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TMI Blog2021 (11) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice. The Revenue alleged in the demand notices that the said two service recipients were other 'establishments' of the assessee and therefore, provision of service to them was not export of service in accordance with item (b) of Explanation 3 of Clause (44) of section 65 B of the Finance Act, 1994 and in terms of rule 6A of the Service Tax Rules, 1994, as inserted w.e.f. 01.07.2012 vide Notification No.36/2012-S.T., dated 20.6.2012. 3. Relying upon clause (44) of section 65 B of Finance Act, 1994 and item (b) of Explanation 3 revenue further alleged that though the related parties of the assessee may be registered as separate entities in their respective countries under their respective Acts, it did not absolve their status of being 'any other establishments of the assessee'. The criteria of being 'any other establishment' has nothing to do with the place of registration, more so, when the law itself envisage that such other location may be a place outside India. 4. Revenue alleged that in terms of the provisions of rule 5 of Place of Provision of Service Rules, 2012 and section 66B of the Finance Act. Service tax was leviable under section 66B on services provided or agreed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said services as exempted services, invoked rule 6 (3) of the Cenvat Credit Rules, 2004 to demand an amount equal to 6% /7% of the value of exempted services in terms of rule 6 (3) of the Cenvat Credit Rules, 2004 which reads as follows: "Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services:- ______ ______ (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any of the of the following options, as applicable to him, namely: * pay an amount equal to six per cent of value of the exempted goods and exempted services, or (w.e.f 1.6.2015 amended vide Nott. 14/2015- CE(NT) as 'pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services) * pay an amount as determined under sub-rule (3A); or * maintain separate accounts...;" 8. It was further alleged that the appellant did not follow the conditions mentioned under sub-rule 3A of rules 6 of Cenvat Credit Rules, 2004 to pay an amount of Cenvat Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p companies situated out of India are not export services." 11. Learned Counsel argued that Sargent & Lundy LLC (USA) and Larson and Toubro Electromech LLC, are both independent legal entities and do not even qualify to be establishments of the appellant L&T Sargent and Lundy Limited. In this regard, the observations of the Commissioner in the above order are incorrect and misplaced. 12. Learned Counsel further pointed out that Commissioner has not placed any evidence on record to prove that Larson & Toubro Electromech LLC was set up by Appellant as its establishment. He pointed out that Larson & Toubro Electromech LLC (Oman) was incorporated in the year 1976 whereas the appellant was registered in the year 1995. He argued that in view of above facts, the assertion that Larson & Toubro Electromech LLC (Oman) is an establishment of the appellant is incorrect. Learned Counsel argued that in view of above facts, the services provided by the appellant to Larson & Toubro Electromech LLC (Oman) and Sargent & Lundy, USA, which are separate legal persons, qualifies to be export of services in terms of clause (f) of rule 6A of Service Tax Rules, 1994. 13. Learned Counsel further argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it provides that the provider of service and recipient of service are not merely establishments of a distinct person in accordance with tem (b) of explanation 3 of clause (44) of Section 65B of the Act. As per clause (44) of Section 658 of the Act. 1994 "service means any activity carried out by a person for other for consideration, and includes a declared service. Item (b) of the explanation 3 stipulates that an establishment of a person in taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Therefore, a question arises in the fact of the present case, whether the services provided by the petitioner No.1 located in India which is a taxable territory and the recipient of the service i.e. holding Company of the petitioner No.1 located outside India which is a non- taxable territory, whether both of them would be two establishments of the same Company or not so as to treat them as distinct persons liable for service tax. If the answer to this question is in affirmative, as interpreted in the impugned show cause notice that providing the services by the petitioner No.1 to its parent Company would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. He pointed out that decision of High Court in M/s Linde Engineering India Pvt. Ltd. was passed after the impugned order was passed. 18. In the rejoinder, learned counsel for the appellant pointed out that whether the transaction amounts to export of service or not is the primary issue to be decided. In M/s Linde Engineering India Pvt. Ltd. (supra), the High Court has, in similar circumstances, held in favour of the appellant. He pointed out that all the other arguments taken in his appeal are alternate arguments. He argued that relief needs to be granted as the primary issue has been decided by the High Court after examining the facts. 19. We have considered the rival submissions. 20. We find that facts are not in dispute that L&T Sargent & Lundy Limited (appellant) were found to be providing services to (1) Larson and Toubro Electromech LLC (2) M/s Sargent & Lundy, both located outside India without charging service tax treating the same as export of services. The audit contended that the two service recipients are nothing but 'other establishments' of the appellant and, therefore, provision of services to them was not export of services in accordance with item (B) of Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00% subsidiary of Linde AG, Germany, which is a leading worldwide technology partner for plant engineering and construction, and is inter alia engaged in the provision of consulting engineering and other services to various entities located in India and outside. On the basis of the scrutiny of the records of the petitioner No.1 by Central Excise Revenue Audit (CERA), it was observed by the respondents that the petitioner No.1 was rendering services to other organizations located in different countries out of India and was not charging service tax on such services treating the same as "export of services", more particularly, the petitioner No.1 rendered services to its parent Company and other establishments of Linde Group outside India without payment of service tax by wrongly treating the same as 'export of service. 10. Therefore, to consider the contentions raised by the petitioners that the impugned show cause notice is without jurisdiction, it would be germane to refer to the various provisions of the Act, 1994 and the Rules, 1994 read with Rules, 2004, which are made applicable to assume the jurisdiction by the respondent No.3 to issue impugned show cause notice. (1) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for conducting or organising a chit in any manner.; Explanation 3. - For the purposes of this Chapter, - (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;" (ii) Section 668 of the Act, 1994 reads thus: "Charge of service tax on and after Finance Act, 2012.- 66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." (iii) Section 66C of the Act, 1994 reads thus : "Determination of place of provision of service.- 66C. (1) The Central Government may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.]" (vi) Rule 2(e) as well as Rule 6 of the CENVAT Rules, 2004 reads thus: 2. In these rules, unless the context otherwise requires,- xxx [(e) "exempted service means a (1) taxable service which is exempt from the whole of the service tax leviable thereon; or (2) service, on which no service tax is leviable under section 65B of the Finance Act; or (3) taxable service, whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken, [but shall not include a service- (a) which is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 located outside India which is a non- taxable territory, whether both of them would be two establishments of the same Company or not so as to treat them as distinct persons liable for service tax. If the answer to this question is in affirmative, as interpreted in the impugned show cause notice that providing the services by the petitioner No.1 to its parent Company would be to the establishment of the petitioner and therefore it would be a distinct person. then rendering of service by the petitioner No.1 cannot be treated as "Export of Services as per Rule 6A (F) of Rules, 1994 because as per explanation 3(b) to Section 658(44) of the Act, 1994, the petitioner and holding Company are to be treated as distinct person as per the understanding of the respondent No.3, and therefore the petitioner would be liable to pay service tax. 12. However, on analysis of the aforesaid provisions, it appears that the respondents have assumed the jurisdiction on mere misinterpretation of the provisions of explanation 3 (b) to Section 65B(44) of the Act, 1994 read with Rule 6A of the Rules, 1994 as by no stress of imagination, it can be said that the rendering of services by the petitioner No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son & Toubro Ltd and Sargent and Lundy LLC (USA) are independent registered companies in India and USA respectively. The service recipient Larson and Toubro Electromech LLC is a company registered in Oman. The said company is formed with L&T Hydrocarbon Engineering Limited holding 70% of its share capital and Modern Channels Services LLC holding 30% of its share capital. From the above it is apparent that L&T Electromech LLC, Sargent and Lundy LLC (USA) and the appellants M/s L&T Sargent and Lundy Limited are each independent companies registered in their respective countries. From the above it is apparent that the appellant and service recipient are similarly placed as the service provider and service recipient in the case of M/s Linde Engineering India Private Limited decided by High Court. Consequently, LLC and Sargent and Lundy LLC (USA) cannot be treated as 'other establishments' of the appellant. 27. Thus, the fundamental charge that the service recipients are 'other establishments' of service providers in terms of in terms of rule 6A (f) and item (b) of Explanation 3 of clause (44) of section 65B of the Finance Act, 1994 is not established. Consequently, the services provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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