2018 (11) TMI 844 - AT - Service Tax

Import of services or not - reverse charge mechanism - place of provision of services - Banking and Financial Services - commission paid in Brussels by the appellant whose Registered Office is in Hyderabad when the capital was raised by the company in London for use in Mauritius - Held that - The appellant being a company registered in India, is covered under the scope of Section 66A of Finance Act, 1994. However, the taxable services which are provided from outside India must be received in India for taxation to be applicable under Rule 3. In this case, there is no dispute that the loan was raised outside India and used outside India although the parent company is located in India. Simply because the appellant company is located within India and the transactions which they made globally will also figure in their books of accounts, it would not mean that the services have been received in India. In this case the services were received in Mauritius and rendered in London. Therefore, they clearly do not get covered by Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 even if these transactions are reflected in the books of accounts of the head office in Hyderabad - Any transaction of a company in any of its places of business and commerce will get reflected directly or indirectly in the books of account of the Corporate Office and will effect their overall business result. This does not mean all these transactions are taking place or such services are being received in the location of the Corporate Office. Therefore, no service tax is leviable on the services in question. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the commission paid in Brussels by the appellant for raising capital in London for use in Mauritius is chargeable to service tax under the head "Banking and Financial Services" under Reverse Charge Mechanism.
2. Whether the appellant is liable to pay service tax under the reverse charge mechanism for the services received from outside India but used outside India.
3. Whether penalties imposed under sections 76, 77 & 78 of the Finance Act, 1994 are justified.

Issue 1:
The appeal concerns the chargeability of service tax on the commission paid in Brussels by the appellant for raising capital in London for use in Mauritius under the head "Banking and Financial Services" under Reverse Charge Mechanism. The appellant argued that since the loan was raised and utilized outside India, and the services were rendered outside the country, they should not be liable for service tax in India. The authorities upheld the demand, citing Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The appellate tribunal disagreed, stating that the services were received and consumed outside India, and the mere presence of the appellant's office in India does not make them liable for service tax. The tribunal ruled in favor of the appellant, setting aside the demand for service tax and associated penalties.

Issue 2:
The second issue revolves around whether the appellant is liable to pay service tax under the reverse charge mechanism for services received from outside India but used outside India. The appellate tribunal analyzed Section 66A of the Finance Act, 1994, which governs the taxation of services received from outside India. The tribunal noted that while the appellant, being an Indian company, falls under the scope of Section 66A, the services must be received in India for taxation to apply under Rule 3 of the Taxation of Services Rules. The tribunal emphasized that the services in question were received and consumed outside India, even though the appellant's office was in India. Therefore, the tribunal held that no service tax was leviable on the services, leading to the setting aside of the demand and penalties.

Issue 3:
Regarding the penalties imposed under sections 76, 77 & 78 of the Finance Act, 1994, the appellant contended that they were under a bona fide belief that they were not required to obtain a registration certificate for service tax based on expert advice received. The tribunal considered the arguments and ruled in favor of the appellant, setting aside the penalties imposed under sections 76, 77 & 78. The tribunal held that since no service tax was leviable on the services in question, the associated penalties were also not justified.

In conclusion, the appellate tribunal allowed the appeal, setting aside the demand for service tax and penalties imposed under sections 76, 77 & 78 of the Finance Act, 1994, based on the finding that the services were received and consumed outside India, despite the appellant being an Indian company.