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TMI Blog2017 (7) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... of the entity and a receipt in the branch is a receipt of the entity. Unless it is also established that the service has been provided to the person in India, a monetary transfer is not sufficient to invoke section 66A of Finance Act, 1994. In the absence of an activity between the branch and the headquarters for an identified consideration, the remittance received from overseas customers through the branch to the appellant would not be liable to tax. With the adjudicating authority having segregated the services that are not relatable to the location of the recipient under the Place of Provision of Services Rules, 2012, taxes been confirmed on such services as are relatable to the location of the recipient. It has been held that it is not the overseas branch/permanent establishment that has received the service but the entity in India. We note that the demutualisation that has been legislated in section 66A would not be applicable after 1st July 2012. Consequently, there is no distinction between the overseas establishment and the controlling establishment in India. It would therefore appear that, for the period after 1st July 2012 the services that have been availed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,05,98,234 was demanded on account of the remittance made in foreign currency towards expenditure incurred by the establishments abroad for the same period. In the impugned order, PUN-EXCUS-001-COM-039-13-14 dated 18 th December 2013, Commissioner of Central Excise, Pune - I confirmed the first of the two demands in its entirety while dropping a demand of ₹ 52,27,682 from the other besides imposing penalties. 4. It is seen that the impugned demand straddles the period during which two distinct statutory instruments governed tax of services received from outside India; the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 pertaining to the period prior to 30th June 2012 was substituted by Place of Provision of Service Rules, 2012. The parent statutory provisions for the two periods were section 66A and section 66B respectively. 5. Learned Counsel for appellant drew attention to the decision of the Tribunal in Milind Kulkarni others v. Commissioner of Central Excise, Pune-I [2016-TIOL-709-CESTAT-MUM] which is claimed to have been rendered in identical circumstances. Learned Authorised Representative sought our indulgence to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainment, and the statutory power to collect the tax from the deemed provider of the service would remain enforceable in the absence of a determination of the rendering of service within India. The existence of a variety of taxable service, each with its own distinguishing characteristics, renders such determination to be sufficiently complex as to warrant individual treatments for the different services. Hence the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 segregates the services into three categories. The determination of receipt of the service may thus be in relation to the location of the object for which the services required, the location at which the service is performed or the location of the recipient; the last being the default for such determination. 8. By itself, such segregation would not suffice to meet the objective of the levy; the structuring of business entities that have a presence both in India and outside is relevant consideration for erecting the framework to ensure that tax is not escaped while conforming the constitutional requirement of collecting taxes only to the extent authorised by the sovereign legislature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said that there is no consideration and hence the submission made and reliance placed by the assessee are totally irrelevant. 11. There appears to be an inherent contradiction in the finding reproduced supra. On the one hand, the adjudicating authority holds that the branch provides a service to the appellant, i.e. provision of service on behalf of the client (i.e. the appellant) whereas that which is sought to be taxed are the remittances made by the overseas branches to the appellant which is the consideration for the software development service and information technology software service rendered to the overseas customer. Undoubtedly the legal fiction of recipient being the provider has been enacted in section 66A but the fiction of the payment received by the recipient of the service is not covered in that provision. As provider of service, the branch should have been the recipient of the flow of funds and not vice-versa. It is on such outward flow that section 66A fastens tax liability on the Indian entity. The remittances by branches to appellant is not liable to be taxed under section 66A of Finance Act, 1994. 12. It is apparent that the tax authorities f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iliary service by the branch to the headquarters. 13. Among the arguments of Learned Authorised Representative in relation to the decision in re Milind Kulkarni is the amendment to Finance Act, 1994 with effect from 1 st July 2012 which did away with the special enactment of section 66A. In the erstwhile regime, the definitions of the services themselves indicated the scope of the transaction that was to be taxed whereas post-amendment the scope is determined within the charging section itself as provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. The critical element here is the provision of service in the taxable territory. The determination of places from which such services are provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided has been vested with the Central Government under section 66C. The second clause of this section makes it abundantly clear that the location of either the provider or the recipient or both outside the taxable territory will not invalidate the rules framed for such determination under section 66C of Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service. A natural corollary is that taxable service provided by the overseas establishment of an Indian entity to the Indian entity would not only be liable to tax but be taxed in the hands of the Indian entity subject to the nature of the taxable service as enumerated in the Rules. It would appear that the adjudicating authority has, for the purpose of confirming the demand, held that the services rendered to the overseas establishment has been rendered to the establishment in India. Given the distinction drawn between the Indian entity and the overseas branch/establishment in section 66A(2) and, the undisputed fact that the service has, indeed, been rendered outside the country, the insinuation of the headquarters organisation as the ultimate recipient to bring it within the scope of Rule 3 (iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 would not be consistent with the demutualisation that has been legislated by section 66A (2). It is well settled in law that what cannot be done directly should not be done indirectly. The impugned order has attempted to do so. 15. With the adjudicating authority having segregated the services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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