2024 (10) TMI 895 - AT - Central Excise

Liability of appellant to pay service tax under reverse charge mechanism in terms of Section 66A of FA - intellectual property service received from M/s. Monogram Licensing International Inc.USA when the service provider located in abroad having office in India - HELD THAT - There is no dispute in the fact that the service provider M/s. Monogram Licensing International Inc. though located in UAS but at the same time they have their establishment office at Bangalore, in this position, it is necessary to record to Section 66A and Rule 2(1) D4 under which the assessee is require to pay service tax under reverse charge mechanism. The service recipient is liable to pay service tax only in a case where the service provider located outside India does not have any establishment in India. In the present case admittedly the service provider M/s Monogram Licensing International Inc. has office at Bangalore and the agreement itself has been executed in Bangalore by the signature of Chief Financial Officer of M/s. Monogram Licensing International Inc. Bangalore. In this fact in terms of Section 66 A, the appellant is not liable to pay service tax under reverse charge mechanism. Without prejudice, it is also found that the appellant s claim that there is revenue neutrality as if at all the service tax is paid, the same is available as Cenvat credit. Therefore, no malafide intention can be attributed to the appellant. The demand is not sustainable for the extended period - the impugned order is set aside - appeal is allowed.

Summary

Issues:
Whether the appellant is liable to pay service tax under reverse charge mechanism for intellectual property service received from a foreign service provider with an office in India.

Analysis:
The appellant argued that even though the agreement was with a foreign service provider, it was signed by the Chief Financial Officer located in Bangalore, India. Citing Section 66A, the appellant contended they are not liable to pay service tax under reverse charge mechanism. Additionally, the appellant claimed revenue neutrality as they would be eligible for Cenvat credit if service tax was payable on intellectual property rights (IPR). The appellant also challenged the demand raised for the extended period, asserting no suppression of facts or malafide intent. The appellant relied on various judgments to support their arguments.

Analysis (contd.):
The Revenue reiterated the findings of the impugned order, emphasizing the liability of the appellant to pay service tax under reverse charge mechanism for services received from a foreign provider with an office in India. However, the Tribunal analyzed the provisions of Section 66A and noted that the service recipient is only liable to pay service tax if the service provider located outside India does not have any establishment in India. Since the service provider in this case had an office in Bangalore and the agreement was executed there, the Tribunal held that the appellant was not liable to pay service tax under reverse charge mechanism.

Analysis (contd.):
The Tribunal further supported its decision by acknowledging the appellant's claim of revenue neutrality and the availability of Cenvat credit if service tax was paid. The Tribunal concluded that no malafide intention could be attributed to the appellant, rendering the demand unsustainable for the extended period. The Tribunal referenced a judgment that upheld the principle that in cases of revenue neutrality, malafide intention cannot be established. Consequently, the Tribunal set aside the impugned order, ruling in favor of the appellant and allowing the appeal.