2020 (4) TMI 346 - AT - Service Tax

Business Support Services - It was alleged that the Branch Office of the Appellant in China was a separate entity under the provisions of section 66A (2) of the Act and the services imported by the Appellant under the category of BSS were liable to service tax - SCN alleges that the Appellant received services from the overseas office in China which is for furtherance of business - HELD THAT - Section 66A (1) refers to service provider and service recipient as persons which would mean different business persons. Section 66A(2) and its Explanation I only fix service tax liability on a recipient of service under a reverse charge mechanism by treating the permanent establishments in India and abroad as separate persons. This only clarifies whether a service is provided and consumed in India or abroad. If the permanent establishment is treated as a service provider to its own head office in India then it will amount to charging service tax for an activity provided to own self. Therefore, a comprehensive reading of Section 66A of the Act, would indicate that a permanent establishment situated abroad as a separate person , is only to determine whether the provision of service is in India or out of India. The Commissioner (Appeals) also observed that section 66A is an independent charging section for levy of service tax on services provided or to be provided to a person located in India. This observation of the Commissioner (Appeals) is not correct. The charging section is section 66 of the Act and not section 66A - confirmation of demand under the impugned order, therefore, cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the representative office in Beijing constitutes a separate legal entity under Section 66A of the Finance Act, 1994.
2. Whether the services provided by the representative office in Beijing fall under "support services of business or commerce" (BSS) and are taxable under Section 65(105)(zzzq) of the Act.
3. Whether Section 66A is an independent charging section for levy of service tax.
4. Whether the extended period of limitation is invokable.
5. Whether interest and penalty could be imposed.

Detailed Analysis:

1. Separate Legal Entity under Section 66A:
The Appellant argued that the office in Beijing is part of the Appellant and not a separate legal entity, thus there is no independent service provider/service recipient relationship. The Tribunal agreed, referencing previous decisions in Torrent Pharmaceuticals Ltd. and Kusum Healthcare Pvt. Ltd., which clarified that Section 66A(2) and its explanations are only to determine whether a service is provided and consumed in India or abroad. The Tribunal concluded that treating the permanent establishment as a service provider to its own head office would amount to charging service tax for an activity provided to oneself, which is not permissible.

2. Classification under BSS:
The department alleged that the services provided by the Beijing office were classifiable under BSS and taxable under Section 65(105)(zzzq). However, the Tribunal found that the activities performed by the Beijing office, such as coordination and market intelligence, could not be covered under any sub-clause of Section 65(105) since the office was not a separate legal entity. Therefore, the demand of service tax under BSS was not sustainable.

3. Charging Section:
The Commissioner (Appeals) held that Section 66A is an independent charging section. The Tribunal disagreed, citing the Allahabad High Court decision in Glyph International Ltd., which stated that Section 66A is not a charging section but creates a legal fiction to deem import of service as provision of service within India. The charging section remains Section 66 of the Act. Thus, the observation of the Commissioner (Appeals) was incorrect.

4. Extended Period of Limitation:
The Appellant contended that the extended period of limitation should not be invoked as all relevant information was provided to the department, and there was no intent to evade payment of service tax. Since the Tribunal set aside the demand on other grounds, it deemed it unnecessary to examine this contention.

5. Interest and Penalty:
Given that the Tribunal found the demand of service tax unsustainable, the imposition of interest and penalty was also not justified.

Conclusion:
The Tribunal set aside the impugned order dated 26 November 2015 passed by the Commissioner (Appeals), concluding that the demand of service tax under Section 66A was not sustainable. The Appeal was allowed, and the confirmation of demand with interest and penalty was annulled.