2018 (2) TMI 1408 - AT - Service Tax

Liability of service tax - Business Auxiliary Service - reverse charge mechanism - expenditure incurred by the appellant in setting up of certain branch offices in foreign countries like Bangladesh, Ukraine etc. - Held that - similar dispute came before the Tribunal for tax liability under the very same tax entry in Torrent Pharmaceutical Ltd. 2014 (12) TMI 41 - CESTAT AHMEDABAD . The issue of the expenditure incurred by the appellant with reference to the branch office located abroad, which was involved in activities, which may fall under business auxiliary service was considered by the Tribunal - the legal fiction of considering a branch of an assessee as a separate establishment is not to tax a service rendered to its head office. Further, here there is no such service also has been identified with supporting evidence - the tax liability under BAS cannot be sustained. Liability of service tax - advertising services availed by the appellant in pursuance of contract with various foreign service providers who advertised and promoted the product of the appellant in foreign countries - reverse charge mechanism - Held that - It is clear that statutorily such services are considered for taxation based on the location of the service recipient. Such being the clear position as per law in the present case the services being utilized by the appellant as a manufacturer of the said goods, which are exported and marketed in the places where the advertisement are held, the tax liability on such services are correctly made against the appellant on reverse charge basis - extended period and penalty cannot be imposed. Appeal allowed in part.

Issues Involved:
1. Service Tax liability on expenditure incurred in setting up and running branch offices in foreign countries under Business Auxiliary Service (BAS) on reverse charge basis.
2. Service Tax liability on advertising services availed from foreign service providers on reverse charge basis.
3. Validity of extended period for demand and imposition of penalties under Section 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Service Tax Liability on Branch Office Expenditure:
The appellants, engaged in manufacturing and exporting pharmaceutical products, faced Service Tax liability on expenses incurred for setting up and running branch offices in foreign countries. The Revenue argued that these branch offices, involved in business promotion, should be taxed under BAS on a reverse charge basis. However, the appellant contended that these activities did not constitute business promotion services to any other person but were self-serving. They argued that the interpretation of Section 66A (2) and its explanation was incorrect, citing Tribunal decisions that self-service is not taxable under reverse charge.

The Tribunal examined the statutory provisions of Section 66A, which treats foreign branches as separate establishments for tax purposes. However, it was noted that this legal fiction was not intended to tax services rendered to one's own head office. The Tribunal referenced previous decisions, including Torrent Pharmaceutical Ltd. and Milind Kulkarni, which supported the view that services rendered by a branch to its head office are not taxable under Section 66A. Consequently, the Tribunal held that the tax liability under BAS could not be sustained, as the expenses were related to setting up and running the branch offices, not specific BAS activities.

2. Service Tax Liability on Advertising Services:
The appellant also faced Service Tax liability on advertising services availed from foreign service providers, which was taxed on a reverse charge basis. The appellant argued that these services were rendered and consumed abroad and that the exercise was revenue-neutral since they could claim a refund or utilize the tax paid. The Tribunal noted that advertising services are specifically mentioned in the 2006 Rules as taxable based on the location of the service recipient. Therefore, the tax liability on such services was correctly imposed on the appellant on a reverse charge basis.

3. Validity of Extended Period for Demand and Penalties:
The appellant contested the extended period for demand and the imposition of penalties, arguing that the entire tax paid was eligible for credit, and there was no intention to evade payment. The Tribunal agreed, noting that the appellant had a strong case on limitation and that the extended period could not be invoked in the absence of intent to evade. The Tribunal referenced the decision in NR Management Consultants Ltd. India Pvt. Ltd., which consistently held that there could be no question of evasion in such cases. Consequently, the Tribunal restricted the tax liability to the normal period and set aside the penalties imposed under Section 76, 77, and 78.

Conclusion:
The appeals were partly allowed. The Tribunal held that the Service Tax liability under BAS on branch office expenses could not be sustained, while the tax liability on advertising services was upheld but restricted to the normal period. Penalties imposed on the appellant were set aside, and the appellant was deemed eligible for consequential relief as per law.

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