2020 (7) TMI 588 - AT - Service Tax

Services received from outside India - POPOS Rules - reverse charge mechanism - chartering out of vessels - agency commission, disbursed in India and remitted outside India - various reimbursements - reimbursement to out chartering agents, being payment to agents for handling port charges outside India - reimbursement of deputation expenditure - reimbursement as sales promotion expenditure - reimbursement as expenditure on maintenance and repair - reimbursement towards expenditure on consulting engineers and training - section 66A of Finance Act, 1994. Whether rendering of such service outside India, even if it is for the benefit of the entity in India, amounts to provision of the service in India? - HELD THAT - The peculiar characteristic of invisibility, and intangibility of the taxable event compounded by the near impossibility of segregating the taxable element in a bundled transaction, mandates rigorous rules of engagement to comply with constitutional requirement of limiting the levy within the authority of law. Hard enough as that is, the taxation of services rendered from outside India by the legal fiction of deeming the recipient as provider cannot be founded on money transaction. The scheme of taxation of services in Finance Act, 1994 does not envisage transfer of money to be a service as evidence of such rendering. The taxation of services procured from abroad, if such was the legislative intent, would have been a simple enactment without the need of either the deeming fiction or the elaborate Rules for determination of the destination of service. It is trite to assert that the compelling reason for taxation of services rendered from abroad in the hands of the recipient was two-fold that businesses in India should not be permitted to indulge in arbitrage owing to escapement from tax on services in which the provider is beyond jurisdiction and that the chain of value-added is not broken. Hence, the receipt of services in India for furtherance of business and commerce are co-terminus parameters for taxation. The convenience of classification as business auxiliary service , to bring the activities within the residual grouping of rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, merely from commission having been paid, does not pass muster in view of competing and more specific descriptions in section 65(105) of Finance Act, 1994. In the field of maritime commerce, the activity of vessel handling in ports is entrusted to steamer agents and of goods to customs brokers ; undoubtedly, these are agents but if legislative intent was to tax them as providers of business auxiliary service , there would be no need to have these separate descriptions in the enumeration of taxable service and it cannot be the case of the tax authorities that these varieties of agencies are peculiar to India. Logically, when such services are provided by agencies outside India these cannot be provided within India and it is for such reason that taxable services described in section 65 (105) (h) and section 65 (105) (i) of Finance Act, 1994 are within the ambit of section 66A of Finance Act, 1994 only to the extent of having been performed in India. Therefore, the commission or agency fee remitted to entities for handling of vessels outside India are exempt from taxation. Extende dperiod of limitation - penalty - CENVAT Credit - HELD THAT - The Tribunal has, in JET AIRWAYS (I) LTD. VERSUS COMMISSIONER OF SERVICE TAX MUMBAI 2016 (8) TMI 989 - CESTAT MUMBAI , held that the revenue neutrality of CENVAT credit in procurement of services from outside the country blunted the scope for alleging the existence of ingredients that permit the invoking of the extended period of limitation as well as penalty under section 78 of Finance Act, 1994 - Indeed, but for the proceedings initiated in relation to the demands that we have, supra, set aside, the absence of these very ingredients, coupled the promptitude with which the liability had been discharged, the option of initiation of proceedings, would therefore close the option of initiating proceedings nearly for imposition of penalty - Penalties u/s 78 set aside. Appeal disposed off.

Summary

Issues Involved:
1. Confirmation of demand of ?2,30,37,688/- under section 73 of Finance Act, 1994.
2. Applicability of interest under section 75 of Finance Act, 1994.
3. Imposition of penalty under section 78 of Finance Act, 1994.
4. Erroneous reporting of foreign currency payment.
5. Payment in foreign currency to agents for port charges.
6. Reimbursement of various expenditures (sales promotion, deputation, maintenance and repair, consulting engineers, and training).

Detailed Analysis:

1. Confirmation of Demand:
The appellant, M/s Bharat Petroleum Corporation Ltd, challenged the confirmation of a demand of ?2,30,37,688/- under section 73 of the Finance Act, 1994. The initial proceedings sought recovery of ?79,28,91,610/-, but significant portions were dropped, leaving the dispute limited to specific reimbursements and payments.

2. Applicability of Interest:
Interest under section 75 of the Finance Act, 1994, was applicable on the confirmed demand. The appellant had already discharged tax liability on certain expenditures immediately upon notification.

3. Imposition of Penalty:
A penalty of an equivalent amount was imposed under section 78 of the Finance Act, 1994. The appellant argued that the imposition of penalty was unwarranted due to eligibility for CENVAT credit and the absence of the necessary ingredients for invoking section 78.

4. Erroneous Reporting of Foreign Currency Payment:
The erroneous reporting of foreign currency payment in the notes to accounts for the financial year 2008-09 led to a dropped demand of ?74,43,16,110/-.

5. Payment in Foreign Currency to Agents for Port Charges:
The appellant contested the demand related to payments made to agents outside the country for port charges. They argued that these were reimbursable expenses and should not be included in the gross amount for tax purposes, citing the Supreme Court decision in Union of India v. Intercontinental Consultants and Technocrats Pvt Ltd.

6. Reimbursement of Various Expenditures:
The dispute included reimbursements for sales promotion, deputation, maintenance and repair, consulting engineers, and training services. The appellant had already discharged the tax liability for maintenance and repair, as well as consulting engineers and training services.

Judgment Analysis:

Confirmation of Demand:
The Tribunal found that the demand related to port charges remitted to agents outside the country should be erased, as there was no evidence of retention by the agents. The Supreme Court ruling in Intercontinental Consultants and Technocrats Pvt Ltd was applicable, limiting taxability to the consideration for the service alone.

Payment in Foreign Currency:
For payments to vessel agents abroad and the remittance to M/s TVS Lanka, the Tribunal evaluated whether these constituted taxable services under section 65 (105) (zzb) of the Finance Act, 1994. It was determined that services rendered outside India, even if benefiting an entity in India, did not amount to provision of service in India.

Reimbursement of Expenditures:
The Tribunal noted that the appellant had discharged the tax liability on maintenance and repair, and consulting engineers and training services. The absence of ingredients warranting the invoking of section 78 was highlighted, and the penalties under section 78 were set aside.

Penalty:
The Tribunal referenced the decision in Jet Airways (I) Ltd v. Commissioner of Service Tax, Mumbai, which held that revenue neutrality of CENVAT credit blunted the scope for alleging ingredients for invoking the extended period of limitation and penalty under section 78. Consequently, penalties were set aside.

Conclusion:
The appeal was disposed of, with the Tribunal setting aside the penalties and erasing the demand related to port charges remitted to agents outside the country. The appellant's prompt discharge of tax liability on certain services and the absence of necessary ingredients for invoking section 78 were critical factors in the decision.