants failed to provide documentary evidence supporting their claim of payment through Indian affiliates. While upholding the findings of the Original Authority on the limitation issue, the Tribunal invoked Section 80 for waiving penalties due to the circumstances of the case.

In conclusion, the Tribunal dismissed the appeal, upholding the liability of the appellants to pay service tax on a reverse charge basis under Section 66 A for services received from foreign companies. The penalties were waived under Section 80, considering the appellants' claim of payment through Indian affiliates.