2022 (2) TMI 832 - AT - Service Tax

Liability of service tax - RCM - contention of the appellant that service tax was payable in the present case by RIL as the service recipient of the services provided by Aker Malaysia under the reverse charge mechanism and not by treating the appellant as a service provider was rejected - applicability of reverse charge mechanism for the period prior to 01.07.2012, if the foreign service provider had established a fixed establishment in India from which the service was provided - location of the service provider - Place of Provision of Service Rules was India, since the Project Office in India was the establishment most directly concerned with the provision of service - period from February 2010 to April 2014. HELD THAT - The Principal Commissioner has held that the location of the service provider would be India in view of clause (iii) of rule 2(h)(b). According to the Principal Commissioner India was the establishment most directly concerned with the provision of the service . This conclusion is factually not correct. The contract would show that Aker Malaysia was the only establishment concerned with the provision of service and Aker India had no connection with the provision of services. The true test for determining this issue would be who, amongst the various establishments involved in the execution of a service contract, would be liable to be sued for any breach of the contract. Aker India did not even exist when the contract dated 15.09.2009 was executed between Aker Malaysia and RIL and Aker India was not even a party to the said contract. Service provider is one who is contractually obliged to render services - it may be useful to refer to the decision of the Delhi High Court in VERIZON COMMUNICATION INDIA PVT. LTD. VERSUS ASSISTANT COMMISSIONER, SERVICE TAX, DELHI III, DIVISION-XIV ANR. 2017 (9) TMI 632 - DELHI HIGH COURT , wherein it was held that the identity of the service recipient has to be decided with reference to the contract concerned. Learned counsel for the appellant has submitted that Explanation 4 to section 65B (44) of the Finance Act has to be read together with Explanation 3(b) and if so read, the conclusion would be that though a representational office in any other country is an establishment of the person whom the said office represents (by virtue of Explanation 4), such a representational office is considered as a person distinct and separate from the other establishments of the same person located elsewhere (by virtue of Explanation 3(b) - the submission deserves to be accepted as the position that would emerge would be the same as that from the erstwhile section 66A (2), which dealt with different establishments located in different countries as separate persons for the purpose of reverse charge mechanism. A complete perusal of the terms of the contract would show that setting up a support base at Kakinada was not the only or the main element of service that was required to be provided to RIL. Infact Exhibit A talks of 19 deliverables. The contract envisages services required to be provided to RIL, both at the project stage at which stage a support base was required to be set up as well as an ongoing basis when the oil and gas production was to commence. The reference to support base is to a repair yard where tools, spares, parts and testing equipments have to be kept and maintained. It is not in reference to a project office or any fixed establishment . It would not be appropriate to read the word established as establishment - the inevitable conclusion that emerges from the above discussion is that RIL, as the service recipient, was required to discharge service tax liability on a reverse charge mechanism on the services provided by Aker Malaysia to RIL. The order passed by the Principal Commissioner is, accordingly, set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability of service tax under reverse charge mechanism or forward charge mechanism.
2. Determination of the person liable to pay service tax.
3. Applicability of extended period of limitation for demand of service tax.
4. Validity of the demand for service tax already paid by the service recipient.

Issue-wise Detailed Analysis:

1. Liability of Service Tax under Reverse Charge Mechanism or Forward Charge Mechanism:

The core issue revolved around whether the service tax liability on services provided by Aker Malaysia to RIL should be discharged under the reverse charge mechanism by RIL or under the forward charge mechanism by Aker India. The appellant contended that since Aker Malaysia was incorporated in Malaysia, the reverse charge mechanism under Section 66A of the Finance Act was applicable, making RIL liable to pay the service tax. The Department, however, argued that Aker India should discharge the service tax liability under the forward charge mechanism.

The Tribunal found that Aker Malaysia, being a foreign body corporate, had its "usual place of residence" in Malaysia as per Explanation 2 to Section 66A(2) of the Finance Act. Thus, the reverse charge mechanism was applicable, and RIL, as the service recipient, was rightly discharging the service tax liability. The Tribunal rejected the Department's contention that the service provider should discharge the service tax liability under the forward charge mechanism.

2. Determination of the Person Liable to Pay Service Tax:

For the period prior to 2012, the Tribunal held that Aker Malaysia, being a foreign entity, fell under type (ii) service providers as per Section 66A(1)(a) of the Finance Act. Therefore, the reverse charge mechanism applied, and RIL was liable to pay the service tax. For the period post-2012, the Tribunal referred to Section 68 of the Finance Act and Rule 2(1)(d)(i)(G) of the Service Tax Rules, 1994, which stipulated that the recipient of the service in a taxable territory should pay the service tax. The Tribunal concluded that the 2012 Rules, which were framed to determine the taxability of services, did not alter the person liable to pay the tax. Hence, RIL remained liable to pay the service tax under the reverse charge mechanism.

3. Applicability of Extended Period of Limitation for Demand of Service Tax:

The Tribunal examined whether the extended period of limitation could be invoked. The Department alleged that Aker India had willfully suppressed the fact of establishing a place of business in India to evade payment of service tax. However, the Tribunal noted that Aker India had obtained service tax registration and started discharging service tax from 15.04.2014, indicating no intention to evade tax. The Tribunal found no justification for invoking the extended period of limitation, as the entire service tax liability had been discharged by RIL.

4. Validity of the Demand for Service Tax Already Paid by the Service Recipient:

The appellant argued that since RIL had already paid the service tax under the reverse charge mechanism, demanding the same tax again from Aker India was untenable. The Tribunal agreed, stating that if service tax is paid by one party to the transaction, it cannot be demanded again from the other party. The Tribunal emphasized that the service tax liability had been correctly discharged by RIL, and thus, the demand against Aker India could not be sustained.

Conclusion:

The Tribunal concluded that the reverse charge mechanism under Section 66A of the Finance Act was applicable for the period prior to 2012, and RIL was liable to pay the service tax. For the period post-2012, the Tribunal held that RIL remained liable to pay the service tax under the reverse charge mechanism as per Section 68 of the Finance Act and the Service Tax Rules, 1994. The Tribunal set aside the order dated 10.06.2016 passed by the Principal Commissioner, confirming the demand of service tax against Aker India, and allowed the appeal.

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