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2016 (9) TMI 324 - AT - Service TaxDenial of refund claim - Rule 5 of CCR, 2004 input services export of services export turnover should the turnover of branches of assesse located in South Africa and UK be treated as export turnover? - Section 65B(44) - services POPOS rules, 2012 - Rule 2 (6A) - Export of Services Held that - As per explanation 3(b) of Section 65B(44), if a person is having two establishment one in taxable territory and other in non taxable territory both shall be treated as distinct persons. The branch office of the assessee is in non- taxable territory, therefore the branches are distinct persons - the business turnover of the said branches can not be treated export turnover of the assesse - branches of the assessee who are provider of service not located in taxable territory, the service provided by the branches of the assessee are not export of service. Whether the value of service provided by the overseas branches of the assessee should be included in the total turnover of the assesse - Held that - Once it is held that branches turnover is not export being branches are distinct person, the same principle will apply for the purpose of total turnover of the assessee. Department cannot take contrary stand that in one hand the branches turnover is not export turnover and in other hand it is addable in total turnover of the assesse - branches turnover neither included in export turnover nor in the total turnover of the assesse appeal disposed off denial of refund justified decided against assessee.
Issues Involved:
1. Whether the turnover of branches located in South Africa and UK should be treated as export turnover of the assessee. 2. Whether the value of services provided by the overseas branches should be included in the ‘total turnover’ of the assessee. Issue-wise Detailed Analysis: 1. Treatment of Turnover of Branches in South Africa and UK as Export Turnover: The assessee, engaged in exporting IT services, has branches in South Africa and the UK providing services to overseas clients. The invoices for these services are raised by the branches, and payments are received by them, with part of the proceeds repatriated to India. The assessee claimed a refund under Rule 5 of CCR, 2004 for service tax paid on input services used for export. The adjudicating authority sanctioned a partial refund but rejected ?9,13,701/- on the grounds that the turnover from the branches does not qualify as export turnover. The Commissioner (Appeals) upheld this principle but sanctioned an additional refund of ?7,68,757/-, excluding the branch turnover from the total turnover. The assessee argued that, per Explanation 4 to Section 65B(44) of the Finance Act, 1994, the branches should be considered part of the assessee’s turnover. The definition of ‘Location of Service Provider’ under Rule 2(4)(b)(iii) was cited, suggesting that the establishment most directly concerned with the provision of the service should be considered. The assessee also referred to Rule 6A of the Service Tax Rules, 1994, stating that services provided by branches qualify as export. However, the legal provisions, including Section 65B(44) and the Place of Provision of Services Rules, 2012, indicate that branches in non-taxable territories are distinct persons. Hence, the turnover of these branches cannot be treated as export turnover of the assessee. The branches are the service providers, and the services provided by them do not fall within the definition of ‘Export of Service’ as per Rule 6A. 2. Inclusion of Value of Services Provided by Overseas Branches in Total Turnover: The Revenue appealed against the Commissioner’s decision to exclude the value of services provided by the branches from the total turnover. The argument was that the overall turnover of all locations should be considered as the total turnover of the assessee. However, the legal interpretation established that the branches are distinct persons and their turnover is not part of the export turnover. Consequently, it cannot be included in the total turnover of the assessee either. The judgment concluded that the branches’ turnover should neither be included in the export turnover nor in the total turnover of the assessee. Therefore, the Revenue’s appeal was not sustained. Both the appeals filed by the assessee and the Revenue were dismissed. (Order pronounced in Court on 18/08/2016)
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