2022 (1) TMI 316 - AT - Service Tax

Levy of service tax - Consulting Engineers Services - reimbursement of expenses - export of service or not - HELD THAT - The amounts incurred by the head office towards the salaries etc. of the employees working in their branches can by no stretch of imagination be equated to any service rendered to them by the respective branches. In the case of M/S. KUSUM HEALTHCARE PVT. LTD. VERSUS C.C.E., ALWAR 2018 (7) TMI 919 - CESTAT NEW DELHI , it was held that the legal fiction created in proviso to Section 66A for consideration of branch as a separate establishment is certainly not for the purposes of demanding service tax on the services alleged to have been rendered by the branch to the head office. In fact, going through the records of the case, it is found that the payments made by the appellants are none other than the recurring expenses like salary, travelling allowance, rent, telephone charge etc. It has not been brought on record if any other payments for any other service alleged to have been rendered were made. The demand on account of reimbursement of expenses to their employees working in the overseas branches does not constitute any remuneration in lieu of a service received by the appellants - the demand on account of services alleged to have been rendered by the overseas branches to the appellant is set aside. Other demand of about ₹ 78 lakh and ₹ 7 lakh - appellant submits that the demand and duty has been paid before the issue of SCN and as such no penalty can be imposed - HELD THAT - In order to verify the competing claims of the appellant and the Revenue, the matter needs to go back to the original authority for verifying the records and arrive at the actual duty and interest payable. Further, it is found that no penalties can be imposed at this count. The appeal is partly allowed by way of remand

Summary

Issues Involved:
1. Tax liability on payments made to overseas branches for services rendered.
2. Confirmation of demand for "Professional Consultancy Services" and commission paid to foreign service providers.
3. Imposition of penalties for payments made before the issuance of the Show Cause Notice (SCN).

Detailed Analysis:

1. Tax Liability on Payments to Overseas Branches:
The appellants argued that the expenses incurred for salaries, rents, and other operational costs of their overseas branches do not constitute payments for services rendered to the head office. They referenced several precedents, including Kusum Healthcare Pvt. Ltd. Vs CCE, Jaipur-I, and Torrent Pharmaceuticals Ltd. Vs CST, Ahmedabad, which established that branches are not separate entities for the purpose of service tax when providing services to their head office. The Tribunal agreed, stating that the legal fiction in proviso to Section 66A does not intend to tax services rendered by a branch to its head office. The Tribunal found that the payments made were for recurring expenses and not for any identified service. Therefore, the demand for service tax on these payments was set aside.

2. Confirmation of Demand for "Professional Consultancy Services" and Commission:
The appellants contended that they had already paid ?84,66,523/- for "Professional Consultancy Services" and commission to foreign service providers before the issuance of the SCN. They also disputed an additional demand of ?7,81,428/-, claiming they had paid ?6,48,290/- according to their calculations. The Tribunal noted that the Revenue did not provide clear evidence of the appellants' liability for the remaining amounts and interest. Consequently, the Tribunal remanded this issue back to the original authority to verify the actual duty and interest payable.

3. Imposition of Penalties:
The appellants argued that no penalties should be imposed since the payments were made before the issuance of the SCN. The Tribunal concurred, stating that penalties are not applicable in this context. The Tribunal directed the original authority to verify the records and determine the correct duty and interest payable, without imposing penalties.

Conclusion:
The Tribunal concluded that the payments made by the head office to its overseas branches were not for services rendered and thus not subject to service tax. The demand for service tax on these payments was set aside. The issue of additional demands and interest was remanded to the original authority for verification, and no penalties were imposed due to pre-SCN payments. The appeal was partly allowed by way of remand.