2016 (8) TMI 41 - AT - Service Tax

Import of services or not - reverse charge - Project Management Services avaled from Netherland Operating Co., BV, Netherlands (NOC BV) through their Indian establishment. - Held that - The Indian establishment of NOC BV, Netherlands have registered themselves with the service tax department and remitted the full tax liability with reference to the impugned contract. The original authority while taking cognizance of the existence of NOC BV in India, proceeded to confirm the service tax demand on the basis that the agreement is with NOC BV, Netherlands and the consideration is paid in foreign exchange. We find that Explanation 1.- under Section 66A stipulated that a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. In the instant case, NOC BV Netherlands is admittedly having a business establishment in India recognized by various law. The service is rendered through such establishment in India. The reliance placed by the original authority on Board s Circular dated 06.05.2011 is misplaced. The said Circular is not on the scope of Section 66A. We find that the original authority has misdirected in his finding despite of his recognition of the Indian establishment of NOC BV as service provider. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
1. Applicability of Section 66A of the Finance Act, 1994 on reverse charge basis.
2. Liability of the appellant for service tax in a case involving an agreement with a foreign entity with an Indian establishment.
3. Imposition of penalty under Section 78.

Analysis:
1. The appellant contested the service tax demand based on Section 66A, arguing that the services were rendered through the Indian establishment of the foreign entity, which remitted service tax to the Indian entity. The appellant maintained that reverse charge tax liability did not apply in this scenario.
2. The appellant highlighted that the service tax paid by the Indian entity as a service provider demonstrated that there was no import of service, as the foreign entity's permanent establishment in India provided the services. The tax remittance by the Indian entity was confirmed by the jurisdictional officer, further supporting the appellant's position.
3. The appellant challenged the imposition of an equal penalty under Section 78, asserting that it lacked legal foundation and justification.

Court's Findings:
1. The tribunal examined the records and focused on determining the appellant's liability for service tax under Section 66A on a reverse charge basis. It noted the existence of an agreement between the appellant and the foreign entity, which had an established presence in India and had registered with the service tax department.
2. The tribunal emphasized that the foreign entity's establishment in India was recognized by various authorities, and the services were provided through this Indian establishment. Despite the original authority's reliance on a circular, the tribunal found that the authority had misdirected in its findings by overlooking the recognition of the Indian establishment as the service provider.
3. Based on the discussions and findings, the tribunal concluded that there was no merit in the impugned order. Consequently, the tribunal set aside the order and allowed the appeal.

This detailed analysis of the judgment highlights the key arguments presented by the appellant, the court's findings, and the ultimate decision to set aside the service tax demand and penalty imposed on the appellant.