2024 (6) TMI 189 - AT - Service Tax

Demand of service tax - services received by these permanent establishments of the appellant abroad - reverse charge mechansim - disallowance of CENVAT Credit - appellant produced photo copies of the invoices before the adjudicating authority at the time of personal hearing - penalty imposition u/s 77 of Finance Act, 1994, and Rule 7(c) of Service Tax Rules, 1944. Demand of service tax - services received by these permanent establishments of the appellant abroad - reverse charge mechansim - HELD THAT - The appellant has been working through a network of branch offices located abroad. These branch offices are permanent establishments and not mere representative offices. They provide services to their clients in their own rights, raise invoices, incur expenditure, avail bank facilities, have its own technical and human resources and operate as independent units. They do not claim any reimbursement of expenditure from the Corporate Office. Section 66A(2) of the Finance Act, 1994 reproduced above clearly lays down that permanent establishments in different countries shall be treated as separate persons. Therefore, the services received by these permanent establishments of the appellant abroad cannot be considered as services received by the appellant in India, on reverse charge basis. Thus, the demand of service tax from the appellant is not sustainable and accordingly, we set aside the demand confirmed in the impugned order on this count. Disallowance of CENVAT Credit - appellant produced photo copies of the invoices before the adjudicating authority at the time of personal hearing - HELD THAT - The appellant produced photo copies of the invoices before the adjudicating authority at the time of personal hearing. However, the adjudicating authority rejected those invoices on the ground that they were not authenticated and the invoices were not legible. The appellant now submits that they have the original copies of all the invoices and they can submit the same before the concerned authorities for verification. For the purpose of verification, the matter needs to be remanded back to the adjudicating authority. Interest - Penalty imposition u/s 77 of Finance Act, 1994, and Rule 7(c) of Service Tax Rules, 1944 - HELD THAT - Since the demand itself is not sustainable, the question of demanding interest and imposing penalty does not arise. As the demand is not sustainable, no penalty imposable under Section 77 of the Finance Act, 1994 and Rule 7(c) of the Service Tax Rules, 1944. Appeal disposed off.

Summary

Issues:
1. Confirmation of service tax demand and penalty by the Commissioner of Service Tax-II, Kolkata.
2. Disallowance of Cenvat credit and imposition of penalty.

Analysis:

Issue 1: Confirmation of service tax demand and penalty
The appeal was filed against the Order-in-Original confirming a service tax demand of Rs.94,20,145/- along with interest and penalty by the Commissioner of Service Tax-II, Kolkata. The appellant, engaged in software development, had branch offices abroad treated as permanent establishments. The department alleged liability for service tax on services received from non-resident banks. The appellant contended that branch offices abroad should be treated as separate entities under Section 66A(2) of the Finance Act, 1994. The Tribunal held that the services received by foreign permanent establishments cannot be considered as services received in India, thus setting aside the demand, interest, and penalty. The Tribunal also ruled out the imposition of penalties under relevant sections.

Issue 2: Disallowance of Cenvat credit
The appellant was alleged to have availed Cenvat credit without valid documents. The appellant submitted photocopies of invoices during the hearing, which were rejected for being unauthenticated and illegible. The Tribunal noted that the appellant now possessed original copies of the invoices for verification. The matter was remanded back to the adjudicating authority for verification of documents and passing a speaking order on credit eligibility. The demand for disallowed Cenvat credit, along with interest and penalty, was set aside pending verification. The Tribunal directed the adjudicating authority to reexamine the documents and provide an opportunity to the appellant to present their case within three months.

In conclusion, the Tribunal set aside the service tax demand, interest, and penalties while remanding the matter of disallowed Cenvat credit for further verification and adjudication. The appeal was disposed of accordingly.