2018 (7) TMI 919 - AT - Service Tax

Reverse charge mechanism - expenses incurred for maintenance of the offices abroad - Department entertained a view that the expenses incurred by the appellant for the maintenance of the offices abroad are liable to Service Tax on reverse charge basis - Head Office of the appellant in India as well as their Branch offices abroad. Held that - Such payments have been made by the appellant to their own branch offices towards reimbursing the salaries of the employees working there, as well as the expenses incurred by the representative office - After carefully considering the provisions of law prior to and w.e.f. 01.07.2012, we note that there Is in essence no substantial change in the law. We are of the view that Section 65 B (44) read with the relevant Explanations are peremateria to the Section 66A (2) read with Explanation - Consequently, the finding of the Tribunal needs no modification even for the period after 01.07.2012. Hence, there is no justification to demand Service Tax on the amounts paid by the appellant to their branch office towards reimbursement of their expenses. The Commissioner has failed to discuss the issue in the light of the provisions, which have been included in the statute w.e.f. 01.07.2012. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Tax liability on reverse charge basis for expenses incurred by appellant for maintaining representative offices abroad.

Detailed Analysis:
1. The appellant, a manufacturer and exporter of pharmaceutical products, faced a challenge against Order-in-Original No. 20/14-15 dated 27.03.2015, concerning the period from 01.07.2012 to 30.11.2013. The issue revolved around the expenses incurred by the appellant for maintaining representative offices in different countries, with the Department asserting that these expenses are subject to Service Tax on a reverse charge basis.

2. The appellant's case was presented by Advocate Shri B.L. Narasimhan, arguing that a similar issue for the appellant had been previously addressed by the Tribunal for the period before 01.07.2012. He highlighted the change in the levy of Service Tax to a negative list basis post-01.07.2012 and referred to a previous Tribunal decision that rejected the demand for Service Tax under the category of Business Auxiliary Service for amounts paid by the appellant to their branch offices for reimbursement purposes.

3. The Advocate emphasized that the provisions post-2012 were equivalent to those pre-2012 and urged the Tribunal to apply the earlier decision's rationale to the current case. He also noted that a significant portion of the Service Tax demanded had already been paid by the appellant, even though they contested the levy.

4. The Department argued that the new provisions post-2012 considered the establishments of a person in India and abroad as distinct legal entities, justifying the levy of Service Tax on amounts paid by the appellant to their branch offices under this premise.

5. The Tribunal analyzed the legal provisions pre and post-2012, comparing Section 66A (2) with the new Section 65B (44) and relevant explanations. Referring to a previous decision, the Tribunal concluded that the legal fiction of treating a branch office as a separate establishment was not intended to tax services rendered to the head office, especially without supporting evidence.

6. Considering the Tribunal's earlier decision for the appellant's case pre-2012, the Tribunal found no substantial change in the law post-2012 and held that the provisions post-2012 were equivalent to those pre-2012. Consequently, the Tribunal ruled that there was no justification for demanding Service Tax on amounts paid by the appellant to their branch offices for expense reimbursement.

7. Critically, the Tribunal noted that the Commissioner failed to consider the provisions introduced post-2012 while adjudicating the case, emphasizing the importance of reasoned conclusions based on relevant legal provisions. As a result, the Tribunal set aside the impugned order and allowed the appeal, providing relief to the appellant.

Conclusion:
The Tribunal's decision centered on the tax liability of the appellant on a reverse charge basis for expenses related to maintaining representative offices abroad. By comparing legal provisions pre and post-2012 and referencing previous decisions, the Tribunal concluded that there was no basis for demanding Service Tax on the amounts paid by the appellant to their branch offices for reimbursement, ultimately setting aside the impugned order and granting relief to the appellant.