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TMI Blog2014 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... -CE dated 10.06.2003 which is mainly manufacturing the pharmaceutical products for home consumption. Appellant has established representative offices in the countries like Russia, Vietnam etc. where they have their branch offices. Exports and sales are made by the appellant directly from India to overseas customers and representative branch offices/ establishments of the appellant abroad do not stock the goods or sale the goods. All the sale proceeds are directly received by the appellant in India from the overseas customers. Appellants overseas representative office facilitates the export business of the appellant. Appellants branch offices/ establishment office abroad do not earn any Revenue on their own and expenditures incurred by such branch offices are remitted by the appellant from India. The amount remitted to the branch offices also included salaries paid to the employees working in the branch offices abroad. One of the element of demand raised by the Revenue is that branch offices situated abroad are providing services to the appellant and all the foreign remittances made by the appellant to its branch offices are taken to be a considerations for providing services to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure C & C-1 to the SHOW CAUSE NOTICE 5,43,49,834/- 4. Remittances to Representative offices/ branches situated abroad for their expenses in those respective countries (advertising services, business auxiliary services, payment of salary to employees of the branches, telecom services etc. described in Annexure D & D-1 to the SCN. 11,56,32,588/- Total 18,09,69,236/- 3. Shri V. Sridharan (Senior Advocate) Shri Anand Nainawati, Shri Jigar Shah, Shri Vinay Jain, Ms. Dipa Devani, Ms. Madhu Jain and Ms. Uma Lohary (Advocates) appeared on behalf of the appellant. Learned Senior Advocate filed an affidavit of Shri Sachindra Patel, Asst. General Manager, Indirect Taxation of the appellant to the effect that entire service tax demanded will be eligible as CENVAT credit to the appellant and therefore the entire exercise of demand, its payment and admissible credit will be as case of Revenue neutrality as per CESTAT judgment in the case of JPP Mills Limited vs. CCE [2013-TIOL-1643-CESTAT-MAD]. He also argued on the miscellaneous application for filing additional documents like invoices of the overseas branch offices and distributors which was allowed. Written submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat appellant was regularly paying service tax on reverse charge basis when services were received and consumed by the appellant in India directly from overseas service provider without involvement of branch/ permanent establishment offices of the appellant. That appellant was under a bonafide belief that the services received and consumed abroad by the branch offices and distributors were not received in India and hence no service tax was required to be paid. In view of the interpretational differences, extended period can not be invoked when appellant was also eligible for taking cenvat credit of the service tax so paid under reverse charge mechanism. That in both the situations, where services are rendered abroad by a service provider to the branch offices or distributors, local VAT/ GST of the representative countries is paid by the branch offices/ distributors. 3.3. With respect to service tax demand of Rs. 5.43 Crores, as per annexure C-1 to the show cause notice, it was argued that this demand is on the amount remitted to the distributors of the appellant and these remittances are for handling distribution of goods received from the appellants and for selling it to their cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods purchased from the appellant and represented as a discount given by the appellant to its distributors based on actual expenses incurred by the foreign distributors. 3.4. With respect to demand of service tax under Annexure D-1 of the show cause notice, appellant argued that out of total demand in this annexure a demand of service tax of Rs. 7 Crores (Approx.) pertains to the remittances to the foreign representative offices/ branches towards salary paid to the employees and cannot be considered as a service and will not attract service tax. That for the employment of people appellant entered into employment agreement with employees in overseas branches where appellant is clearly shown as an employer and the amount paid to the employees is reflected as salary in their books of accounts and in the financial statements. That relationship between employer and employee clearly is a master-servant relationship and can not be considered as taxable services as per Section 65 (105) of the Finance Act, 1994. That the adjudicating authority has considered the branch offices of the appellant located outside India as a separate legal person in view of Section 66A(2) of the Finance Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases where services are received by the overseas branch offices of the appellant then the services received from a service providers by their branch offices situated abroad are the services availed and consumed abroad and being a separate legal entity, under Section 66A of the Finance Act, 1994, no service tax on such services is payable in India. Learned Senior Advocate again emphasized that in such services VAT/ GST is paid by their branch offices and that those services should be considered to have been received and consumed by their foreign offices/ distributors and no service tax is chargeable on these services in India under reverse charge mechanism. For this purpose, he relied upon Para 4.2.3 of CBEC Circular dated 19.04.2006 and the case laws of KPIT Cummins Info systems Limited vs. CCE [2013-TIOL-1568-CESTAT-MUM] and Tata Technologies Limited (Final order No. A/713-714/13/CSTB/C-1 dated 15.03.2013. That in the above case laws all countries in the world follow the same pattern to levy VAT/GST on trans-border transactions where VAT/GST is levied in the country of consumption to avoid double taxation on trans-border transactions in services. That the object towards Section 66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (i) That appellant did not dispute service tax demands of Rs. 97.85 Lakh and Rs. 12.01 Lakh as covered under page No. 29 & 30 of the OIO. (ii) That service tax demand of Rs. 5.44 Crores (approximately) is with respect to marketing and sales promotion activities done by the distributors of the appellant situated abroad, on the reimbursements provided to them by the appellant. For this aspect, learned AR argued that the cost reimbursed is not inbuilt in to the list price of the product being sold to the distributors but are specific reimbursements provided as per the terms of the agreement to the appellant by the distributors situated abroad for activities done on behalf of the appellant. (iii) That as per Section 66A (2) of the Finance Act, 1994, Branch Offices of the appellant situated abroad are separate legal entities and have to be considered as separate legal entities and service provided by branch offices are liable to payment of service tax of Rs. 11.56 Crores. That the branch offices situated are nothing else but extended arms of the appellant and that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made by either sides. Appellant M/s. Torrent Pharmaceuticals Limited is a manufacturer of pharmaceutical products and have two manufacturing units at Indrad, Mehsana (Gujarat) and Baddi (Himachal Pradesh). Appellant is also registered under the service tax provisions for discharging service tax liability and are also taking cenvat credit, inter-alia, of service tax paid. Appellant is remitting certain amounts to its branch offices situated out of India with respect to certain expenditure incurred and also with respect to reimbursement of certain expenses incurred by the distributers situated abroad. As per Para 14.3 of the OIO No. STC/58/Commr/Had/2013 dated 27.12.2013 passed by the Adjudicating authority there are following demands of service tax confirmed against the appellant:- (i) Rs.97,85,726/- (ii) Rs. 12,01,088/- (iii) Rs. 5,43,49,834/- (iv) Rs. 11,56,32,588/- 5.1 So far as above demands of Rs. 97,85,726/- and Rs. 12,01,088/- are concerned, learned Senior Advocate appearing on behalf of the appellant fairly submitted that these services were received and consumed directly by the appellant in India and service tax on these services remained to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... home the point that certain advertisement expenses/ after sales services provided by the dealers out of dealers margin were not required to be added to the assessable value as the same also benefitted the distributors. In the present proceedings, the case of the appellant is that instead of giving dealers margin as discount, appellant is reimbursing the costs of certain contractual obligations like sales promotion etc. are required to be undertaken by the foreign distributors. Therefore, it was thus argued that expenses and services availed by the distributors/ branch offices of the appellant abroad which, were required to be done as per contractual obligation, cannot be considered as services received and consumed by the appellant in India where VAT/GST of the country, where services are availed by the distributers/ branch offices, is also paid. 5.2.1. The crucial point for consideration is whether the reimbursements provided by the appellant on actual to its distributors abroad can be considered as a discount given to the distributors on list price. Appellant is holding a view that such reimbursements are nothing but akin to discounts and any expenses so done by the distributo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat analogy also a part of the services availed of sales promotions etc. by the distributers abroad will benefit the appellant also. In that situation a part of the service will be deemed to have been received and consumed by the appellant in India because the expenses incurred by the distributors are not made from any discount given by the appellant but are separately reimbursed by the appellant. Service tax demand with respect to reimbursement of expenses incurred by distributors abroad for marketing appellants products will be payable along with interest as these services are availed on behalf of the appellant and later reimbursements made are the suitable considerations for the services so received. 5.2.3. Learned AR during the course of hearing and in the written submissions argued that some of the services received from abroad could be with respect to exempted products manufactured in Baddi (H.P.), therefore appellant will not be entitled to 100% Cenvat credit on service tax paid on reverse charge basis. Further it was his case that services of any commission agents availed abroad will also not be admissible for credit in view Gujarat High Court's judgment in Cadila Laborat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices is nothing to do with the appellant situated in India. It was fairly agreed by the learned Advocate that where local VAT/GST of a foreign country was not paid by the branch offices and billing was directly made by the foreign service providers to the appellant then in such cases service tax on reverse charge basis is required to be paid, which is being paid by the appellant even if the payment of such services availed and consumed in India were routed either through appellants branch office or distributors. 5.4 Before giving our observations, it is relevant to glance through the provisions of Section 66A (1) of the Finance Act, 1994 reproduced below:- Charge of service tax on services received from outside India, 66A (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... branches of the appellant undertaking similar activities in India will not be held so. Therefore, a comprehensive reading of Section 66A of the Finance Act, 1994, a permanent establishment situated abroad as a 'separate person', will be understood to been prescribed only to determine the provision of service whether in India or out of India. Theoretically it could be possible that a person carrying business through a permanent establishment abroad may like to pay lower rate of local VAT/GST abroad to avoid service tax payment in India by showing the services to have been availed abroad. However, there is no likelihood of such avoidance in case of an assessee who is eligible to cenvat credit in India for the service tax payable in India for which the assessee is entitled to cenvat credit. It is also not the case of the of the Revenue that appellant is not capable of utilising cenvat credit admissible as they have paid more than Rs. 12,000/- Crores as taxes during the period 2007-08 to 2011-12. 5.6 At this stage it will be relevant to examine the judgment of M/s. British Airways vs. CCE (Adj.) Delhi (supra) relied upon by either sides. 5.6.1 The facts of this case were that M/s. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the service has been provided at the branch in India and the role of the Headquarter is only as a facilitator. In such a situation service tax can be charged from the branch office in India by treating it as service recipient even if the payment for the service received was made by the head office, as in such a situation, the Indian branch office can be treated as having made the payment indirectly. But in this case, as discussed above, from the agreements of 'BA, U.K.' with CRD/GDS Companies, it is seen that there is nothing in these agreement from which it can eb inferred that the CRD/GDS Companies were required to provide location specific service to the branches of 'BA, U.K.', all over the world. There is neither allegation nor evidence that 'BA, U.K.' have charged any amount from the Appellant directly or indirectly by way of the debit/ credit notes, account adjustment or by other indirect means, for any services provided by the CRS/GDS Companies. 5.7 From the above interpretation made in the case of M/s. British Airways vs. CCE (Adj.) Delhi (supra) it has to be seen in the present proceedings whether while procuring services branch offices of the appellant abroad have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts generally reflect the underlying transactions and financial flows. Only in specified or exceptional circumstances should the place of taxation vary from the main rule. 10. For VAT/GST, a number of factors must exist before the tax can be charged in a particular place. There has to be, for example, a supplier, a customer, a supply and a place of taxation rule to determine the jurisdiction in which any tax should accrue. To ensure that the basic principles of neutrality, efficiency, flexibility, certainty and simplicity are achieved these, and some other, terms will need to be defined at a later stage, drawing on the lessons learned from the development of these business models and examples. 11. As a first step, it was agreed that the development of guidance on how to implement the main rule in practice should start by the examination of a selection of basic concepts as listed above (i.e. supplier, customer, supply) on the basis of simple practical examples, involving simple supplies. 3. Tax Collection Mechanisms 12. It is recommended that the business customer should account for VAT/GST, where applicable, on cross-border business-to-business (B2B) transactions using the rever ..... X X X X Extracts X X X X X X X X Extracts X X X X
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