2022 (8) TMI 1200 - AT - Service Tax

Levy of service tax - Business Auxiliary Service - applicability of reverse charge mechanism - appellant received onsite services from TTL Korea - Service provided from outside India and received in India (Import of Service) or not - HELD THAT - Undisputedly, TTL Korea had entered into agreement with TDCV Korea for provision of certain services. TTL Korea entered into agreement with the appellants for provision of offsite services. Appellants executed the offsite portion, as was sub contracted to them. For the services rendered by them to TTL Korea, Appellant raised the invoice and also raised debit note on TTL Korea for reimbursable expenses incurred by them for providing these services. TTL Korea for the services provided to TDCV Korea raised the invoices for both off-shore and onsite services. TTL, Korea discharged liability under Korean VAT on both the offshore as well as on-site services. There is not even whisper of any invoice being issued by TTL Korea on the appellant for any services provided by the Appellant to them. Even if it is held that the contractual agreement for the provision of service was between appellant and TDCV Korea, then also the service is provided by the appellant to their client in Korea and no service is provided to any one in India. The appellants have for the provision of the said service has not raised any invoice on their branch office located in Korea. Nor the branch office has raised any invoice on the appellant in respect of any services provided by them to TDCV as per the agreement - Nothing has been brought on record in the impugned order to show that TTL Korea was raising the invoices or receiving payments from appellant in any manner for provision of the onsite services to TDCV. There are no merits in the findings recorded by the Commissioner in para 19.3, highlighting the reasons for payment of service tax, after acknowledging that the services were provided by the TTL, Korea to TDCV, Korea. Commissioner also do not dispute that the entire payment for the services provided by TTL Korea was received by them directly from TDCV, Korea. Having acknowledged so Commissioner could not have come to the finding that these amounts were payment made by the appellant to TTL, Korea, for application of Rule 66 of the Finance Act, 1994. Since the demand cannot be sustained, there cannot be any demand for interest or case for imposition of penalties on the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability of the appellant to pay service tax under reverse charge mechanism.
2. Classification of services provided by TTL Korea.
3. Permanent establishment status of TTL's head office in India.
4. Scope of service tax demand restricted to onsite services.
5. Applicability of revenue-neutrality and extended period for service tax demand.
6. Willful suppression of material facts for invoking extended period.
7. Liability for interest on service tax demanded.
8. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability of the Appellant to Pay Service Tax Under Reverse Charge Mechanism:
The Tribunal examined whether TTL Korea provided services to the appellant and if the appellant was liable to pay service tax under Section 66A of the Finance Act, 1994. The Commissioner held that TTL Korea, being a separate legal entity, provided Business Auxiliary Services to the appellant. The Tribunal, however, found that TTL Korea provided services directly to TDCV Korea and received payments from them, not from the appellant. Therefore, the Tribunal concluded that the appellant was not liable to pay service tax under the reverse charge mechanism.

2. Classification of Services Provided by TTL Korea:
The Commissioner classified the services provided by TTL Korea as Business Auxiliary Services. The appellant contended that the services were Information Technology Software Services (ITSS), not taxable before 16.05.2008. The Tribunal noted that the services provided by TTL Korea to TDCV Korea were not rendered on behalf of the appellant but directly to TDCV Korea. Hence, the classification as Business Auxiliary Services was not applicable.

3. Permanent Establishment Status of TTL's Head Office in India:
The Commissioner regarded TTL's head office in India as a permanent establishment, making it liable for service tax under Section 66A(2). The Tribunal disagreed, stating that the services were provided by TTL Korea to TDCV Korea, and no services were provided to the appellant in India. Therefore, the permanent establishment argument was not relevant.

4. Scope of Service Tax Demand Restricted to Onsite Services:
The appellant argued that the demand should be restricted to onsite services provided by TTL Korea. The Tribunal found that the entire service was provided by TTL Korea to TDCV Korea, and no part of the service was provided to the appellant. Thus, the demand could not be restricted to onsite services.

5. Applicability of Revenue-neutrality and Extended Period for Service Tax Demand:
The Tribunal considered the argument of revenue-neutrality and the extended period for service tax demand. It found that the services were provided and consumed outside India, and the local VAT/GST was paid in Korea. Therefore, the extended period for service tax demand was not applicable.

6. Willful Suppression of Material Facts for Invoking Extended Period:
The Commissioner alleged willful suppression of material facts by the appellant. The Tribunal found no evidence of suppression, as the services were provided by TTL Korea to TDCV Korea, and all transactions were transparent. Therefore, the extended period could not be invoked.

7. Liability for Interest on Service Tax Demanded:
Since the Tribunal found that the appellant was not liable to pay service tax, there was no basis for demanding interest under Section 75 of the Finance Act, 1994.

8. Imposition of Penalties Under Sections 76, 77, and 78 of the Finance Act, 1994:
The Commissioner imposed penalties under Sections 76, 77, and 78. The Tribunal set aside the penalties, as the service tax demand itself was found to be unsustainable.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order and concluding that the appellant was not liable to pay service tax under the reverse charge mechanism for services provided by TTL Korea to TDCV Korea. Consequently, there was no basis for interest or penalties.