2019 (4) TMI 1352 - AT - Service Tax

Reverse charge mechanism - recipient of services that were utilised for rendering call centre services - section 66A of Finance Act, 1994 - revenue neutrality - HELD THAT - Section 66A of Finance Act, 1994, infused with the legal fiction of the recipient as the deemed provider and sans recourse to inclusion in the definition of person liable for paying tax , was the alternate charging section. With the impossibility of detecting the arrival of the service in India inherent in such transactions, the charging provision would have remained unenforceable. As an indirect tax that is manifest in consumption at the destination, the superfluity of such detection in domestic transaction could not hold for cross-border transactions and the gap was filled by notifying the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 as the guide rail for such determination. The scope and limitation of the pertinent Rules would is of more relevance than the charging section in Finance Act, 1994. There can be no doubt that services procured domestically or imported for carrying on of business or commerce is taxable; to the extent of taxability of output or output service, the tax liability, borne or paid, as the case may be, is adjusted through CENVAT Credit Rules, 2004 and, to the extent that the output or output service is exported, refund under CENVAT Credit Rules, 2004 is an inalienable entitlement. In the circumstances of the present dispute, such refund is undeniable even if the legal fiction of recipient being the provider burdens the appellant with tax. Revenue neutrality - HELD THAT - Procurement of services for use in business or commerce outside India is, unlike the claim of neutrality in other situations to evince lack of motive for evasion of tax, is revenue neutrality, unalloyed and unadulterated. Here, it is not mere off-set. Here, it is not refund of tax whose incidence was borne. Here it is tax that has to be refunded to the person who paid the tax. The payment made to service providers outside the country does not qualify for being subject to tax under section 66A of Finance Act, 1994 - Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Tax liability on payments made to overseas entities for 'business auxiliary service.'
2. Tax liability on payments for 'international private leased circuits' services and related charges.
3. Tax liability on payments for 'management, maintenance, and repair' services.
4. Applicability of reverse charge mechanism under section 66A of Finance Act, 1994.
5. Classification of services under 'business auxiliary services' or 'support services of business or commerce.'
6. Invocation of extended period for demand without evidence.

Detailed Analysis:

1. Tax Liability on Payments for 'Business Auxiliary Service':
The appellant, M/s Aditya Birla Minacs World Wide Ltd, contested the tax liability on ?24,56,86,224 paid during 2006-07 and 2007-08 for services rendered by M/s Technion Communication Corporation. The adjudicating authority confirmed the tax liability of ?3,01,57,011 under section 65(105)(zzb) of Finance Act, 1994. The appellant argued that the services were rendered outside India and consumed outside India, supported by circulars and judicial precedents, asserting that the tax should not apply as per the destination-based consumption tax principle.

2. Tax Liability on Payments for 'International Private Leased Circuits' Services:
The appellant made payments to M/s AT&T, M/s MCI WorldCom, and M/s Singtel for services required to provide output services and installation of 'multiplexers' and paid ?17,63,55,867 to M/s Interland Inc for 'Linux' server facilities. The adjudicating authority confirmed ?12,24,405 as taxable under 'support services of business and commerce' on the charges levied by 'co-location' companies and server rentals. The appellant contended these services were akin to renting of immovable property and should not be taxed under 'support services of business or commerce,' citing relevant judicial decisions.

3. Tax Liability on Payments for 'Management, Maintenance, and Repair' Services:
The appellant paid ?96,34,221 to M/s Transwork Inc for equipment management, maintenance, and repair services. The adjudicating authority confirmed a tax liability of ?11,84,740. The appellant argued that these services were not taxable as they were rendered and consumed outside India.

4. Applicability of Reverse Charge Mechanism:
The appellant challenged the reverse charge mechanism under section 66A of Finance Act, 1994, arguing that the services were received and consumed outside India, thus falling outside the purview of the said section. The adjudicating authority relied on rule 3(3) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, which places liability on the location of the recipient, which is in India. The Tribunal referred to the decision in re Genom Biotech Pvt Ltd, which restricted taxability to services used in business or commerce within India.

5. Classification of Services:
The appellant disputed the classification of services under 'business auxiliary services' or 'support services of business or commerce.' They contended that the services provided by M/s Technion Communications Corporation did not fit the definition in section 65(19) of Finance Act, 1994. The adjudicating authority's reliance on the decision in Tata Steel Limited was countered by the appellant's reference to other judicial precedents.

6. Invocation of Extended Period:
The appellant argued that the extended period for demand was invoked without evidence of wilful misstatement or suppression of facts, thus challenging the entire order on this ground.

Conclusion:
The Tribunal found that the services procured from overseas entities were used for business or commerce outside India, aligning with the decision in re Genom Biotech Pvt Ltd. It concluded that such services do not qualify for tax under section 66A of Finance Act, 1994. Consequently, the appeal was allowed, and the impugned order was set aside. The Tribunal did not find it necessary to examine other submissions due to the acceptance of the primary plea of exclusion from the said Rules.

(Order pronounced in the open court on 18/04/2019)

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