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TMI Blog2023 (6) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) to Section 66A. Accordingly, it is found that when a taxable service is provided by a service provider having a fixed establishment or permanent address or usual place of residence in a foreign country and such service is being received by a person having place of his business or fixed establishment or permanent address or usual place of residence, in India, then by treating that the service recipient had himself providing such service, the applicable service tax is payable - in sub-section (2) to Section 66A another exception has been made for the situation that where a service recipient is having a permanent establishment in India and is also carrying on business in a foreign country through another permanent establishment in that country, then these two business entities shall be treated as separate persons for the purpose of Section 66A. Accordingly any foreign branch or foreign agency or overseas permanent establishment of the service recipient in India is also excluded from the charge of service tax under the provisions of Section 66A. Applying these legal provisions to the present case, it is evident that the three foreign companies/overseas business enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal No. 57/COMMR/DR.KNR/CGST CEX/MC/2018-19 dt. 30.08.2018 (referred to as impugned order) passed by the learned Commissioner of GST Central Excise, Mumbai Central, Mumbai. 2.1. Briefly stated, the facts of the case are that the appellant herein is registered with the jurisdictional Commissionerate under service tax registration No.AAACN1335QST001 for providing taxable services enumerated under the Finance Act, 1994. 2.2. During the course of EA 2000 audit on the appellant s financial records, statutory records submitted to the Department for the period 2008-2009 to 2010-2011, it was noticed by the Department that the appellants had entered into international transaction, with their international associate enterprises for the use and provision of services, and paid consideration to them for providing services in connection with brand registration/protection services, with sale of advertisement airtime; distribution of channels and the syndication of content; management services including services in relation to preproduction, postproduction, play out, uplinking and transmission of the channels of the appellant. Accordingly, the appellants had discharged service tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Region FZ LLC, Dubai; Star Asian Movies Limited, British Virgin Islands; Star Television Entertainment Ltd., British Virgin Islands. He further submits the details of the case as follows. The scheme of merger was approved by the Hon ble Bombay High Court on 18.2.2010. The appointed date for the operation of the merger is 01.4.2009. The effective dates of amalgamation of the foreign companies after compliance with the regulatory authorities for closure of accounts maintained with the respective Registrar of companies was 29.04.2010 in respect of Star Asia Region FZ LLC and 31.05.2010 in respect of the other two companies namely Star Asian Movies Limited and Star Television Entertainment Ltd. These three foreign companies were owners of satellite television channels. These foreign companies appointed M/s. Satellite Television Asia Region Limited, Hong Kong as an agent for advertisement sales and distribution of the channels India and abroad. For the agency and channel distribution services provided by M/s. Satellite Television Asia Region Limited, these three foreign companies paid commission. The provisions of section 92E of the Income Tax Act, 1961 required the appellants to rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the appeals in their favour. Hence they pleaded that their appeal be allowed by setting aside the impugned order. 5. According to Learned Authorised Representative, as per the scheme of amalgamation/merger, the appointed day for the operation of the merger is 1.4.2009. During the period when the proceedings are pending before the Court, the amalgamated or transferor company shall be deemed to have carried on the business for and on behalf of the transferee company with all the attendant consequences. On this basis and by reiterating the findings made in the impugned order, the Learned Authorised Representative had stated that the appellant is liable to pay service tax. 6. Heard both sides and perused the records of the case. 7. We find that the issue for consideration before us is whether the appellant are liable for payment of service tax in terms of section 66A of the Finance Act, 1994, in respect of services received by three foreign companies which are being merged with the appellant company, as briefly stated in paragraph 2.2 above. We also note that the said Section 66A was inserted through an amendment to the Service Tax legislation i.e., Finance Act, 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) and sub-section (2) of section 66A, we find that the legal provision has been carved out to enable for application of the Chapter V Service Tax provisions for the purpose of charging service tax on taxable services received from outside India in certain circumstances described therein with few exceptions as provided therein under the first proviso to subsection (1) and under sub-section (2) to Section 66A. Accordingly, we find that when a taxable service is provided by a service provider having a fixed establishment or permanent address or usual place of residence in a foreign country and such service is being received by a person having place of his business or fixed establishment or permanent address or usual place of residence, in India, then by treating that the service recipient had himself providing such service, the applicable service tax is payable. We find that the exception provided in the first provisio of sub-section (1) from the charge of service tax in the above Section 66A is in relation to personal consumption by individuals, not concerning with services provided for the purpose of any business or commerce. Further, we find in sub-section (2) to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial purpose, and deviating from the norm of taxability, it is intended to have restricted application and only to the extent provided for therein. The case built up the tax authorities is that the appellant appears, from their accounting treatment of the payments made to M/s Satellite Television Asian Region Limited, Hongkong, to be the recipient of intellectual property service for 2009-10 and, hence, liable to tax. The entry in the accounts is not disputed; only the circumstances are. Hence, it now lies with us to ascertain if the records of payment from the appointed date or from the effective date is the more appropriate starting line for payment of tax by the appellant on the impugned consideration and, if it be the former, the extent to which section 66A of Finance Act, 1994 will operate for taxability. 9. There is no scope for Finance Act, 1994 to be concerned with restructuring or reconstruction of corporate entities as the tax is not, by and large, distinguished in terms of the character of the organization that is subject to tax; moreover, the tax liability crystallizes on rendering of a transaction in service and a provider (including deemed provider) bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veness of contacts and deeds under clause 6 above, shall not effect any transaction or the proceeding already concluded by the transferor companies on or before the effective date and shall be deemed to have been done and executed on behalf of the Transferee Company. By referring to the above clause, the contention of the learned DR is that any transaction or proceeding conducted by the transferor company on or before the effective date will not be affected by the scheme of amalgamation. However, we find that such clause stands incorrectly interpreted by the learned DR. A reading of the above clause is reflective of the fact that the action of the transferor company on or before the effective date shall be deemed to have been done and executed on behalf of the transferee company. As such, it is clear that the said clause supports the respondent s stand that any business conducted by the respondents is to be held as having been conducted on behalf of the transferee company. As such, the service tax provided to the ITC Ltd. and Ansal Hotels Ltd. have to be considered as having been provided on behalf of the transferee company viz. ITC. Ltd., in which case, no service tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with affect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences. It is equally relevant to notice that the Courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourselves to the charging provision invoked in the impugned order, viz., section 66A of Finance Act, 1994. In its no frills declaration, liability to service tax arises when the components of any of the taxable services enumerated in section 65(105) of Finance Act, 1994 can be clearly deduced from an identified activity undertaken for consideration by an overseas provider in transaction with a domestic entity. The case of Revenue is that M/s Satellite Television Asian Region Ltd, Hongkong was, on behalf of the appellant, paid by M/s Star Asia Region FZ LLC, M/s Star Asian Movies Limited and M/s Star Television Entertainment Ltd for use of their mark in the channels of the appellant. These marks were visibly exhibited on television screens eyeballed by viewers and it is moot if the deployment of the mark for which the impugned consideration was remitted is also done on behalf of the appellant who was a sub-agent for those who are deemed to have made the payment to M/s Satellite Television Asian Region Ltd, Hongkong. Indeed, on careful perusal of the impugned order, it is noted that the nature of service in the agreement entered into by the three amalgamating entities outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abroad would be that establishment which is for a particular project after completion of which, it would get wound up. The BA, U.K. have been allowed by RBI to set up branch office in India for operating air services subject to conditions as mentioned in the letter and the RBI s letter does not mention any period of validity of the permission or that the permission to set up branch, once granted, cannot be renewed. Therefore, the Department s contention that branch office 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification/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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertaken by adjudicating Commissioner to ascertain the nature of the transactions for which payments were made by branch in Dubai and the demand in the impugned order lacks appropriate robustness in consequence. 11. Even if the payments are attributable to service rendered by foreign service providers to the appellant, the scope of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 needs ascertainment. We refer to our decision 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 in relation to goods/ services that have already been exported, it goes against 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 commerce outside India. We find no allegation in the notice or conclusion in the impug ..... 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