2022 (6) TMI 306 - AT - Service Tax

Levy of service tax - export of services or not - Distinct Person - IT Service provided by the appellant to their associate company M/s Celtic Cross Holding Inc. USA - appellant could not prove that they have received the export proceeds in convertible foreign exchange - appellant and the service recipient are establishment of a distinct person or not - Rule 6A(1) of Service Tax Rules, 1994 - HELD THAT - From the facts on the records, it is not disputed that the appellant company is working under the banner of M/s Celtic System Pvt. Ltd. registered with the registrar of companies in India. Whereas, the Service recipient is working under the banner of M/s Celtic Cross Holding Inc. USA. Both the companies are separately registered in their respective countries. Even the directors of the company though two directors are common but others are different. Even if there is a note in the balance sheet of the appellant company that they are associate of M/s Celtic Cross Holding Inc. USA but in the eyes of law as per the companies act both companies are independent entity. Therefore, Clause (f) of Rules 6A (1) of Service Tax Rules, 1994 stand complied with. This issue has been considered of Hon ble Gujarat High in the case of LINDE ENGINEERING INDIA PVT. LTD. VERSUS UNION OF INDIA 2020 (8) TMI 181 - GUJARAT HIGH COURT wherein the Hon ble Gujarat High court even in case where the Indian Company was 100% subsidiary of the foreign company namely Linde AG Germany has held that both are different entity. In the present case the appellant are on better footing as they have constitutionally two different entity one is the appellant and other is M/s Celtic Cross Holding Inc. USA. Therefore, following the judgment of Gujarat High Court, it is clear that in the present case the appellant and the service recipient are two distinct person, hence, the service provided by the appellant to M/s. Celtic Cross Holding Inc. USA clearly falls under export of service. The demand confirmed by the adjudicating authority and upheld by the Commissioner (Appeals) is not correct and legal - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
Determining whether the IT service provided by the appellant to their associate company amounts to export of service under Rule 6A(1) of Service Tax Rules, 1994.

Analysis:
The Adjudicating Authority initially demanded Service Tax, claiming that the service provided did not constitute export as the appellant failed to prove receiving export proceeds in convertible foreign exchange and because the appellant and service recipient were not considered distinct persons. The Commissioner (Appeals) upheld the demand based on the latter reason, leading to the appellant's appeal.

The appellant argued that both companies were separate entities, each independently registered in their respective countries, with different shareholders and only some common directors. They emphasized that a note in the balance sheet did not alter the legal status of independence. Citing a relevant court judgment, the appellant contended that the entities being distinct persons fulfilled the conditions for export of service under Rule 6A(1).

The Revenue, represented by the Superintendent (AR), supported the findings of the impugned order, maintaining that the service did not qualify as an export.

The Tribunal examined the submissions and records, acknowledging the separate registrations and structures of the appellant and the service recipient. Despite a note indicating an associate relationship, the Tribunal deemed both entities independent under the law, satisfying the conditions of Rule 6A(1). Referring to a judgment by the Hon'ble Gujarat High Court, the Tribunal concluded that the entities were distinct persons, thus classifying the service as an export.

Ultimately, the Tribunal found the demand erroneous and illegal, overturning the impugned order and allowing the appeal in favor of the appellant.

This judgment clarifies the criteria for determining export of service under Rule 6A(1) and emphasizes the importance of distinct legal entities in such transactions. The decision underscores the significance of legal status and independence of entities involved in service transactions for tax implications.