2018 (8) TMI 560 - AT - Service Tax

Demand of Service Tax - Reverse charge mechanism - Section 66A of Finance Act, 2006 - ECB obtained by the respondent from International Finance Corporation Washington, USA - the said corporation does not have any office in India - Held that - Revenue has not disputed the fact that IFC enjoys immunity from payment of tax. Their only contention is that tax is not being confirmed against IFC but the confirmation is against the assessee, who is located in India - there is no merits in the above contention of the Revenue. Admittedly, the service provider is IFC and the demand relates to the services provided by the said organization located in USA. It is also admitted that the said organization enjoys immunity from payment of service tax. In the ordinary course the tax liability is on the service provider and it is only when the services are obtained from abroad and service provider has no office in India, the tax liability gets shifted to the service recipient, who is required to pay the tax on reverse charge basis. Thus, though there is no obligation on the part of the service recipient to pay the tax but in case service is received from a foreign entity, not having any office in India, the service tax liability gets shifted to the service recipient on reverse charge basis. As such it is not the liability of service recipient but the liability of service provider which gets shifted to the service recipient on deemed basis. In case of no liability of IFC to pay the tax, no liability to pay the same by the service recipient on reverse charge basis would arise. Appeal dismissed - decided against Revenue.

Issues:
1. Service tax demand against the respondent set aside by Commissioner (Appeals)
2. Applicability of service tax on External Commercial Borrowings (ECB) obtained from International Finance Corporation Washington, USA
3. Immunity of International Finance Corporation (IFC) from payment of tax in India
4. Interpretation of Section 66A of the Finance Act, 2006 regarding reverse charge mechanism

1. Service tax demand set aside by Commissioner (Appeals):
The Revenue filed an appeal against the order of the Commissioner (Appeals) setting aside the service tax demand of &8377; 24,14,466/- against the respondent along with the penalty. The dispute arose from the ECB obtained by the respondent from IFC, Washington. Another service tax demand of &8377; 8,22,478/- in respect of Financial Services received from SBI, Singapore was confirmed as it was not contested by the assessee. The Commissioner (Appeals) accepted the plea of the assessee that IFC's immunity from payment of tax in India under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958, exempts the assessee from the service tax liability.

2. Applicability of service tax on ECB obtained from IFC:
The Revenue contended that the service tax liability is on the assessee, who is located in India, even though IFC enjoys immunity from payment of tax. The Tribunal noted that the service provider is IFC located in the USA, and the services provided by them are the subject of the demand. In cases where services are obtained from a foreign entity without an office in India, the tax liability shifts to the service recipient on a reverse charge basis. The Tribunal agreed with the Commissioner (Appeals) that if there is no liability on IFC to pay tax, the service recipient cannot be held liable to pay tax on a reverse charge basis.

3. Immunity of IFC from payment of tax in India:
The Commissioner (Appeals) held that under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958, IFC enjoys immunity from all kinds of taxations in India. The Tribunal concurred that when the service provider, IFC, is exempt from taxes in India, the liability for service tax on the appellant under Section 66A of the Finance Act, 1994 does not arise. The Tribunal emphasized that the reverse charge mechanism cannot be applied when the service recipient is exempt from taxes in India.

4. Interpretation of Section 66A regarding reverse charge mechanism:
The Tribunal clarified that in cases where the service provider has no obligation to pay tax, the liability does not shift to the service recipient on a reverse charge basis. It was emphasized that the liability of the service provider gets shifted to the service recipient on a deemed basis only when services are received from a foreign entity without an office in India. The Tribunal rejected the Revenue's appeal, agreeing with the Commissioner (Appeals) that in the absence of IFC's tax liability, the service recipient cannot be held liable to pay tax on a reverse charge basis.

This detailed analysis of the judgment highlights the key issues involved and the reasoning provided by the Tribunal regarding the service tax demand, the immunity of IFC, and the interpretation of the reverse charge mechanism under the Finance Act, 2006.

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