2025 (1) TMI 1037 - AT - Service Tax

Levy of service tax - business support services - expenses incurred by the head office of the appellants SCB-UK which is allocated to the Indian branches are for providing business support service to the appellants - Extended period of limitation. HELD THAT - It can be seen from the factual matrix of the case that the appellants have been allocated with certain costs towards the general administrative expenses incurred by their head office (SCB-UK) situated at London in United Kingdom - There is no service provider identified by the department in the present case so as to bring the appellants liable for payment of such services if any availed by them through their head office; and to treat the said expenses which are allocated on certain criteria like gross revenue employee headcount profits of each branch or other suitable parameters as gross amount charged towards consideration payable for the services received by the appellants. Period prior to 01.05.2011 - HELD THAT - The Government had clearly stated that the scope of taxable services under Section 65(105)(zzzq) ibid is being expanded and the scope of services to be covered w.e.f. 01.05.2011 are explained as those services which are in the nature of support activities for the ongoing business support functions. As these services are distinct from operational assistance for marketing which was covered earlier under the scope of taxable services for the limited purpose of understanding and for coming to a conclusion about the date of effect of bringing into tax net the scope of comprehensive services of operational or administrative assistance we come to the conclusion that such expansion of services were brought under the tax net only with effect from 01.05.2011 and not earlier - the appeal filed by Revenue for charge of service tax on the disputed activity prior to 01.05.2011 do not have the support of law and therefore such appeal is liable to be dismissed. Period post 01.07.2022 - HELD THAT - Post 01.07.2022 services were interpreted to refer any activity carried out by a person for another for consideration including certain services which is a declared service provided these services are not covered by certain exclusion provided therein under Section 65B(44) ibid. Hence it is clear that the nature of services provided to the appellants should fall in the scope of support services of business or commerce prior to 01.07.2012 in order to specifically cover under the taxable category in terms of Section 65(105) (zzzq) ibid; and after 01.07.2012 generally under the scope of service to prove that these do not fall outside the scope of taxability of services under Section 66B ibid read with definition clause under Section 65B(44) ibid. In the present factual matrix of the case the appellants by themselves or the Head office through the appellants have not provided any of the disputed service to their account holders in India. As the appellants have only been shared with the expenses relating head office executive and general administrative expenses apportioned by their headquarters there is no element of any service involved therein. It is an undisputed fact that the appellants have not entered into any agreement or contract with respect to the said expenses or for receipt of any services - The appellants had only claimed the deduction of head office expenses under the provisions of the Income-tax Act 1961 while filing its income tax return. Further in this regard Section 44C of the Income-tax Act 1961 provides for the permissible limit upto which a deduction can be claimed in respect of the Head-Office expenditure by its branch in India while computing taxable income for the purposes of computation of income tax - such treatment for the purpose of income tax purposes per se does not tantamount to the same being treated as gross amount received for provision of services between head office situated abroad and branch office in India in the absence of any element of service involved therein. It is found that the dispute in respect of similar issue relating to status of overseas office vis- -vis branches/head office and the limitation thereof the jurisdiction to classify the services under Section 65(105) of Finance Act 1994 the receipt of business auxiliary service by the assesseeappellant from its branches and the inclusion of reimbursable expenses for computation of gross receipts under Section 67 of Finance Act have been dealt in detail by this Tribunal in the case of M/S TECH MAHINDRA LTD. MILIND KULKARNI VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE - I 2016 (9) TMI 191 - CESTAT MUMBAI . In the aforesaid case the Tribunal has held that transfer of funds is nothing but reimbursements and taxing of such reimbursement would amount to taxing of transfer of funds which is not contemplated by Finance Act 1994 and therefore set aside the demand of tax as having been made without authority of law. This Tribunal in the case of M/S. STEEL AUTHORITY OF INDIA LIMITED VERSUS COMMISSIONER OF SERVICE TAX NEW DELHI 2020 (4) TMI 346 - CESTAT NEW DELHI had held that charging section is Section 66 of the Finance Act 1994 and not Section 66A ibid. The provision of Section 66A is only to determine whether the provision of service is in India or out of India. Therefore it was held unless that charge of service tax is proved under Section 66 ibid there cannot be levy of service tax only on the basis of Section 66A ibid. The Tribunal in the case of HALDIRAM MARKETING PVT. LTD. VERSUS COMMISSIONER CENTRAL GOODS AND SERVICE TAX GST DELHI EAST COMMISSIONERATE NEW DELHI 2023 (2) TMI 783 - CESTAT NEW DELHI have held that sharing of expenditure by associated enterprises cannot be held to be treated as service rendered by one to another. Conclusion - The allocation of head office executive and general administrative expenses by the head office of the appellants situated in London UK in the present set of facts cannot be subjected to levy of service tax under the Finance Act 1994. It would therefore not be necessary to examine the contentions of the appellants that the extended period of limitation could not have been invoked in the present case. Appeal dismissed.

Summary

The judgment rendered by the Appellate Tribunal CESTAT Mumbai addresses the appeals filed by a banking company regarding service tax demands raised by the Department. The core issues revolve around the allocation of head office executive and general administrative expenses by the bank's head office in the UK to its Indian branch and whether these allocations are subject to service tax under the Finance Act, 1994. The judgment delves into the legal framework, interpretation of relevant provisions, and the Tribunal's conclusions on the issues presented.

1. ISSUES PRESENTED and CONSIDERED

• Whether the allocation of head office executive and general administrative expenses by the UK head office to the Indian branch constitutes a taxable service under Sections 66A, 66B, and 67 of the Finance Act, 1994.
• Whether such allocations fall under the category of 'Business Support Services' or 'support services of business or commerce'.
• Whether the service tax demands for the period prior to 01.05.2011 are sustainable, considering the amendments to the definition of 'Business Support Services'.
• Whether the extended period of limitation could be invoked for raising the service tax demands.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Allocated Expenses

• Legal Framework and Precedents: The Finance Act, 1994, particularly Sections 66A, 66B, and 67, alongside the Place of Provision of Services Rules, 2012, govern the taxability of services provided by entities outside India to Indian establishments.
• Court's Interpretation and Reasoning: The Tribunal examined whether the allocated expenses constituted a service provided by the head office to the Indian branch. It emphasized the necessity of a service provider and service receiver relationship, which was absent in this case.
• Key Evidence and Findings: The expenses were allocated without any mark-up, were not specific to the Indian branch, and were not recorded as expenditure in the branch's accounts. No invoices or debit notes were issued by the head office for these expenses.
• Application of Law to Facts: The Tribunal found that the mere allocation of expenses without a contractual obligation or payment did not constitute a service liable for service tax.
• Treatment of Competing Arguments: The Tribunal considered the Department's argument that these allocations were consideration for services but found no evidence of a service rendered or consideration paid.
• Conclusions: The Tribunal concluded that the allocation of expenses did not amount to a taxable service under the Finance Act, 1994.

Issue 2: Classification as 'Business Support Services'

• Legal Framework and Precedents: The definition of 'Business Support Services' under Section 65(104c) was examined, particularly the amendment effective from 01.05.2011.
• Court's Interpretation and Reasoning: The Tribunal noted that the scope of 'Business Support Services' was expanded post-01.05.2011 to include operational or administrative assistance. Prior to this amendment, such services were not covered.
• Key Evidence and Findings: The Tribunal found no evidence that the head office provided specific services to the Indian branch that would fall under the expanded definition.
• Application of Law to Facts: The Tribunal applied the amended definition and concluded that the services were not taxable prior to 01.05.2011.
• Treatment of Competing Arguments: The Department's argument for pre-2011 taxability was dismissed due to the lack of legal support.
• Conclusions: The Tribunal held that the services were not taxable as 'Business Support Services' prior to the amendment.

Issue 3: Extended Period of Limitation

• Legal Framework and Precedents: The Tribunal considered the applicability of the extended period of limitation under the Finance Act, 1994.
• Court's Interpretation and Reasoning: Given the Tribunal's findings on the non-taxability of the services, it was unnecessary to delve into the limitation issue.
• Conclusions: The Tribunal did not address the extended period of limitation due to its conclusions on the primary issues.

3. SIGNIFICANT HOLDINGS

• The Tribunal emphasized that "the allocation of head office executive and general administrative expenses" does not constitute a taxable service under the Finance Act, 1994.
• The Tribunal stated, "There is no element of any service having been provided by the head office SCB-UK to the appellants in India, either by themselves or by involving any third party."
• The judgment reinforced the principle that "sharing of expenditure by associated enterprises cannot be held to be treated as service rendered by one to another."
• The Tribunal set aside the impugned orders confirming the service tax demands and allowed the appeals filed by the appellants, dismissing the appeal filed by the Revenue.

In conclusion, the Tribunal's judgment clarified the non-taxability of allocated head office expenses under the Finance Act, 1994, due to the absence of a service provider-receiver relationship and consideration. The decision underscores the importance of clear contractual arrangements and consideration in determining the taxability of services under Indian law.