2022 (6) TMI 1042 - AT - Service Tax

Levy of service tax - applicability of Reverse Charge Mechanism - Banking and Other Financial Services - Business Auxiliary Service - Legal Consultancy Service - Supply of Tangible Goods Service - Technical Testing and Analysis Service - Cargo Handling Service - General Insurance Service - Information Technology Software Service - services are provided by the service providers who are not having fixed establishment in India under the provisions of Section 66A of the Finance Act, 1944 and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Banking and Other Financial Services - HELD THAT - The facts as narrated in the impugned order clearly indicate that it is the Indian Banks who had paid the charges to the foreign banks. It is found that the Appellant solely deal with the Indian Bank and appellant do not have any kind of interaction with foreign banks. Clearly, in this matter service if any has been received it is by the Indian Bank and not by the appellant. Hence, amount charged by foreign banks to Indian banksprima facie cannot be considered as service received by the appellant - the appellant cannot be treated as service recipient and no service tax can be charged from them under Section 66A of the Finance Act. Business Auxiliary Service - HELD THAT - A comprehensive reading of Section 66A of the Finance Act, 1994, make it clear that a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country and such establishment situated abroad as a separate person , will be understood to have been prescribed only to determine the provision of service whether in India or out of India. In the present matter we find that department has not disputed the facts that the payment to overseas consultant/ agents/ service providers was made from the overseas projects site branch/ office of the Appellant and said Foreign Service providers have charged local VAT/GST/Service tax as applicable in the respective foreign countries in invoices issued by them to foreign site /project office /Branch office of Appellant. The said facts clearly established that the services have been provided by the foreign agents to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India. Therefore, demand of service tax in the impugned matter legally not correct on this ground also. The payment of local tax abroad will be an indicator to decide whether a service is provided and consumed outside India or has been consumed/received in India - the impugned order confirming the service tax liability on the appellant cannot be sustained. Legal Consultancy Service - HELD THAT - The services in relation to advice, consultancy or assistance in any branch of law and representational services before the court and authority are taxable under this category. However without verifying the vital facts related to above services only on the basis of expenses booked under the accounting head Legal and Professional Expenses demand of service tax from the Appellant not sustainable. Moreover, Appellant also provided the reasons for which their overseas office /branch office paid the amount to services providers. For example fees for documents certification for submission to customers, local registration fees paid in Ukraine, Local municipal tax paid in Saudi Arabia, Fees for land for Brazil, paid to Saudi Chambers of Commerce for office maintenance and electricity charges, consultancy for CIS market for country Armenia etc. The said expenses cannot be concluded that the same was paid for the Legal Consultancy Service as defined in the Act. Hence the demand of service tax under wrong classification of service is not sustainable in law. Supply of Tangible Goods Services - HELD THAT - During the lease period appellant has full right to use equipment in India as per their wish and in India for their required purpose, further we also observed that department nowhere disputed the facts that Appellant operated the machineries through their own operators and lessor had no control over the use of the machinery leased to the Appellant. Thus, it is clear that under the lease rental agreement exclusive right to use along with effective control and possession of the equipment has been transferred to the Appellant during the lease period - the appellant s transactions are not covered under the entry supply of tangible goods Service . Accordingly, we set aside the demand on this service. Since the service of survey and technical consultancy is in relation to erection, commissioning and installation of transmission line, prima facie demand of service tax under the category of supply of tangible goods services is wrong. Further, the said service was provided and consumed outside India, therefore, demand of service tax is not sustainable. Technical Testing and Analysis Service - HELD THAT - It can be seen from Rule 7(1) of the Service Tax (Determination of Value) Rules, 2006, as this rule is specifically applicable for reverse mechanism under Section 66A and for the purpose of discharge of Service Tax for the service provided from outside India, the value is equal to the actual consideration charged for the services provided or to be provided. In the impugned matter it is on records that in case of fees/ remunerations paid to overseas technicians Appellant have paid the service tax. Since the alleged amount was not paid for services but paid for travelling expense, accommodation charges etc. clearly said expenses cannot be considered as value of taxable service. Hence, demand of service tax not sustainable on said expenses. Cargo Handling Service - HELD THAT - There is no dispute that Appellant manufactured the goods at their factories located in India and then taken the goods from India to overseas site location of customers and carry-on erection, commissioning and installation work. In this process they take the services of companies for handling goods at ports - there is no merit in the impugned order on the issue with regard to the demand of service tax on Cargo Handling Service. Consequently, the demand on this service is set aside. General Insurance Service - HELD THAT - In the present matter, the department has not disputed the facts that the payment to overseas insurance company was made from the overseas projects site branch/ office of the Appellant and said service was used only for the transportation of goods from overseas custom port to site of overseas customer. Moreover the overseas insurance company directly raised invoice on the foreign site office of the Appellant along with applicable taxed in respective foreign countries. The said facts clearly established that the services have been provided by the foreign Insurance Company to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India. In view of the above, it is found that the impugned order is not sustainable with reference to the above-mentioned Service Tax liability confirmed against the appellant. Information Technology Software Service - HELD THAT - Ld. Commissioner confirmed the demand of Service tax under the service category Information Technology Software Service pertains to the expenses shown in foreign currency under the head Computer Expense . The said expenses related to the maintenance of computer, replacement of part, internet charges, etc in the foreign site offices of the appellant. The services provided by the overseas service provider to the overseas site offices of the appellant cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India, consequently demand is not sustainable. Since the demand of service tax itself not sustainable in the present case on merit, the other issues such as jurisdiction, revenue neutral, limitation etc., addressed and raised by the Appellant in appeal memo/ submissions and during the course of arguments, are not dealt with. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Banking and Other Financial Services
2. Business Auxiliary Service
3. Legal Consultancy Service
4. Supply of Tangible Goods Service
5. Technical Testing and Analysis Service
6. Cargo Handling Service
7. General Insurance Service
8. Information Technology Software Service

Detailed Analysis:

Banking and Other Financial Services:
The department alleged that the appellants were required to pay service tax on bank guarantee commissions and bank charges paid to foreign banks. The tribunal found no documents showing that foreign banks charged the appellant directly. The appellant dealt solely with Indian banks, and any charges were paid by Indian banks to foreign banks. Thus, the appellant could not be treated as the service recipient. The tribunal relied on several judgments, including Dileep Industries Pvt. Ltd. and Themis Exports Pvt. Ltd., to conclude that no service tax could be charged from the appellant under Section 66A of the Finance Act.

Business Auxiliary Service:
The tribunal noted that the revenue did not specify under which sub-clause of Section 65(19) the demand was raised. Without this specification, the demand could not be sustained. The tribunal further observed that services provided by foreign agents to the appellant's overseas branches were consumed outside India, and local taxes were paid in the respective countries. Therefore, the services could not be considered as received in India. The tribunal cited judgments such as United Telecoms Ltd. and Sharma Travels to support this conclusion.

Legal Consultancy Service:
The tribunal found that payments to overseas consultants were made by the appellant's foreign branches, and the services were consumed outside India. The demand was based on expenses booked under "Legal and Professional Expenses," but this did not necessarily mean the services fell under the "Legal Consultancy Service" category as defined in the Finance Act. The tribunal concluded that the demand was not sustainable.

Supply of Tangible Goods Service:
The tribunal held that the appellant had effective control and possession of the leased machinery, which meant the transactions did not fall under the "Supply of Tangible Goods Service" category. The tribunal cited the case of Kinetic Communications Vs. Commissioner to support this conclusion. Additionally, services received by the appellant's overseas branches for technical consultancy were not taxable as they were provided and consumed outside India.

Technical Testing and Analysis Service:
The tribunal found that the demand related to reimbursement of travel and accommodation expenses for overseas technicians who witnessed testing processes. These expenses could not be considered as taxable under "Technical Testing and Analysis Service." The tribunal cited the case of Geno Pharmaceuticals Ltd. to support this conclusion.

Cargo Handling Service:
The tribunal noted that the appellant's overseas branches paid for cargo handling services, which were related to export activities. Handling of export cargo is excluded from the definition of "Cargo Handling Service" under Section 65(23) of the Finance Act. The tribunal also referred to a Board circular clarifying that services related to export cargo are not taxable.

General Insurance Service:
The tribunal found that insurance charges were paid by the appellant's overseas branches to foreign insurance companies for goods transported from overseas ports to customer sites. These services were provided and consumed outside India, and local taxes were paid. Therefore, the demand for service tax was not sustainable.

Information Technology Software Service:
The tribunal concluded that expenses related to computer maintenance, replacement parts, and internet charges at the appellant's foreign site offices could not be considered as services received in India. Therefore, the demand for service tax under "Information Technology Software Service" was not sustainable.

Conclusion:
The tribunal set aside the impugned order and allowed the appeals filed by the appellants, providing consequential relief as per law. The tribunal did not address other issues such as jurisdiction, revenue neutrality, and limitation, as the demands were not sustainable on merit.