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TMI Blog2017 (1) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... t the grain of procedural simplicity to collect the tax by deeming fiction merely for refunding it subsequently. From this it would appear that the reference to business or commerce in rule 3(iii) in Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 is restricted to business and commerce in India not to business and commerceoutside India. We find no allegation in the notice or conclusion in the impugned order that service have not been used for business or commerce outside India. The services obtained by overseas branches of appellant are not liable to tax under section 66A of Finance Act, 1994 - appeal allowed - decided in favor of appellant. - ST/520/2012 - A/94391/16/STB - Dated:- 9-12-2016 - Shri M V Ravindran, Member (Judicial) And Shri C J Mathew, Member (Technical) Shri A.R. Krishnan, Chartered Accountant for the appellant Shri D. Nagvenkar, Addl. Commissioner (AR) for the respondent Per: C J Mathew: The appellant, M/s 3i Infotech Ltd, is in the business of software development and its export and has branches and subsidiaries outside India. These overseas branches incur expenses for consultancy and professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjudicating authority held that section 66A of Finance Act, 1994 is attracted on this expenditure acknowledged by the appellant as having been spent by them. 5. Appellant contends that the amount reflected in the balance sheet has been incurred by a branch outside the country and is not taxable in the hands of the appellant. It is also contended that the branch is a separate entity bound by the statutes of the country of operation and the use of any services by the branch does not lead to the allegation that the appellant is the recipient thereof. 6. It is now settled in law that tax is not leviable on import of services prior to April 2006 and the demand in the show cause notice for the earlier period should stand abated. Learned Chartered Accountant relies upon the definition in section 66A of Finance Act, 1994 to claim non-liability to tax for the period thereafter. 7. Learned Authorized Representative reiterates the findings of the adjudicating authority and relies upon the decision of the Tribunal in Torrent Pharmaceuticals Ltd v. Commissioner of Service Tax, Ahmedabad [2015 (39) STR 97 (Tri-Ahmd)] as justification for considering branch and headquarter to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of BA, U.K. in India is not a permanent establishment is without any basis. The appellant BA, India, therefore have to be treated as a branch office in India of BA, U.K. and in terms of Explanation to Section 66A, BA, India, would have to be treated as Business Establishment of BA, U.K. in India, which as discussed above, has to be treated as a Permanent business establishment of BA, U.K. in India. By virtue of sub-section (2) of Section 66A, BA, India, who are a permanent business establishment in India of BA, U.K. (head office), are to be treated as a person separate from the head office and they cannot be treated as part of the head office for the purpose of Section 66A. In this case, there is no dispute that :- (a) agreements are between BA, U.K. and the CRS/GDS companies (located outside India and not having any branch or business establishment in India); and (b) the entire payment to CRS/GDS Companies have been made directly by the head office located outside India and no part of payment has been made by the branch office i.e. BA, India. xxxxxxx 31.3.1 In my view, as discussed earlier paras, for the purpose of Section 66A, the airline head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed 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 have 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 ₹ 12,000 crores as taxes during the periods 2007-2008 to 2011-2012. For a clearer appreciation of section 66A(2) of Finance Act, 1994, we must place it in the context of the status of appellant as an export oriented unit and the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in re M / s Tech Mahindra Ltd wherein we have held that 21. From the above, it is apparent that mere identification of a service and the legal fiction of separate establishment is not sufficient to tax the activities of the branch. The very existence of a branch presupposes some kind of activity that benefits the primary establishment in India and the organizational structure inherently prescribes allocation of financial resources by the primary establishment to the branch to enable undertaking of the prescribed activity. The books of accounts and statutory filings do not distinguish one from the other. The application of Finance Act, 1994 to such a business structure within India does not provide for a deemed segregation. Such a legal fiction in relation to overseas activities should, therefore, have a reason. 22. Section 66A of Finance Act, 1994 does not prescribe promulgation of any Rule for its administration. The two sets of Rules extracted supra are framed under the general provision in section 94 of Finance Act, 1994. Moreover, the Rules draw upon section 93 of Finance Act, 1994 in a manner akin to Export of Service Rules, 2005. It is noticed that the Taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obliged to in the absence of any allegation to that effect in the show cause notice. Unless the recipient is located in India, section 66A cannot be invoked. 13. The other crucial aspect is receipt of service for use in relation in business or commerce which would, in most circumstances, be the key to determine if service was rendered to the recipient. There is no doubt that, on export, the scheme of taxation divests the tax element. Services rendered by foreign provider are subject to tax by the deeming fiction in section 66A of Finance Act, 1994 that recipient is the provider of the service. The objective of taxing such services in relation to domestic activities of a recipient is well within the scheme of levy of service tax. Levy of tax through section 66 of Finance Act, 1994 on all domestic entities receiving services from domestic providers is also within the scheme of taxation of services because the service is not attributable, at that stage, to domestic consumption or exports. Hence CENVAT Credit Rules, 2004 provide for monitoring of availment and grant of refund to exporters subsequent to discharge of tax liability. However, utilization of services which are patently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re M/s Tech Mahindra Ltd wherein we have held that: 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 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 whether before 2012 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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