2018 (11) TMI 1216 - AT - Service Tax

Reverse charge mechanism - Club or Association Services - expenditure incurred by the appellants in respect of the services provided by persons situated outside India and expenditure incurred for their branch office operations - Rule 3(1)(ii) of Taxation of Services (Provided from Outside India and Received in India) Rules 2006. Held that - Rule 3(ii) specifies performance based category services, namely, specified taxable services performed in India; even part performance being sufficient for requiring discharge of service tax under reverse charge - From the facts on record, it is found that the impugned services provided outside India will fall within the ambit of Rule 3(ii). Even as per the show cause notice, it is alleged that the services provided in Thailand and other places are leviable to service tax since it is intended for members in India. Thus, department does not have a case that the impugned services are physically performed in India. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Taxability of services provided by persons located outside India to a club or association service.
2. Taxability of branch office expenses related to providing services outside India.
3. Taxability of professional fees for legal expenses provided by service providers outside India.
4. Applicability of limitation period and justification of penalties imposed.

Analysis:

Issue 1: Taxability of services provided by persons located outside India to a club or association service:
The case involved a dispute regarding the taxability of services received by the appellants from persons located outside India in relation to providing club or association services. The department contended that these services should be considered as performed in India, attracting service tax liability. However, the appellant argued that there was no evidence to show that the services were physically performed in India, as required by the relevant rules. The Tribunal examined the facts and held that the services listed in the impugned order were not physically performed in India, either wholly or partly. Therefore, the service tax liability did not arise on these services, as per Rule 3(ii) of the Taxation of Service Rules, 2006.

Issue 2: Taxability of branch office expenses related to providing services outside India:
The appellant also contested the taxability of branch office expenses incurred for operations outside India. They argued that these expenses were part of normal business expenditure to support branches providing services abroad and did not constitute taxable services rendered in India. The Tribunal referred to relevant case laws and concluded that the impugned order, which held these expenses as taxable, could not be sustained. Therefore, the order was set aside in favor of the appellant.

Issue 3: Taxability of professional fees for legal expenses provided by service providers outside India:
Another point of contention was the demand for professional fees related to legal expenses provided by service providers outside India. The appellant argued that since the legal services were for investment activities outside India and the expenses were borne by them, the demand for service tax on these fees was unjustified. The Tribunal considered this argument and found in favor of the appellant, stating that merely bearing the expenses did not make them subject to service tax.

Issue 4: Applicability of limitation period and justification of penalties imposed:
The appellant raised concerns regarding the limitation period and penalties imposed, arguing that the transaction was revenue-neutral and penalties were unjustified. They cited relevant case law to support their contentions. The Tribunal, after hearing both sides, agreed with the appellant and allowed the appeal, setting aside the impugned order. Consequently, the penalties were also deemed unjustified and the proceedings were held to be hit by limitation.

In conclusion, the Tribunal ruled in favor of the appellant on all the issues raised, setting aside the impugned order and allowing the appeal with consequential reliefs as per law.

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