2017 (7) TMI 643 - AT - Service Tax

Whether services provided by overseas branches of the respondent has to be included in the total turnover, particularly when the adjudicating authority has not included the same in the export turnover for the purpose of refund under Rule 5 of CCR, 2004 read with N/N. 5/2006-CE(N.T.) dated 14-3-2006? Held that - the basis of not inclusion of service value of service provided by the branch offices is that the same was not provided from India, if that is so, then the same is not includible in the total turnover for the reason that only turnover which is pertains to the activity carried out by the respondent from India will only be taken as total turnover - The Revenue cannot apply two yardstick that for the purpose of export turnover by the respondent from India and for the purpose of total turnover, the services deemed to be provide by the respondent therefore it is not permissible. Once the revenue itself has admitted that the service provided from the branch office of overseas is not includible in the export turnover, the same principle has to be applied with regard to total turnover - the value of services provided by the branch offices cannot be added in the total turnover - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Inclusion of services provided by overseas branches in total turnover for refund calculation under Cenvat Credit Rules, 2004.

Analysis:
The main issue in the present appeals before the Appellate Tribunal CESTAT MUMBAI was whether the services provided by overseas branches of the respondent should be included in the total turnover for the purpose of refund calculation under Rule 5 of Cenvat Credit Rules, 2004. The Revenue contended that even though the services provided by overseas branches were not included in the export turnover, they should be included in the total turnover as part of the overall activity of the respondent. On the other hand, the Respondent argued that since the services were provided through overseas branches and not from India, they should not be included in either the export turnover or the total turnover. The Commissioner(Appeals) had not included the turnover of services provided by the overseas branches in the total turnover, leading to the dispute.

The Commissioner(Appeals) found that the services provided by the appellant from their branches located abroad were not included in the export turnover or the total turnover for the purpose of calculating the admissible refund. The appellant explained that their overseas branches were treated as independent profit centers and the turnover of these branches was not included in the export or total turnover of the Indian entity. The Commissioner noted a previous decision by the Hon'ble CESTAT regarding the conditions to determine export of services, stating that the payment received in convertible foreign exchange was the key factor. The Commissioner concluded that the services provided by foreign branches should be excluded from both export turnover and total turnover, as they were not eligible to be treated as exports.

The Appellate Tribunal upheld the findings of the Commissioner(Appeals), emphasizing that the services provided by the overseas branches should not be included in the total turnover. The Tribunal noted that if the Revenue admitted that the services provided from the overseas branches were not includible in the export turnover, the same principle should apply to the total turnover as well. Therefore, the value of services provided by the branch offices could not be added to the total turnover. The Tribunal dismissed the Revenue's appeals and upheld the impugned order of the Commissioner(Appeals), leading to the disposal of the case.

In conclusion, the judgment clarified the treatment of services provided by overseas branches in the context of refund calculations under Cenvat Credit Rules, 2004. It established that services provided by foreign branches should not be included in the total turnover if they were not part of the activities carried out by the respondent from India. The decision provided a clear interpretation of the rules and principles governing the inclusion of overseas branch services in refund calculations, ensuring consistency and adherence to legal requirements.