2020 (8) TMI 181 - HC - Service Tax

Validity of SCN - Export of services or not - Services provided outside India - Parent Company / 100% holding company - Distinct Person or not - POPOS Rules - services rendered by the Petitioner No.1 to Linde AG, Germany - extended period of limitation. HELD THAT - Rule 6A of the Rules, 1994 provides that services rendered would be treated as Export of services when clause (a) to clause (d) refers to provider of service is located in the taxable territory and recipient of service is located outside India and the service is not a service specified in Section 66D of the Act and the place of the provision of the service is outside India and as per clause (e) the payment for such service has been received by the provider of service in convertible Foreign Exchange. It emerges that the petitioner is fulfilling all the conditions, however, so far as the clause (f) of Rule 6A of Rules, 1994 is concerned, it provides that the provider of service and recipient of service are not merely establishments of a distinct person in accordance with Item (b) of explanation 3 of clause (44) of Section 65B of the Act. It appears that the respondents have assumed the jurisdiction on mere misinterpretation of the provisions of explanation 3 (b) to Section 65B(44) of the Act,1994 read with Rule 6A of the Rules, 1994 as by no stress of imagination, it can be said that the rendering of services by the petitioner No.1 to its parent Company located outside India was service rendered to its other establishment so as to deem it as a distinct person as per Item (b), explanation 3 of clause (44) of Section 65B of the Act, 1994, the petitioner No.1 which is an establishment in India, which is a taxable territory and its 100% holding Company, which is the other company in non taxable territory cannot be considered as establishments so as to treat as distinct persons for the purpose of rendering service. Therefore, the services rendered by the petitioner No.1-Company outside the territory of India to its parent Company would have to be considered export of service as per Rule 6A of the Rules, 1994 and Clause (f) of Rule 6A of the Rules, 1994 would not be applicable in the facts of the case as the petitioner No.1, who is the provider of service and its parent Company, who is the recipient of services cannot be said to be merely establishment so as to be distinct persons in accordance with Item (b) explanation 3 of Clause (44) of Section 65B of the Act, 1994. Thus, the respondents would not have any jurisdiction to invoke the provisions of the Act, 1994 read with Rules, 1994 to bring the services rendered by the petitioner No.1 to its parent Company within the purview of levy of service tax under the provisions of the Act, 1994. Extended period of limitation - HELD THAT - The impugned show cause notice is also not tenable in law as the same is issued invoking Section 73 of the Act,1994 for extending the period for the issuing the Notice on the ground of alleged willful mis-statement or suppression of the facts on the part of the petitioner No.1. The petitioners cannot be said to have made any willful mis-statement or suppressed any fact as the petitioners cannot be made liable for levy of service tax by wrongly treating the petitioners and its parent Company as establishment of the same Company. The impugned show cause notice issued by the respondent No.1 is without jurisdiction and as such the petition is maintainable under Article 226 of the Constitution of India - Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Jurisdiction of the respondent to issue the show cause notice.
2. Classification of the services provided by the petitioner as "Export of Services" or "Exempted Services".
3. Interpretation of Rule 6A of the Service Tax Rules, 1994, and Section 65B(44) of the Finance Act, 1994.
4. Applicability of extended period of limitation under Section 73 of the Finance Act, 1994.
5. Maintainability of the writ petition under Article 226 of the Constitution of India.

Detailed Analysis:

1. Jurisdiction of the Respondent to Issue the Show Cause Notice:
The petitioners contended that the respondent's action in issuing the show cause notice was without jurisdiction and contrary to Rule 6A of the Service Tax Rules, 1994, read with Section 65B(44) of the Finance Act, 1994. The petitioners argued that the respondent's interpretation was incorrect and that the services rendered to their parent company, Linde AG, Germany, should be classified as "Export of Services" and not subject to service tax. The court agreed with the petitioners, stating that the respondent's assumption of jurisdiction was based on a misinterpretation of the provisions. The court held that the services rendered by the petitioner No.1 to its parent company outside India should be considered as "Export of Services" under Rule 6A of the Rules, 1994, and therefore, the respondent did not have jurisdiction to issue the show cause notice.

2. Classification of Services as "Export of Services" or "Exempted Services":
The petitioners argued that the services provided to their parent company, Linde AG, Germany, qualified as "Export of Services" under Rule 6A of the Service Tax Rules, 1994, and were not subject to service tax. The court analyzed the conditions under Rule 6A and found that the petitioners met all the conditions for their services to be classified as "Export of Services." The court rejected the respondent's interpretation that the petitioners and their parent company should be treated as establishments of the same company, thereby making the services "Exempted Services." The court held that the petitioner No.1 and its parent company were distinct legal entities and therefore, the services rendered should be classified as "Export of Services."

3. Interpretation of Rule 6A of the Service Tax Rules, 1994, and Section 65B(44) of the Finance Act, 1994:
The court examined the provisions of Rule 6A of the Service Tax Rules, 1994, and Section 65B(44) of the Finance Act, 1994, to determine whether the services provided by the petitioners qualified as "Export of Services." The court noted that the petitioners met all the conditions under Rule 6A, including that the provider of service was located in the taxable territory, the recipient of service was located outside India, the service was not specified in Section 66D of the Act, the place of provision of service was outside India, and the payment was received in convertible foreign exchange. The court concluded that the petitioners' services should be classified as "Export of Services" and not subject to service tax.

4. Applicability of Extended Period of Limitation under Section 73 of the Finance Act, 1994:
The petitioners argued that the show cause notice was issued beyond the stipulated period of 18 months from the relevant date and that the extended period of limitation under Section 73 of the Finance Act, 1994, should not apply. The court agreed with the petitioners, stating that there was no evidence of willful misrepresentation or suppression of facts by the petitioners. The court held that the extended period of limitation could not be invoked, and therefore, the show cause notice was issued without jurisdiction.

5. Maintainability of the Writ Petition under Article 226 of the Constitution of India:
The respondents contended that the writ petition was not maintainable under Article 226 of the Constitution of India, as it challenged the issuance of a show cause notice, which was yet to be adjudicated. The court, however, held that the writ petition was maintainable as the impugned show cause notice was issued without jurisdiction. The court cited the Supreme Court's decision in Whirlpool Corpn. v. Registrar of Trade Marks, which held that a writ petition could be entertained in cases where the order or proceedings were wholly without jurisdiction. The court concluded that the writ petition was maintainable and allowed the petition, quashing the impugned show cause notice.

Conclusion:
The court allowed the petition, quashing the show cause notice dated 10.11.2017, holding that the services rendered by the petitioners to their parent company outside India qualified as "Export of Services" and were not subject to service tax. The court also held that the extended period of limitation under Section 73 of the Finance Act, 1994, was not applicable and that the writ petition was maintainable under Article 226 of the Constitution of India.