9911796707
TMI Blog2023 (6) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 liability wherever applicable under reverse charge mechanism. On further scrutiny of the financial records of the appellant like form No. 3CEB submitted to Income Tax department in respect of international transaction entered with the associate enterprises, the Department had noticed that the appellants had paid Rs.29,10,442/- and Rs.170,36,25,836/- to M/s Star Television Productions Ltd. and M/s Satellite Television Asia Region Limited respectively, for availing the services like brand registration/protection services and for sale of advertisement air time, distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect 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 report the expenses incurred in foreign currency in respect of the amount of commission paid by the above three foreign companies, which are being merged with the appellant company as the transactions pertains to FY 20092010 and FY 2010-2011, between the appointed date and effective date of merger, but were shown in the books of accounts of the appellant due to the said the merger of foreign companies with the appellant. This compliance action of reporting to Income Tax department by the appellant has been taken as a basis for demand of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 brought through the Finance Act, 2006 w.e.f. 18.04.2006. However, consequent to the introduction of Negative List in service tax legislation, the said legal provision under section 66A was withdrawn through amendment in Finance Act, 2012 brought w.e.f. 01.07.2012. Thus we find that during the disputed period the said legal provision of section 66A was having force of law. The said Section 66A of the Finance Act, 1994 is extracted below: "66A. (1) Where any service specified in clause (105) of section 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 we find that any foreign branch or foreign agency or overseas permanent establishment of the service recipient in India is also excluded from the charge of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) becomes liable upon culmination of the taxable event. It is only when taxable event is sought to be reconstructed from the final accounts (and not from the ledger) that such speculative fastening is resorted to. The canvas is not unlike a palimpsest with tax authorities limiting themselves to the surface visual and the appellant insisting that the true picture lies beneath. The order of the Tribunal in re ITC Hotels Ltd, cited by Learned Authorized Representative, decided the issue of eligibility to refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, 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 liability would arise against the service provider.' is far removed from attempting to fasten tax liability that does not accrue in the pre-amalgamated existence of the appellant herein by any stretch and the equation in a deeming fiction is invoked to construe importation of service. For one, reliance was placed on the decision of the Hon'ble Supreme Court in re Marshall Sons & Co (India) Ltd as the order impugned therein had held it to be applicable to the dispute therein. For another, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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 on behalf of the Transferee Company. This is the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the court before the Registrar of Companies, the allotment or shares etc. may have all taken place subsequent to the date of amalgamation/ transfer, yet the date of amalgamation in the circumstances of this case would be January 1, 1982. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gkong 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 India with M/s Satellite Television Asian Region Limited, Hong Kong has not been determined by the adjudicating authority who has presumed that the consideration entered in the final accounts is for taxable service. Such determination is necessary as the agreement before the commencement of the amalgamation scheme was between two entities outside India and entirely beyond the ken of tax authorities. The absence of any efforts in that direction is demonstrative of any exercise undertaken to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 In my view, as discussed earlier paras, for the purpose of Section 66A, the airline head office - 'BA, U.K.' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant 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 Rs.12,000 crores as taxes during the periods 2007-2008 to 20112012.' 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 the transaction that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ech 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 Taxation of Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 impugned order that service have not been used for business or commerce outside India.' 11. The impugned order has failed to identify the 'taxable service' that the erstwhile foreign entities had obtained from the foreign service provider without which the test of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 is not met. The adjudicating authority has failed to consider the deemed demutualization of amalgamated entity and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
