2024 (6) TMI 1330 - AT - Service Tax

Liability of subsidiary company to pay service tax - whether DCIPLP, Hyderabad is liable to pay Service Tax for the services rendered by its parent company in the USA, who had entered into a contract for providing services to DTTIPL, Gurgaon in connection with providing services to another company or otherwise? - HELD THAT - It is an admitted fact that DTTIPL was to provide certain professional services to RCITPL and thereafter, DTTIPL sub-contracted the work of impugned services to DCL, USA, which in turn engaged DCIPLP, USA for provision of impugned services. The case of the department is that since the services will be deemed to have been provided by DCIPLP, USA s representational office at Hyderabad, therefore, latter is required to discharge Service Tax on the services rendered to DTTIPL. The admitted fact, which has not been disputed by the Revenue, is that it is DTTIPL, Gurgaon which has to provide service to RCITPL and for which it has outsourced the work to DCL, USA, who further outsourced to DCIPLP, USA. The service provider to RCITPL in this context would be DTTIPL, Gurgaon which, in fact, needed certain services to provide those impugned services for which it sub-contracted to DCL, USA, who in turn outsourced to DCIPLP, USA. DCIPLP, USA has raised the bill in US dollars for the services provided to DTTIPL and the amounts were paid in US dollars by DTTIPL to DCIPLP, USA. It is also not disputed by the Revenue that DTTIPL, Gurgaon has not discharged the Service Tax liability under RCM on this import of service for rendering services to RCITPL. The Adjudicating Authority has dealt with all aspects of the case based on the facts and evidence on record and has rightly came to the conclusion that there has been no service provided by the Respondents to DTTIPL and no consideration has been received by them. The stand of the Revenue, by merely relying on the fact that both DCIPLP, USA and the Respondents are to be treated as one single entity and therefore, whatever services provided by DCIPLP, USA to DTTIPL, it has to be treated as services provided by their representational office and consideration received by them has to be treated as consideration received by Respondent, would not be correct interpretation of the deeming provisions relied upon by the Revenue. There are no infirmity in the Order of the Adjudicating Authority - appeal of Revenue dismissed.

Summary

Issues Involved:
1. Whether DCIPLP, Hyderabad is liable to pay Service Tax for services rendered by its parent company in the USA.
2. The interpretation of statutory provisions under Section 65B of the Finance Act, 1944, particularly explanations 3(b) and 4.
3. The reliance on Annual financial statements and other documentary evidence to establish Service Tax liability.
4. The distinction between the parent company and its representational office for Service Tax purposes.
5. The applicability of Service Tax on the income reflected in the financial statements of DCIPLP, Hyderabad.

Issue-wise Detailed Analysis:

1. Liability of DCIPLP, Hyderabad for Service Tax:
The Original Adjudicating Authority concluded that DCIPLP, Hyderabad is not liable to pay Service Tax as there was no evidence of any service provided by DCIPLP, Hyderabad to DTTIPL, nor any consideration received. The invoices were raised by DCIPLP, USA directly on DTTIPL, and DTTIPL paid Service Tax under the reverse charge mechanism (RCM) on services received from DCIPLP, USA. The Department's argument that services were provided by the parent company through the Indian office was not supported by corroborative evidence.

2. Interpretation of Section 65B of the Finance Act, 1944:
The judgment examined explanations 3(b) and 4 of Section 65B(44) of the Finance Act, 1944. Explanation 3(b) treats establishments in taxable and non-taxable territories as distinct persons, while explanation 4 treats a business carried out through a representational office as having an establishment in that territory. The Tribunal held that merely being treated as an establishment does not subject DCIPLP, Hyderabad to Service Tax in the absence of any activity carried out for consideration.

3. Reliance on Annual Financial Statements:
The Adjudicating Authority noted that the financial statements reflecting income from DTTIPL and the discharge of income tax and provident fund dues were not sufficient to establish Service Tax liability. The Department's reliance on these statements without corroborative evidence was deemed inadequate. The judgment referenced the case of Lea International Ltd vs CST, Delhi, which held that accounting practices for compliance with Income Tax laws do not automatically imply Service Tax liability.

4. Distinction Between Parent Company and Representational Office:
The Tribunal upheld the Adjudicating Authority's conclusion that DCIPLP, Hyderabad, as a representational office, was not engaged in providing any business activity that could be termed as a provision of service. The Department's argument to treat the parent company and the representational office as one entity for Service Tax purposes was rejected, as it contradicted the distinct person treatment under explanation 3(b).

5. Applicability of Service Tax on Income Reflected in Financial Statements:
The Tribunal agreed with the Adjudicating Authority that the income reflected in the financial statements of DCIPLP, Hyderabad, did not constitute consideration for any service provided. The mere reflection of income for compliance with statutory provisions did not establish a Service Tax liability. The case law of Samsung India Electronics Pvt Ltd vs CE & CGST, Noida was cited, emphasizing that Service Tax liability cannot be imposed on the same transaction twice.

Conclusion:
The Tribunal found no infirmity in the Order of the Adjudicating Authority, which dropped the demand for Service Tax against DCIPLP, Hyderabad. The appeal filed by the Revenue was dismissed, and the cross-objections filed by the Respondent were disposed of accordingly. The judgment underscored the necessity of clear evidence of service provision and consideration received to establish Service Tax liability.