2019 (9) TMI 749 - AT - Service Tax

Taxability - reverse charge - reimbursement received toward the services of the Manpower and other Miscellaneous cost incurred on behalf of the Overseas Group Companies in connection with the supply of goods by Indian Companies to their group companies - HELD THAT - As per the facts of the present case there is no dispute that the appellant have received the reimbursement towards salary and other miscellaneous expenses from their group companies located outside. This reimbursement was received in connection with some support service provided by the appellant, in connection with supply of goods by Indian supplier to their overseas group companies. In this transaction, it is the appellant who are providing the service to the overseas group companies. From the reading of Section 66A and Rule 2 (1) (d) (iv) of service tax Rules 1994, it is absolutely clear that the service tax liability under the above provision is only on the recipient of service in those cases when the Indian person is receiving the service from abroad and the service provider is not having any office in India - Since the appellant are not receiving any service, on the contrary, they are providing services to overseas group companies, the provision of Section 66A and Rule made there under is absolutely not applicable, therefore, the demand is also not maintainable. Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Taxability of reimbursement received for services provided to overseas group companies under Section 66A of the Finance Act, 1994.

Analysis:
The case involved a dispute regarding the taxability of reimbursement received by the appellant for providing support services to their overseas group companies. The department contended that the reimbursement was taxable under Section 66A of the Finance Act, 1994, as it was considered payment for manpower supply services from overseas. The appellant argued that they were providing support services to their group companies abroad, making it an export of service and not subject to tax under Section 66A. The appellant also claimed that sharing expenses with group companies did not fall under taxable manpower supply services, citing various judgments in support of their position.

The tribunal examined the facts and relevant provisions, including Section 66A of the Finance Act, 1994, and Rule 2(1)(d) of the Service Tax Rules 1994. It was established that the tax liability under Section 66A applies when an Indian entity receives services from abroad, not when it provides services to overseas entities. Therefore, since the appellant was providing services to their overseas group companies, the tax demand was deemed inapplicable. The tribunal referenced previous cases, such as BMW India Pvt. Ltd. and Sumitomo Corporation India P. Ltd., where similar issues were decided in favor of the appellants, supporting the conclusion that the demand was not sustainable.

In light of the above analysis and the supporting judgments, the tribunal held that the demand for tax on the reimbursement received by the appellant was not maintainable. Consequently, the impugned orders were set aside, and the appeals were allowed. The tribunal's decision was based on the clear distinction between receiving and providing services in the context of Section 66A, ensuring that the tax liability under the provision was correctly interpreted and applied in the case at hand.