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TMI Blog2016 (9) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... be substituted by any other entity. The activity of the head office and branch are thus inextricably enmeshed. Its employees are the employees of the organization itself. There is no independent existence of the overseas branch as a business. The economic survival of the branch is entirely dependent on finances provided by the head office. Its mortality is entirely contingent upon the will and pleasure of the head office. The transfer of funds by gross outflow or by netted inflow is, therefore, nothing but reimbursements and taxing of such reimbursement would amount to taxing of transfer of funds which is not contemplated by Finance Act, 1994 – demand of tax and interest set aside – imposition of penalties on appellant and other officers set aside – appeal allowed – decided in favor of appellant. - APPEAL NO: ST/86066 to 86069/2015-Mum - ORDER NO: A/86474-86477/2016-WZB/STB - Dated:- 15-3-2016 - Shri M V Ravindran, Member (Judicial) And Shri C J Mathew, Member (Technical). Shri V Sridharan, Sr. Advocate with Shri Sandeep Sachdeva and Ms. Niyati Jigyasi, Advocates and Shri Vinay Jain, CA for the Appellants. Shri V.K. Singh, Special Counsel for the Respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Act, 1994. 7. Following scrutiny of payments made by the appellant to its branches abroad and quantification as ` 5773,87,34,076/- for the period between 16th May 2008 and 31st July 2013, notice was issued on 24th October 2013 for recovery of ₹ 637,66,00,962 as tax besides interest and for imposition of penalties under section 77 and 78 on M/s Tech Mahindra Ltd, its Chairman and a few other key functionaries. 8. Commissioner of Central Excise, Pune vide order-in-original no. PUN-SVTAX-000-COM-005-14-15 dated 11th February 2015 confirmed the demand and interest besides imposing penalties under section 77 and 78 of Finance Act, 1994 on M/s Tech Mahindra Ltd and on Shri Milind Kulkarni, Shri Viswanath Kini and Shri CP Gurnani. M/s Mahindra Tech Ltd and the individuals on whom penalty was imposed are in appeal before the Tribunal against that order. 9. The primary planks of the confirmation of demand in the impugned order are that the appellant and its branches are different persons, that the purpose and activities of the branches are for rendering service to the head office in India, that the payments made to the branches are not reimbursements but are taxable consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le under Finance Act, 1994; that it was not just revenue-neutral but special case of revenue-neutrality; that regular information was being furnished to service tax authorities and the books had been subject to service tax audits 11. Learned Special Counsel appearing for respondent-Commissioner drew attention to section 65 (105) (zzb) and section 65B(51) of Finance Act, 1994, to section 66A of Finance Act, 1994 read with Rule 3(iii) (c) of Taxation of Services (Provided from outside India and Received in India) Rules, 2006 and Explanation 3(b) and 4 of section 65B(44) of Finance Act, 1994 besides countering the contention of appellant on revenue neutrality and invoking of penal provisions. We are of the opinion that no purpose will be served by further elaboration of the two rival submissions at this stage in view of our considered findings on the issues raised and held by the lower authority. We also note that the decisions relied upon by both sides are the same and these will be examined at the appropriate stage of our findings. 12. At the core of the dispute are four issues, viz., the status of overseas branches vis-`-vis the head office and the limitation thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. As the Tribunal expressed in re Torrent Pharmaceuticals Ltd: 5.8 ... Therefore, payment of VAT abroad will be an indicator to decide whether service is provided and consumed outside India or has been consumed/received in India. The agreements/documents available with the appellant have to be accepted for the purpose of determining place of providing and consumption of service in India That it is to be taken as an indicator arises from the absence of cross-border tax facilitation that extends availment of credit beyond the tax frontiers of the country. For these reasons, it is neither feasible nor necessary to delve into the activities of the overseas entity except where the tax liability of the assessee is sought to be mitigated on grounds of discharge of tax abroad. Correspondingly, the refund of any tax abroad is not necessarily detrimental to the assesse without a clear understanding of the tax laws under which refund was sanctioned. The principles and procedures of the tax statute in India should not be presumed to apply to the overseas tax law for crystallising tax liability in relation to activity that has been undertaken by the overseas entity. 15. However, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsibility devolving on the taxable entity in the country. 18. A commercial organization establishes its subordinate formations to further the commercial activity that the principal body is engaged in. Commercial feasibility mandates that such branches exist to render services or to facilitate placement of goods. Therefore, to posit that the overseas branches render services does not require genius of a high order. At the same time, reasonable intelligence suffices to identify the recipient of the service and the nature of the service rendered. 19. The appellant-assessee has established branches for furthering its commercial objectives. The benefit of assigned activities of the branch will, undoubtedly, accrue to the appellant. There is no dispute that it is the appellant-assessee who enters into contractual agreements with overseas customers for supply of information technology services which have off-shore components rendered directly to the overseas entity by the appellant-assessee. On-site activity is undertaken by deputing employees working at the site of the customer. These employees are, without doubt, on the rolls of the appellant-assessee which, save for the specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - The place of provision of a service shall be the location of the recipient of service : Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. RULE 4. Place of provision of performance based services . - The place of provision of following services shall be the location where the services are actually performed, namely :- (a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service : Provided that when such services are provided from a remote location by way of electronic means the place of provision shall be the location where goods are situated at the time of provision of service : [Provided further that this clause shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than that which is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2005. That, however, cannot be taken as intent to tax the inflow of service merely because of a corresponding exemption accorded to the outflow of services. Reference to section 93 as an authority for prescribing the Rules would make it appear that the purpose of the said two sets Rules is to exclude from tax such services that do not fall within the three classifications predicating the import of service. The residuary provision in the Rules of 2006 make it clearly that such services have to be received by a recipient located in India for use in relation to business or commerce. The provisions of the successor Rules are no different. 23. The catena of judgments cited for both sides, viz., British Airways v Commissioner of Central Excise (Adjn) [2014-TIOL-979-CESTAT-Del], Torrent Pharmaceuticals ltd v Commissioner of Service Tax [2015 (19) STR 97 (Tri-Ahmd)] and Infosys Ltd v Commissioner of Service Tax [2014-TIOL-409-CESTTAT-Bang] does support the proposition that a service is taxable under section 66A of Finance Act, 1994 only when such service is rendered in India. The question that arises then in the context of the present dispute is whether the branch renders a serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a service that would otherwise be contracted from an overseas entity is, instead, sourced through an overseas branch, this legal fiction will come into play. The transaction of the appellant assessee and the branches which is under dispute before us being related to exports is unambiguously not intended to be taxed as it has nothing to do with business or commerce in India. 27. We do not need to examine whether the flow of funds from the head office to the branch is consideration or reimbursement as the test of services having been received in India fails. Nevertheless, we do so. A branch, by its very nature, cannot survive without resources assigned by the head office. The business of the appellant assessee is such that credibility in the eyes of its overseas clients lies in the name and style of the appellant assessee. It cannot be substituted by any other entity. The activity of the head office and branch are thus inextricably enmeshed. Its employees are the employees of the organization itself. There is no independent existence of the overseas branch as a business. The economic survival of the branch is entirely dependent on finances provided by the head office. Its mortali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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