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TMI Blog2022 (8) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... very of interest, at the appropriate rate(s) as applicable during the relevant period, on the demand of Service tax as confirmed at para 31.1 above, under the provisions of Section 75 ibid. 31.3. I impose a penalty of Rs.15,000/- only (Rs.5,000/- each for each S.T.-3 return), for their failure to file correct service tax returns, during the period from October, 2006 to March, 2008, as provided under Section 70 ibid, under the provisions of Section 77 ibid 31.4. I also impose a penalty of Rs.1,48,90,190/- (Rupees One Crore Forty Eight Lakhs Ninety Thousand One Hundred and Ninety Only], on the assessee, i.e. M/s Tata Technologies Ltd., Pune, under the provisions of Section 78 ibid. However, since penalty is being imposed on M/s TTL under Section 78 ibid, I do not propose to impose any penalty under Section 76 ibid, in view of the provisions of fifth proviso to Section 78 ibid, as discussed in para 30 above; 32. I also give an option to the assessee, i.e. M/s Tata Technologies Ltd., Pune, under first proviso to Section 78 of the Finance Act, 1994, to pay the reduced 25% of the penalty amount as imposed under Section 78, in para 31.4 above, only if M/s TTL pays the entire amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While remanding the matter CESTAT made following observations:- "5.1 As per the agreement entered into between TTL & TTL Korea and TDCVL, TTL and TTL Korea have to render Information Technology Services to TDCVL in Korea. The services rendered consist of two components - onsite services rendered by TTL Korea and offshore services rendered by TTL. Nevertheless, the service recipient remained TDCVL and not anybody else, for which they have paid the consideration. As per the agreement, the invoices for the services rendered are raised by TTL Korea on TDCVL for both onsite as well as offshore services. It is also confirmed by the Counsel that VAT/GST liability has been discharged by TTL Korea at the time of supply of services to TDCVL. If that be so, the question of subjecting the same transaction to Service Tax in India at the hands of TTL would not arise at all. 5.2 Secondly, the C.B.E. & C. in the case of M/s. Tech Mahindra relating to IT Software services had clarified that onsite services rendered abroad would not be treated as service provided from India. In other words, the question of subjecting such transactions under Service Tax in India would not arise at all. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices rendered by TTL Korea are not classifiable as Business Auxiliary Service (BAS) on behalf of appellant, in the absence of principal-agent relationship and hence not taxable under Business Auxiliary Service (BAS). * Service tax cannot be levied on the transaction between overseas branch and head office in India which is engaged in exporting the services outside India as this is against the objective of the legislation to introduce section 66 A in the finance act, 1994. In any case. The services were neither received in India not used for any business or commerce in India and hence, not liable to be taxed in India. As per following decisions: * KPIT Cummins Infosystems Ltd. [2014 (33) STR 105 (T-MUM)]; * 3i Infotech Ltd. [2017 (51) S.T.R. 305 (Tri. - Mumbai)]; * Milind Kulkarni [2016 (44) S.T.R. 71 (Tri. - Mumbai)] * ITSS services were expressly excluded from the ambit of "Business Auxiliary Services" and "Consulting Engineer Services" during the period in dispute. * The offshore services rendered by TTL Korea are indeed exports in terms of export of services rules. 2005as in present case both service provider and recipient are located outside India * The value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation Technology Software Service in a catena of judgments and also by the Bombay High Court in the case of CITI BANK N.A. [2018 (18) G.S.L.L. 580 (Bom.)). * Several cases have held that when such services were provided by the India subsidiaries to their foreign holding companies, the nature of the service was BAS and also the service was said to be provided by the India subsidiaries to their foreign holding companies. Subsequently, in these cases the benefit of export was extended to these companies. * Here, it was held that it is location of the recipient of the service which is pertinent. Here, it is an admitted fact that the location of the service receiver, appellant is in India .Hence, as per Section 66A(2) of Finance Act, 1994, appellant is required to deposit tax on an RCM basis. * TTL Korea has made its financial records independent from appellant. Also, it only treats the amount of consideration paid for its on-site service to TDCV Korea as its income. Also, it has no contract with to TDCV Korea but only with appellant to provide services on its behalf. * The fact that VAT has been paid by TTL Korea in Korea has no implications on the taxation in India. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, who was providing services on behalf of the assessee, being separate legal entity as per the provisions of Section 66A of the Finance Act, 1994, were providing Business Auxiliary Service', as defined under Section 65(19) of the Act and therefore, Service Tax on such services was liable to be paid by M/s TTL on the amount recovered by TTL Korea, from their client, under the reverse charge mechanism, in terms of Section 66A of the Act. 15. Accordingly, a Show Cause Notice dated 24-04-2012 was issued to the assessee, demanding Service Tax of Rs.1,48,90,191/-, for the period October, 2006 to March, 2008, which has been calculated, considering the payments received by TTL Korea, from TDCV Korea, along with interest at the appropriate rate during the material period and also proposing penal action on the assessee. 16. I find that the main issues, therefore, to be decided in the present case may be summed up as under: (i) Whether TTL Korea, were providing any service to M/s TTL and whether M/s TTL are liable to pay Service Tax on the same; (ii) Whether TTL, Korea were providing Information Technology Software Service; (iii) Whether Head office of M/s TTL in India can be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service is provided Or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply: Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply: Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. 19.3 Hence, I hold that as per the above said provisions, M/s TTL are liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermanent Establishment in India': 21.1. M/s TTL in their written submissions dated 02-07-2012 have contended that the head office of M/s TTL in India cannot be regarded as "Permanent Establishment in India". During the course of Personal Hearing held on 19.10.2012, the authorized representatives of M/s TTL, have submitted a copy of relevant pages of Model Tax Convention on Income and Capital'. The term "Permanent Establishment" has been defined at Chapter II , Article 5 of the said Model Tax Convention on Income and Capital', which is reproduced below for easy reference : 1. For the purpose of this convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) A place of management; (b) A branch; (c) An office; (d) A factory; (e) A workshop, and (f) A mine, an oil or gas well, a query or any other place of extraction of natural resources. (Emphasis provided) 21.2. As per the provisions of section 66A(2) of the Act (as reproduced in para 17.2 above), Where a person is carrying on a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were performed by TTL India, and hence there can at least be no demand on that portion of the activity that was performed by TTL India. 22.2. Here I find that in their written submissions dated 02-07-2012, at Para A.4., M/s TTL, have submitted as under : "----------The agreement between the parties specifically referred to the branch office in Korea. This shows that the obligation of rendering the service to TDCV Korea, was on TTL (as a company) through its branch in Korea and not on any particular branch in India. This strengthens the submission that the direct obligation of rendering the entire gamut of service including off-site and on-site services was on TTL Korea". Further, at Para A.8, M/s TTL have mentioned, "It is further submitted that TTL Korea was discharging the liability under Korean VAT on both the off-shore as well as on-site services". Here, I find that the obligation of rendering the entire service was on TTL Korea, and also the entire amount of payment was received by TTL Korea, which confirms the fact that the demand on the entire amount billed by TTL Korea is liable to be raised on M/s TTL, as TTL Korea provided the entire service to TDCV Korea, on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this agreement (including the Annexures attached hereto) the following words will have the meaning assigned to them as under: ....... "Contract Price" shall mean the fees payable on time and material basis as specified section 6 of this agreement, to be paid by TDCV to TTL for performance of the Work under this Contract. ....... "Job Site" shall mean TDCV premises located at 1589-1, Soryong-Dong, Gunsan, South Korea, TTL office in Seoul, South Korea and TTL STP Unit at Development Center, MSD Building , Tata Motors Ltd Premises, Jamshedpur-831010, India. ...... 3 SCOPE OF CONTRACT: a ..... b Services will be rendered by TTL, in respect of implementation of SAP 4.6C at TTL premises in Korea, TDCV Premises in Gunsan, Korea and TTL STP Unit at Development Center, MSD, Building, Tata Motors Ltd. Premises, Jamshedpur 831010, India in accordance with the detailed provisions in Annexure-l and Annexure-Il. c.... d. TDCV agrees to pay TTL the consideration, including all applicable taxes and other incidentals associated with this agreement. 6. PAYMENT OF CONSULTANCY FEES 6.1 TTL will be paid a lump sum fee of US$ 1,002,000 (US Dollars one million and two thousand o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not raised any invoice on their branch office located in Korea. Nor the branch office has raised any invoice on the appellant in respect of any services provided by them to TDCV as per the agreement referred above. TTL Korea has raised the invoices on the TDCV for the entire contract price as per the clause 6.1 and 6.2 of the agreement. Nothing has been brought on record in the impugned order to show that TTL Korea was raising the invoices or receiving payments from appellant in any manner for provision of the onsite services to TDCV. 4.7 In case of KPIT Cummins Infosystems Ltd. [2014 (33) STR 105 (T-MUM)] following was held: "5.1 The provisions of Section 66A are attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad. In the present case, the appellant has provided services through their branches abroad to customers located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has received procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 (39) STR 97 (T-AHM)] following was held: "5.3 On the issue of demand of service tax of Rs. 11,56,32,589/- with respect to remittances made by the appellant to branch offices, both sides have relied upon the case law of M/s. British Airways v. CCE (Adj.) Delhi [2014-TIOL-979- CESTAT-MUM]. It is the case of the appellant that nearly Rs. 7 crore demand is with respect to salary of the employees of the appellant working in the foreign branch offices, treating the branch offices/establishments as service providers held by Revenue as a separate legal entities under the provisions contained in Section 66A(2) of the Finance Act, 1994. Senior Advocate appearing on behalf of the appellant strongly argued that in the light of provisions contained in Section 66A(2) of the Finance Act, 1994, the explanation-I has to be read only to clarify the place of services provided and not for the purpose of creating another service tax liability for an activity provided to self. For the remaining demand of service tax, it is the case of the appellant that this demand pertain to services availed abroad by the branch offices/establishments as separate legal entities, on which VAT/GST of the relevant co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.'' 5.5 Section 66A (1) above is talking of service provider and service recipient as 'persons' which has to mean as different business persons. Section 66A(2) and its Explanation I only make a clarification and to fix service tax liability on recipient of services under reverse charge mechanism that both the permanent establishments in India and abroad of a business person are to be treated as separate persons. The above clarification/distinction made in Section 66A in our opinion is only for making an identification to determine whether a service is provided and consumed in India or abroad. It is an accepted legal position that one cannot provide service to one's own self. If the 'permanent establishment' of the appellant abroad is treated as a service provider to its own head office in India then it will amount to charging service tax for an activity provided to one's own self. Similarly p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the service has been received by the Head Office of the appellant at UK against its agreements with CRS/GDS Companies and as accepted in the impugned order, entire payment has been made abroad by the Head Office directly to CRS/GDS Companies and when in view of the provisions of Section 66A (2), the appellant-BA, India and their Head Office at UK, BA, UK are to be treated as separate persons, the entire transaction of provisions of service has to be treated as having taken place outside India and the service received by the Head Office at UK cannot be treated as service received by the Appellant, in India. (6) In my view, the only situation where in respect of the service provided by a service provider 'A' located outside India against as agreement/ contract with Head office of a company 'B', incorporated outside India i.e. located outside India, the service tax can be charged from the branch office 'B-l' in India of the Company 'B' when :- (a) the Headquarter of the Company 'B' has entered into a framework agreement/ contract with the service provider 'A' by the way of centralized sourcing of service for Provision of service at various branches located in different countr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not required to be so identified and report (e.g., businesses below the turnover thresholds that apply in some countries or private consumers), cannot recover the tax. Moreover, under most VAT/GST systems even businesses identified for VAT/GST or suppliers that make supplies of goods or services that are exempt from VAT/GST can recover input tax only to the extent that they also make taxable supplies. Similarly, as a matter of tax policy, some systems deny or restrict recovery of input tax incurred on particular expenditures e.g. cars or business entertainment, to reflect nonbusiness or private use. This unrecoverable tax is an intentional part of the VAT/GST system. Customers to which recovery of input tax is denied in such circumstances are treated as if they arc final consumers. 9. The main rule defines the place of taxation on the basis of customer location and in normal circumstances should be applied to determine the place of taxation. The identity and the jurisdiction where the customer to which the supply is made is located will then be normally supported by the relevant business agreements, as it is expected that business agreements generally reflect the underlying tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the compliance costs for the tax authority are also low because the supplier is not required to meet tax obligations in the customer's country (e.g. VAT/GST identification, audits, which would otherwise have to be administered). Finally, it reduces the revenue risks associated with the collection of tax by non-resident suppliers, whether or not that supplier's customers are entitled to deduct the tax or recover it through input tax credits.'' 5.8 In the light of the emerging international concepts on reverse charge mechanisms and the judgment of M/s. British Airways v. CCE (supra), the foreign branches/establishments of the appellant have not acted as 'facilitators' but have actually consumed those services abroad for which local VAT/GST of the respective country has been paid. The representative invoices produced by the appellant indicate that local VAT/GST paid is 'Nil' when billing by overseas service providers is directly raised upon the appellant in India on which service tax is paid by the appellant on reverse charge basis. When billing is raised on the branch office for a service consumed abroad then local VAT/GST applicable abroad is paid by the branch offices on such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 also mirrors the Export of Service 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 ..... 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