2023 (6) TMI 468 - AT - Service Tax

Levy of Service tax - Reverse charge mechanism - services received by three foreign companies which are being merged with the appellant company - HELD THAT - Section 66A was inserted through an amendment to the Service Tax legislation i.e., Finance Act, 1994 brought through the Finance Act, 2006 w.e.f. 18.04.2006. However, consequent to the introduction of Negative List in service tax legislation, the said legal provision under section 66A was withdrawn through amendment in Finance Act, 2012 brought w.e.f. 01.07.2012. Thus during the disputed period the said legal provision of section 66A was having force of law. On harmonious reading of the sub-section (1) and sub-section (2) of section 66A, it is found that the legal provision has been carved out to enable for application of the Chapter V Service Tax provisions for the purpose of charging service tax on taxable services received from outside India in certain circumstances described therein with few exceptions as provided therein under the first proviso to subsection (1) and under sub-section (2) to Section 66A. Accordingly, it is found that when a taxable service is provided by a service provider having a fixed establishment or permanent address or usual place of residence in a foreign country and such service is being received by a person having place of his business or fixed establishment or permanent address or usual place of residence, in India, then by treating that the service recipient had himself providing such service, the applicable service tax is payable - in sub-section (2) to Section 66A another exception has been made for the situation that where a service recipient is having a permanent establishment in India and is also carrying on business in a foreign country through another permanent establishment in that country, then these two business entities shall be treated as separate persons for the purpose of Section 66A. Accordingly any foreign branch or foreign agency or overseas permanent establishment of the service recipient in India is also excluded from the charge of service tax under the provisions of Section 66A. Applying these legal provisions to the present case, it is evident that the three foreign companies/overseas business entities having their establishments out of India viz., Star Asia Region FZ LLC, incorporated in Dubai; Star Asian Movies Limited and Star Television Entertainment Ltd., incorporated in British Virgin Islands, even after their merger with the appellant company in India till their closure of their business abroad, could be treated as a branch or agency of the appellant and for service tax purposes they are separate persons from the appellant. Thus it is found that the payments effected for the services received from another service provider abroad by the three foreign companies/overseas business entities which are proposed to merged with the appellant, is not amenable to charging service tax under section 66A of the Finance Act, 1994. Accordingly, the order of the Commissioner of CGST Central Excise, Mumbai Central, Mumbai confirming the adjudged demands is not legally sustainable. In view of the detailed findings rendered in the order of the Coordinate Bench in STAR INDIA PVT LIMITED VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI II 2022 (9) TMI 167 - CESTAT MUMBAI , it is found that the impugned order of the Commissioner holding that the services have been received by the appellant in as much as the three foreign companies have merged into the appellant with effect from 01.04.2009, and that the services being listed in Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, thus such services are taxable when received by a recipient located in India for use in business or commerce, is not legally sustainable. The impugned order of Commissioner of CGST Central Excise, Mumbai Central, Mumbai confirming the adjudged demands are liable to be set aside as being not sustainable in law and therefore the appeals filed by the appellants deserve to be allowed. The impugned order passed by the Commissioner of CGST Central Excise, Mumbai Central, Mumbai Zone is set aside - appeal allowed.

Summary

Issues Involved:
1. Liability for payment of service tax under Section 66A of the Finance Act, 1994.
2. Application of the extended period for demand.
3. Legal sustainability of the demand under the category of 'business support services'.
4. Previous Tribunal decisions and their applicability.

Summary:

1. Liability for Payment of Service Tax:
The core issue is whether the appellant, M/s Star India Private Limited, is liable for service tax under Section 66A of the Finance Act, 1994, for services received by three foreign companies merged with the appellant. The Tribunal noted that Section 66A was in force during the disputed period and provided the legal framework for taxing services received from outside India. The Tribunal held that the three foreign companies, even after merging with the appellant, were treated as separate entities for service tax purposes. Therefore, payments for services received by these foreign companies from another foreign service provider are not subject to service tax under Section 66A.

2. Application of the Extended Period for Demand:
The appellant argued against the extended period for demand, citing that they had informed the Department about the merger and disclosed payment details in their annual reports. The Tribunal did not find the demand invoking the extended period sustainable as the appellant had complied with disclosure requirements.

3. Legal Sustainability of the Demand:
The Tribunal found that the demand raised under the category of 'business support services' was not legally sustainable. The Tribunal referred to a clarification by the TRU, Ministry of Finance, which limited the scope of 'business support services'. The Tribunal also noted that the services received by the foreign companies, which operated as branches of the appellant, could not be considered as services received in India by the appellant.

4. Previous Tribunal Decisions:
The Tribunal referenced its own earlier decision in the case of the appellant (Star India Private Limited Vs. Commissioner of Service Tax, Mumbai-II) and other relevant cases like ITC Hotels Ltd. and British Airways. These decisions supported the view that services provided to oneself (post-merger) are not taxable and that foreign branches should be treated as separate entities for service tax purposes.

Conclusion:
The Tribunal concluded that the impugned order confirming the service tax demands was not legally sustainable. The appeals filed by the appellants were allowed, and the impugned order was set aside with consequential relief. The order was pronounced in court on 08.06.2023.