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TMI Blog2016 (12) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... ch operations into tax net will not prevail In arriving at this interpretation, we are guided by two important considerations both of which flow from the mandate to respect and honour international commitments; more particularly when they have force of law. We have already observed the mischief that would follow to the principle of national treatment if we were to accept the position taken by the adjudicating Commissioner. Our place in the comity of nations is determined by our respect for commitments made at the international negotiation tables. Compliance, as a signatory to international treaties, conventions and agreements, has been the subject of various disputes before the Supreme Court. In the initial years, a strict view with Article 253 as the centre-piece was the trend of judicial thinking. Thus the Hon ble Supreme Court was not much convinced that the doctrine of pacta sund servanda could override the constitutional prescription of legislating treaties into enactment for acquiring force of law. In the evolution of judicial interpretation, the obligation of the State in accordance with Article 51 has been held to render treaties and agreements as binding. In the situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Finance Act, 1994. Appellant had discharge tax liability on payments made under one or more of the above heads to the consortium of lenders but for two, International Financial Corporation (IFC) and Asian Development Bank (ADB). 4. The impugned held that the liability to discharge tax on the payments is enjoined, owing to the conditions in section 66A of Finance Act, 1994, as 'reverse charge' upon the recipient of service. The conditions that are prescribed in the said provision are that (a) a service enumerated in section 65 (105) is provided or to be provided (b) by a person who has, in a country other than India, established a business or has a fixed establishment from which service is provided or has permanent address or usual place of residence which (c) is received (d) by a person who has, in India, his place of business, a fixed establishment, his permanent address or usual place of residence. To elaborate and elucidate on the aspect of 'receiving in India', the Central Government has, in exercise of rule-making powers conferred in section 94 of Finance Act, 1994, notified the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The pream ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinction, the core of the scheme requires mechanisms vastly different from other statutes to dovetail with the taxable event, i.e. consumption of service. This is particularly so when one of the transacting entities is in inherently exempt. National treatment is one of the pillars governing the international trading system and its ambit allows the imposition of tax, including countervailing taxes, at the boundaries; in relation to goods, the subject of tax and object of tax being identifiable, the mechanism of countervailing at the borders is universally acknowledged and operated through legislation for levy of customs duties. While tax on cross-border rendering of services is a necessary concomitant of scheduling of a domestic tax, its enforceability has to be predicated upon legal fiction owing to it being other than goods. 8. It is thus that section 66A was inserted in the statute to enable a contrarian mechanism for levy and collection in specific situations. By such incorporation of, viz., '66A. Charge of service tax on services received from outside India, (1) Where any service specified in clause (105) of section 65 is, (a) provided or to be provided by a person who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought together by deeming the activity as taxable and deeming the recipient to be the provider. In a domestic context, the contrarian mechanism of 'recipient pays' was in vogue though by transposing the object of tax. Therefore, except for outcome, 'reverse charge' is substantially different in Service Tax Rules, 1994 and in section 66A of Finance Act, 1994. With this creation of a new breed of tax payer, the existence, character and status of the provider was rendered irrelevant in the scheme of taxation thus extending the jurisdiction of Finance Act, 1994 to all and any taxable service subject to specific or general exemptions under section 93 of Finance Act, 1994. To these we now turn our attention. 9. Exemptions specified under section 93 of Finance Act, 1994 need not detain as none has been claimed as applicable to the appellant. In the pre-'negative list' regime, which is germane to the time-lines of this dispute, a general exemption was afforded to the services that were not enumerated in clause (105) of section 65 of Finance Act, 1994. That is also not pertinent in this dispute. The claim of being outside the ambit of section 65 (105) (zm) of Finance Act, 1994, i.e., ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property situated in India; xxxxxx (ii) specified in sub-clauses (a), (f), (h),(i), (j), (l), (n), (o), (s), (w), (z), (zb), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzl), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzk), (zzzzl) and (zzzzo) of clause (105) of section 65 of the Act, be such services as are performed in India: xxxxx (iii) specified in clause (105) of section 65 of the Act, but excluding (a) ... (b) ... (c) … …, be such services as are received by a recipient located in India for use in relation to business or commerce. Provided that … … … Xxxxx' makes it abundantly clear that it not only governs the determination of the import of services in the three categories but also limits the scope of taxation of import of services on 'reverse charge.' Accordingly all services provided from outside India are exempt except in circumstances that determine taxability supra. We take note that, unlike section 65 (105) which assigns equal importance to provider, recipient and activity, the recipient has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the reading of Rule 3(iii) of Taxation of Services (Provided from Outside India & Received in India) Rules, 2006. As per provisions of this rule, the taxable services provided from outside India & received in India shall be such services as are received by a recipient located in India for use in relation to business or commerce. In the present case, indisputedly the recipient of services is the appellant located in India. The expression "received by a recipient located in India" in Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 matches the expression "received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India" in clause (b) of Section 66A of the Finance Act, 1994. Harmonious reading of the provisions of clause (b) of Section 66A of the Finance Act, 1994 and the provisions of Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 makes it clear that the recipient located in India is liable to pay tax on the taxable services received for use in relation to business or commerce. In this case, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade practices as also the holistic view of the operations, in my view, no distinction can be made for the services in connection with the loan vis-`-vis borrowing.' 13. We see from our earlier decision that if the establishment of the appellant in India, conforming to conditions in section 66A of Finance Act, 1994, is the recipient of services that are taxable under section 65(105(zm) of Finance Act, 1994, the Finance Act, 1994 and the Rules framed thereunder do not afford relief to the appellant. The appellant in re Tata Steel did not transact with institutions that M/s Coastal Gujarat Power Ltd did and we, therefore, turn to the contention of Mr Sujit Ghosh who, for the appellants, claimed that the provider of the service was immune to taxation owing to the statutes enacted by the sovereign legislative organ that, in pursuance of international agreements entered into by the Government of India, were intended to prevail over any other law. Learned Counsel for the appellant cited section 5 of the Asian Development Bank Act, 1966 which is 5. Conferment of status and certain immunities, exemptions and privileges on Bank and conferment of certain immunities, exemptions and privilege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and its operations and transactions shall be exempt from all taxation and from all customs duties. The Bank shall be exempt from any obligation for the payment, withholding or collection of any tax or duty. 2. xxxxx 3. No tax of any kind shall be levied on any obligation or security issued by the Bank, including any dividend or interest thereon, by whomsoever held: (i) which discriminates against such obligation or security solely because it is issued by the Bank; or (ii) if the sole jurisdictional basis for such transaction is the place or currency in which it is issued, made payable or paid, or the location of any office or place of business maintained by the Bank' In Section 9 of Article VI of the Schedule in the International Finance Corporation (Status, Immunities And Privileges) Act, 1958, the relevant portion is 1. The Corporation, its assets, property, income and its operations and transactions shall be exempt from all taxation and from all customs duties. The Bank shall be exempt from any obligation for the payment, withholding or collection of any tax or duty. 2. xxxxx 3. No tax of any kind shall be levied on any obligation or security issued by the Corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on every authority in the country. 16. However, Learned Special Counsel for respondent-Commissioner cites the findings in paragraph 4.11 of the impugned order that '4.11 ….. It is important to note that there is no absolute immunity from the taxation on the transactions or operations of the ADB. The, Section 5, itself provides that, in certain circumstances the immunity will not be applicable or the immunity would be restricted to a certain level. In fact clause (c) to proviso, provides for non applicability of immunity of services rendered by ADB. Further, the clauses (3) and (4) of Article 56 clearly provides that no tax of any kind shall be levied on any obligation/security issued by the bank in two circumstances.' with which the adjudicating Commissioner dismissed the applicability of those provisions by remarking that the facts of the present case do not satisfy these conditions and further charged the appellant with attention to only certain portions of the statute with intent to misguide the adjudicating authority. We are afraid that this peremptory summation is not worthy of the matter being determined or the process initiated by a statutory authority for recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to markets for global trade et al, and the supra-national bodies that are established to administer the Agreements are, by common consent and universal acclaim, accorded various privileges in furtherance of the larger good. These immunities are the response of civilization to internationalisation of conflict resolution, resource allocation and social detriment. They are so couched as to enable application across space and time. To ascribe the expressions as referring to nomenclatures in domestic tax laws assign an overwhelming importance to tax regimes in negotiations over matters affecting future of mankind. It must be borne in mind that the Agreements, besides having to address a world-wide audience of governance mechanisms, are required to be valid even in circumstances of generational shifts in tax regimes and, therefore, must encompass the taxes that may find a place in the future realms of public finance. That would explain the simple precision in articulating the immunity. Taxes may be designated differently in different countries but the expression 'taxation' must cover all of them. Customs duties, a symbol of nationhood and sovereignty, a resonates in the public finance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treaty obligations. But the treaty or Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be construed in more than one way. The reason is that if one of the meanings which can be properly ascribed is in consonance with the treaty obligations and the other meaning is not so consonant, the meaning which is consonant is to be preferred. Even where an Act has been passed to give effect to the convention which was scheduled to it, the words employed in the Act had to be interpreted in the well established sense which they had in municipal law.' To that end we recall the preamble to both the exempting Acts. The International Finance Corporation (Status, Immunities And Privileges) Act, 1958 begins thus 'An Act to implement the international agreement for the establishment and operation of the International Finance Corporation in so far as it relates to the status, immunities and privileges of that Corporation, and for matters connected therewith.' and the Asian Development Bank Act, 1966 begins thus 'An Act to implement the international Agreement for the establishment and operation of the Asian Development Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r v. Andhra Sugar Ltd [1988 (38) ELT 564 (SC)] has been reserved for those concerned with law-making which, inter alia, includes notifications. The Central Board of Excise & Customs is not the authority for issue of notifications; that is the preserve of the Central Government. An attached or subordinate office is not synonymous with Central Government. We have the highest of regard for the technical domain knowledge of the Central Board of Excise & Customs - collegially and individually - but it is not within the meaning of 'authority issuing the notification' and is, in any case, the umbrella organisation for one of the litigants before us. To accept its interpretation, even in a persuasive light, would be improper. We are also informed by Learned Counsel for appellant that, in addition to lack of clear assertion, the authority in the Ministry of External Affairs that was consulted has not been identified and lacks credibility reasons. We decline to accept the urgings of Mr Singh. 22. We would like to give some thought to the apparent difference in approach in so far as the immunity of the two service providers vis-a-vis the United Nations and its various bodies. On behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature. 24. That Asian Development Bank and International Finance Corporation are existing entities in the eyes of the sovereign legislature cannot be in doubt in view of the legislation pertaining to these bodies. Section 66A is a special provision to attract tax as a countervailing measure to cover circumstances that general taxing provision, section 66, does not encompass. The mechanics of implementation of the special provision are embodied in the Rules that we have elaborately discussed supra. We have inferred that the tax is restricted to circumstances that do not admit to jurisdictional existence of the provider. A legislation that admits to status, privileges and immunity of providers within the territory of India stands on a better footing as having jurisdictional presence than administratively ascertained characteristics such as establishment and place of residence. Hence we conclude that the Asian Development Bank and International Finance Corporation do have an existence in India, even if not corporeally, by legislative acknowledgement. The services rendered by them are not de hors the provider as to require recourse to section 66A to be subject to taxation. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Supreme Court was not much convinced that the doctrine of 'pacta sund servanda' could override the constitutional prescription of legislating treaties into enactment for acquiring force of law. In Maganbhai Ishwardas Patel v. Union of India [1969 SCR (3) 254], it was held that 'the power to legislate lies with Parliament under entries 10 and 14 of List I of Seventh Schedule. But making of law under that authority is necessary when the treaty or agreement restricts the rights of citizens or others or modifies the laws of the state. If the rights of the citizens or others which are not justiciable are not affected, no legislative measure is needed..' With the two Acts in place, there can be no doubt about that which will prevail. The decisions in Kubic Dariusz v. Union of India [1990 AIR 605] and Mackinnon Mackenzie v. Audrey D'Costa [(1987) 2 SCC 469] indicate the tendency to the alternate approach of harmony with international law as the cornerstone of administration when in conflict. In Jolly Verghese v. Bank of Cochin [1980 SCR (2) 913], Justice VR Krishna Iyer speaking for the Bench laid out the constitutional framework thus: 'India is now a signatory to this Covenant an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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