2025 (2) TMI 901 - AT - Service Tax

Taxability u/s 66A of the Finance Act 1994 - Manpower Recruitment or Supply Agency service - services consumed entirely abroad - service recipient - appellant or liaison office of the appellant or USA based clients of the appellant - Extended period of limitaton - penalty - HELD THAT - The appellants are a company incorporated in India and having registered office in India and are also having liaison office at Pittsburgh USA and other places in USA. The appellants are engaged in the business of export of ITSS on which they have not been paying service tax as such because the export of service is exempt. The appellants have entered into contract service agreements for providing ITSS with various clients like American Solutions Inc. M/s Wilington M/s Inalytix and M/s Financial Oxygen etc. whereas for providing such services directly at the offices of the clients the appellants have also entered into professional services sub-contract agreements with service providers like Plutus Solutions Inc. Rpasoditech Inc. SK Tech Inc. Princeton Infotech and Virtue Group all located in USA and the manpower provided by these contractors were deployed only at client s site in USA. Hon ble High Court of Allahabad in the case of Glyph International Ltd Vs UOI 2011 (12) TMI 201 - ALLAHABAD HIGH COURT clearly held that insertion of section 66A w.e.f. 18.04.2006 is legal and proper by holding that no demand can be made in terms of the said provision for the period prior to that date by way of certain rules and notifications issued under different sections like 68(2) or by way of insertion of explanation under section 65 etc. therefore the validity of section 66A post 18.04.2006 is not in dispute. Whether the plain reading of the provisions under section 66A read with Rule 3(1)(iii) of TSPOI Rules 2006 requires that not only services should be received in India but should also be consumed in India for it to become covered by the deeming provision for the purpose of charging service tax on RCM or otherwise? - HELD THAT - There is no dispute about legality of section 66A for the period post its introduction as has been held by Hon ble High Court of Bombay in Indian National Shipowners Association Vs UOI 2008 (12) TMI 41 - BOMBAY HIGH COURT as well as by Hon ble Allahabad High Court in the case of Glyph International Ltd Vs UOI. The issue before the Hon ble High Courts was whether recipient of service in India is liable to service tax from abroad before 18.04.2006 or only after the said date after enactment of section 66A. The Hon ble Bombay High Court held that service tax can be charged only after the enactment of section 66A which was upheld by Hon ble Supreme Court whereas charging of service tax on similar service for the period prior to the enactment of section 66A was set aside. In the case of Glyph International Ltd Vs UOI (supra) the Hon ble High Court of Allahabad inter alia held that section 66A of the Finance Act 1994 creates legal fiction to deem import of service so that the provisions of Chapter V can thereon be applied. Demand of service tax on the consideration received from BSNL - HELD THAT - In the present facts of the case it is not alleged that they were engaged in either maintenance or repair service or WCS and the only ground was that they have provided BAS to BSNL on which service tax has not been discharged - in view of inclusive part of the definition the taxable service of processing of transaction is also covered within the ambit of BSS. It is found that the view of the Adjudicating Authority is correct as it is not a mere printing activity rather it involves developing of software deploying of man and machines whereby certain processing is done to generate a bill and if they would not have done this then it would have to be done by BSNL themselves. Therefore it is in the nature of BSS and not BAS or WCS as being claimed by the appellant. The impugned orders upholding the demand of Service Tax from the appellant in respect of non-payment of Service Tax under Manpower Recruitment or Supply Agency Service non-payment of Service Tax under Business Auxiliary Service on referral fee and commission paid to the service provider located outside India i.e. USA and non-payment of Service Tax under Business Support Service provided to M/s BSNL do not suffer from any infirmity and therefore we do not find any reasons to set aside the impugned orders. Extended period of limitation - Penalty - HELD THAT - On going through these details he observed that the liaison office system was in vogue for the appellant since 2001-02 and they have been claiming expenditure in their Annual Returns of the expenses incurred in connection with the operations of such liaison offices which was however disallowed by the Income Tax department. This aspect further substantiates that liaison office was only an extended arm of Indian company not having its own books of account income/expenses or profit/loss. He has also relied on the chronology of sequences from start of audit till the issue of SCN which clearly showed that last of the documents were submitted by the appellant only on 01.10.2010. Therefore the Adjudicating Authority has taken into consideration all aspects and has dealt with extensively to come to the conclusion that in the given factual matrix the invocation of extended period as well as imposition of penalty is maintainable. Conclusion - i) The mere fact that the basic conditions that the service recipient should be located in India service provider is located outside India and the services are received by the recipient would bring it within the ambit of section 66A. ii) Section 66A creates a legal fiction allowing the taxation of services received from abroad by an Indian entity regardless of where the services are consumed. The recipient s location in India is sufficient for taxability. iii) The invocation of extended period as well as imposition of penalty is maintainable. There are no infirmity in the impugned orders - appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

a) Whether services consumed entirely abroad are taxable under section 66A of the Finance Act, 1994.

b) Who is the service recipient in the facts and circumstances of the case: (i) the appellant, (ii) the liaison office of the appellant, or (iii) USA-based clients of the appellant.

ISSUE-WISE DETAILED ANALYSIS

1. Taxability of Services Consumed Abroad under Section 66A

- Relevant legal framework and precedents: Section 66A of the Finance Act, 1994, and Rule 3 of the Taxation of Services (provided from outside India and received in India) Rules, 2006 (TSPOI Rules). Precedents include judgments from the Allahabad High Court in Glyph International Ltd and the Bombay High Court in Indian National Shipowners Association, which upheld the constitutional validity of section 66A.

- Court's interpretation and reasoning: The Tribunal held that section 66A is a deeming provision that allows for the taxation of services received from abroad by making the recipient liable under the reverse charge mechanism (RCM). It was determined that the services were received by the appellant and not consumed in India, which does not exempt them from tax liability under section 66A.

- Key evidence and findings: The appellant's agreements with manpower supply agencies in the USA and the payment process through their overseas account were scrutinized. The Tribunal found that the services were received by the appellant, not their liaison office, and thus taxable under section 66A.

- Application of law to facts: The Tribunal applied section 66A to determine that the appellant, as the recipient of the services, is liable for service tax even though the services were consumed outside India.

- Treatment of competing arguments: The appellant's reliance on revenue neutrality and the argument that services must be consumed in India to attract tax were rejected. The Tribunal emphasized the legal fiction created by section 66A, which does not require consumption in India for taxability.

- Conclusions: The Tribunal concluded that services received by the appellant from abroad are taxable under section 66A, irrespective of their consumption outside India.

2. Determination of Service Recipient

- Relevant legal framework and precedents: Section 66A and its explanation regarding the treatment of establishments in taxable and non-taxable territories as distinct persons.

- Court's interpretation and reasoning: The Tribunal found that the appellant, not the liaison office or the USA-based clients, is the recipient of the services. The liaison office was deemed a coordinating entity without legal standing as a separate recipient.

- Key evidence and findings: The Tribunal examined contracts and financial transactions, determining that the appellant was responsible for payments and service agreements, thereby identifying them as the service recipient.

- Application of law to facts: The Tribunal applied the legal fiction in section 66A, considering the appellant as the recipient due to their contractual obligations and financial transactions.

- Treatment of competing arguments: The appellant's argument that the liaison office or clients were the recipients was dismissed based on contractual and financial evidence.

- Conclusions: The Tribunal concluded that the appellant is the recipient of services under section 66A, making them liable for service tax.

SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: The Tribunal stated, "The mere fact that the basic conditions that the service recipient should be located in India, service provider is located outside India and the services are received by the recipient would bring it within the ambit of section 66A."

- Core principles established: Section 66A creates a legal fiction allowing the taxation of services received from abroad by an Indian entity, regardless of where the services are consumed. The recipient's location in India is sufficient for taxability.

- Final determinations on each issue: The Tribunal upheld the demand for service tax from the appellant under 'Manpower Recruitment or Supply Agency Service,' 'Business Auxiliary Service,' and 'Business Support Service,' rejecting the appellant's claims of revenue neutrality and non-consumption in India.