2023 (4) TMI 610 - AT - Service Tax

Liability of service tax - Transport of Goods by Road and Maintenance of Repair Services - payment was made in foreign currency to the Canadian Standards Association operating as M/s. CSA International, Canada for factory certification which is similar to ISO Certification - applicability of Section 66A of the Finance Act, 1994 under Reverse Charge Mechanism - extended period of limitation - HELD THAT - A perusal of the provisions of Section 66A of the Finance Act, 1994, reveal that the service recipient is held accountable for payment of service tax when the services are received from a Foreign Service Provider whose usual place of residence or whose permanent address is located other than in India. Explanation-1 to this Section clearly says 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 this appeal, facts clearly indicate that M/s. CSA International, Canada has its 100% Subsidiary viz. M/s. CSA Private Limited, Bangalore, who is registered with Service Tax R.C. No, AABCC2605FST001. The service of Technical Inspection and Certificate was definitely provided in the country and as such to be treated as service performed in India. At the relevant time there was no condition attached for RCM that the Foreign Service Provider should not have an office in India. Whereas, the appellant relies on the Explanation-1 to Section 66A to drive his point that RCM cannot be made applicable to him as M/s. CSA International, Canada is having its 100% Subsidiary Branch Office operating as M/s. CSA Private Ltd., at Bangalore. Whereas, the revenue relies on sub-section-2 of Section 66A, to fasten the tax liability on the appellant which states that where a person is carrying on a business through a permanent establishment in India and through a permanent establishment other than India, such permanent establishment shall be treated as separate persons. However, the records clearly reveal that the inspection service got performed in India though the certificate was issued by M/s. CSA International, Canada. As M/s. CSA International, Canada has got its 100% Subsidiary in Bangalore, invoking the provisions of Section 66A of the Finance Act and fastening the tax liability on the appellant on RCM basis is not legally sustainable and as such, the appellant succeeds on merits. As such, other issues like invoking extended period and imposition of penalties are not discussed. Appeal allowed.

Summary

Issues Involved:
1. Liability for payment of service tax under Reverse Charge Mechanism (RCM) as per Section 66A of the Finance Act, 1994.
2. Whether the services were provided by a foreign entity with a business establishment in India.
3. Applicability of extended period for demand and imposition of penalties.

Summary:

1. Liability for Payment of Service Tax under RCM:
The main issue was whether the appellant, M/s. LEDL, was liable for service tax under Section 66A of the Finance Act, 1994, for services received from M/s. CSA International, Canada. The appellant argued that the services were provided by CSA's 100% subsidiary in India, M/s. CSA Private Limited, Bangalore, which held a service tax registration number. The Revenue contended that the service was provided by CSA International, Canada, and thus the appellant was liable for service tax under RCM.

2. Services Provided by Foreign Entity with Business Establishment in India:
The appellant submitted that the technical inspection was conducted by CSA's subsidiary in Bangalore, and the certification was issued by CSA International, Canada. The adjudicating authority noted contradictory findings, acknowledging the presence of CSA's establishment in Bangalore but emphasizing the direct connection with CSA International, Canada. The Tribunal found that the service of technical inspection was performed in India by the subsidiary, making the service taxable in India.

3. Applicability of Extended Period and Penalties:
The Tribunal did not discuss the invocation of the extended period and the imposition of penalties, as the appellant succeeded on the merits of the case. The Tribunal held that invoking Section 66A to fasten tax liability on the appellant under RCM was not legally sustainable since CSA International, Canada, had a 100% subsidiary in Bangalore.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal with consequential relief, finding that the appellant was not liable for service tax under RCM as the services were performed in India by the subsidiary of the foreign entity.