9911796707
TMI Blog2025 (1) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... ameters as gross amount charged towards consideration payable for the services received by the appellants. Period prior to 01.05.2011 - HELD THAT:- The Government had clearly stated that the scope of taxable services under Section 65(105)(zzzq) ibid is being expanded and the scope of services to be covered w.e.f. 01.05.2011 are explained as those services which are in the nature of support activities for the ongoing business support functions. As these services are distinct from operational assistance for marketing which was covered earlier under the scope of taxable services, for the limited purpose of understanding and for coming to a conclusion about the date of effect of bringing into tax net the scope of comprehensive services of operational or administrative assistance , we come to the conclusion that such expansion of services were brought under the tax net only with effect from 01.05.2011 and not earlier - the appeal filed by Revenue, for charge of service tax on the disputed activity, prior to 01.05.2011 do not have the support of law and therefore such appeal is liable to be dismissed. Period post 01.07.2022 - HELD THAT:- Post 01.07.2022, services were interpreted to refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 67 of Finance Act have been dealt in detail by this Tribunal in the case of M/S TECH MAHINDRA LTD., MILIND KULKARNI VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE - I [ 2016 (9) TMI 191 - CESTAT MUMBAI] . In the aforesaid case, the Tribunal has held that transfer of funds is nothing but reimbursements and taxing of such reimbursement would amount to taxing of transfer of funds which is not contemplated by Finance Act, 1994 and therefore set aside the demand of tax as having been made without authority of law. This Tribunal in the case of M/S. STEEL AUTHORITY OF INDIA LIMITED VERSUS COMMISSIONER OF SERVICE TAX, NEW DELHI [ 2020 (4) TMI 346 - CESTAT NEW DELHI] had held that charging section is Section 66 of the Finance Act, 1994 and not Section 66A ibid. The provision of Section 66A is only to determine whether the provision of service is in India or out of India. Therefore, it was held unless that charge of service tax is proved under Section 66 ibid, there cannot be levy of service tax only on the basis of Section 66A ibid. The Tribunal in the case of HALDIRAM MARKETING PVT. LTD. VERSUS COMMISSIONER, CENTRAL GOODS AND SERVICE TAX, GST DELHI EAST COMMISSIONERATE, NEW DEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s across all its domains. In order to provide support to all its global branches SCB-UK being the head office incurs certain expenses under the various heads such as advertising, auditing fees, donations, entertainment, gross emoluments, insurance, legal professional fees, national insurance contributions, pension contributions, postage, telephone, telegraph, printing, stationery, publication, newspapers, rent & rates, subscriptions, travel expenses, machinery, furniture, computer, Microfilm, miscellaneous expenses etc. All the above expenses are termed as 'head office executive and general administrative expenses'. These expenses incurred by the head office of the appellants are divided proportionately across various branches situated in different countries on the basis of gross receipts of the banks functioning in the respective country. The Department had observed that the expenses incurred by the head office of the appellants SCB-UK, which is allocated to the Indian branches are for providing business support service to the appellants, and service tax is required to be discharged on the aforesaid services received by the appellants under the category of 'business support servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... get covered under the scope of definition of 'support services of business or commerce' and therefore the tax demands to that extent is not sustainable on merits as well as on limitation. 2.5 Feeling aggrieved with the impugned Orders dated 25.05.2018 and 21.03.2018, the appellants have filed these appeals before the Tribunal. On the other hand, the Department have also preferred an appeal against the order of the learned Commissioner in dropping the tax demands to the extent of Rs. 29,84,49,115/-. 3.1 Learned Advocate appearing for the appellants had submitted that the said 'head office executive and general administrative expenses' have been incurred for their operations of their head office i.e., SCB-UK, in the UK and do not relate to Indian branch i.e. the appellants specifically. Unless two parties enter into a contractual relationship for performance of an activity/service, by one person to another, and there is an involvement of payment of consideration by said another person for such an activity, there is no provision of service triggering payment of service tax. In the present case, he stated that there is no contract or agreement between SCB-UK and the appellants which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scenario when a taxable service is provided by a person located outside India and the same was received by an Indian recipient, then the burden to comply with the provisions of Finance Act, 1994 is cast upon such Indian recipient. In their case, the expenses incurred by SCB-UK are not Indian branch specific, but of a general administrative nature consumed by the UK Head office, itself. Hence, he claimed that the aforesaid provision for charge of service tax are not attracted in their case. 3.6 Learned Advocate relied upon the following judgments in support of their stand: - (i) M/s Tech Mahindra Ltd., Milind Kulkarni Vs. Commissioner of Central Excise, Pune-I - 2016 (44) S.T.R. 71 (Tri-Mumbai) (ii) Kusum Healthcare Pvt. Ltd. Vs. Commissioner of Central Excise, Jaipur-I - 2018 (2) TMI 1408 - CESTAT New Delhi (iii) M/s Gujarat State Fertilizers & Chemicals Ltd. & Another Vs. CCE - 2016 (45) S.T.R. 489 (S.C.) (iv) Hazira LNG Pvt Ltd Vs. C.S.T. -Service Tax - Ahmedabad - 2022 (11) TMI 437 - CESTAT AHMEDABAD (v) Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd - 2018 (3) TMI 357 - Supreme Court (vi) Haldiram Marketing Pvt. Ltd. Vs. Commissioner, CGS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he point of taxation as per Rule 3 of Point of Taxation Rules, 2011 would be date of debit in the bank accounts by recipient or date of making payment whichever is earlier. The head office expenses have been claimed as deduction for the purpose of calculating the taxable profit for payment of Income Tax in India. Therefore, the date of claiming deduction of expenses shall be deemed to be the date of making debit and thus, shall be deemed to be the point of taxation. If no expense has been incurred by SCB-UK on behalf of the appellants, in such a case no deductions would have been available under Income Tax Act, 1961. Even for the purpose of computation of remittance by the branch, the said amount has been considered which indicates that the Head Office expenditure was available for as "Remittable Surplus". 4.4 Learned Special Counsel in asserting for the appeal filed by Revenue stated that even prior to 01.07.2012, the services provided by the head office SCB-UK to the appellants are covered under business support service as defined under Section 65(104c) of the Finance Act, 1994 inasmuch as such service provided by SCB-UK were composite services in nature and the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, availed by them through their head office; and to treat the said expenses which are allocated on certain criteria like gross revenue, employee headcount, profits of each branch or other suitable parameters as gross amount charged towards consideration payable for the services received by the appellants. The dispute is limited to the above activity of apportionment of general administrative expenses incurred by SCB-UK i.e., the head office of the appellants in UK being treated as services received by the appellants, which the Department had interpreted that it is 'support services of business or commerce'. 6.3 In order to address the above issues, we would like to refer to the legal provisions of levy of service tax under the Finance Act, 1994 and the rules framed thereunder viz. Place of Provision of Services Rules, 2012, as it existed during the disputed period in respect of the taxable services under dispute. Finance Act, 1994 "Definitions. 65. In this Chapter, unless the context otherwise requires,-- (104c) "support services of business or commerce" means services provided in relation to business or commerce and includes evaluation of prospective custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this clause shall apply to,-- (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2.-- For the purposes of this clause, the expression "transaction in money or actionable claim" shall not include-- (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h rules may provide for all or any of the following matters, namely :-- (hhh) the date for determination of rate of service tax and the place of provision of taxable service under section 66C." Place of Provision of Services Rules, 2012. "Place of provision generally. Rule 3 . The place of provision of a service shall be the location of the recipient of service: Provided that in case [Inserted by Notification No.46/2016-ST, dated 9-11-2016, w.e.f. 1-12-2016] [of services other than online information and database access or retrieval services, where] the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. Place of provision of performance based services. Rule 4. The place of provision of following services shall be the location where the services are actually performed, namely:-- (a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service: Provided that when such services are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of specified services. Rule 9. The place of provision of following services shall be the location of the service provider:-- (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (c) Intermediary services; (d) Service consisting of hiring of all means of transport other than,-- (i) aircrafts, and (ii) vessels except yachts, upto a period of one month 6.4 On careful reading of the definition of taxable service, as it existed prior to 01.07.2012, under Section 65(104c) ibid read with Section 65(105) (zzzq) ibid, where the taxable services were enumerated under various category included, the scope of services covered under the tax net in terms of Section 65(104c) ibid is the services provided in relation to business or commerce including services of evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to be dismissed. Further, post 01.07.2022, services were interpreted to refer any activity carried out by a person for another for consideration, including certain services which is a declared service, provided these services are not covered by certain exclusion provided therein under Section 65B(44) ibid. Hence, it is clear that the nature of services provided to the appellants should fall in the scope of 'support services of business or commerce', prior to 01.07.2012 in order to specifically cover under the taxable category in terms of Section 65(105) (zzzq) ibid; and after 01.07.2012, generally under the scope of "service", to prove that these do not fall outside the scope of taxability of services under Section 66B ibid read with definition clause under Section 65B(44) ibid. 6.5 In order to further examine whether the services provided to the appellants by the overseas Head Office is covered under the scope of taxable net of services or not, we have examined the relevant provisions of the Finance Act, 1994. For the period prior to 01.07.2012, it was specifically provided that there shall be involvement of two persons viz., a service provider and a service receiver and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants have only been shared with the expenses relating 'head office executive and general administrative expenses' apportioned by their headquarters, there is no element of any service involved therein. It is an undisputed fact that the appellants have not entered into any agreement or contract with respect to the said expenses or for receipt of any services. Further, as explained by the learned Advocate for appellants the said amount is not recorded by the appellants in its books of accounts as expenditure; no invoice was raised for the said amounts by SCB-UK on the appellants. The said amount has not been paid to SCB-UK i.e., there is no payment of the said allocated expenditure by the appellants to SCB-UK. The appellants had only claimed the deduction of head office expenses under the provisions of the Income-tax Act, 1961 while filing its income tax return. Further, in this regard Section 44C of the Income-tax Act, 1961 provides for the permissible limit upto which a deduction can be claimed in respect of the Head-Office expenditure by its branch in India, while computing taxable income for the purposes of computation of income tax. Therefore, we are of the view that such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that a service should be taxed in the jurisdiction of its consumption. This principle is more or less universally applied. In terms of this principle, and applying it to the present factual matrix of the case, services provided to Head office situated abroad in UK, for various activities such as advertising, auditing, entertainment, insurance, legal assistance, postage, telephone, telegraph, printing, stationery, publication, newspapers, rent & rates, subscriptions, travel expenses, machinery, furniture, computer, Microfilm etc. by third parties who fall outside the taxable territory are not charged to service tax in India, as the consumption is elsewhere. Further, services need to pay tax only on their importation into the taxable territory, in terms of the legal provisions of the Finance Act, 1994. Merely because the appellants and its head office at UK are being considered as establishment of distinct persons, there cannot be any charge of service tax. Unless it is proved that there is an element of services involved in an activity between head office abroad and branch office in India, the charge of service tax under Section 66B ibid does not arise automatically. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable expenses for computation of gross receipts under Section 67 of Finance Act. All of these are to be required to be answered to sustain the confirmation of demand by the adjudicating authority. 13. That the branch and head office are distinct entities for the purpose of taxation cannot be a matter of dispute. The law relating to taxation of service, an indirect, destination-based tax, is constitutionally restricted to India. In the scheme of Chapter V of Finance Act, 1994, the incidence of tax on services is to be borne by the recipient of service and levy is enforced on the provider of service. As the tax can be collected only from a service-provider within the jurisdiction, undertakings beyond the territory are beyond the ambit of the statute irrespective of the nature of the structural form or the linkage-organic or contractual. In such a taxing law, an entity that is beyond the jurisdiction of the statute has an existence independent of the taxable entity. A branch is, therefore, an entity distinguishable, for purposes of Finance Act, 1994, from its head office. 14. Consequently, an entity that is not subject to a domestic taxing statute is not amenable, by any stretc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Finance Act, 1994 has been specifically enacted to tax services received by an assessee as though the assessee has provided the service to itself. And in providing the framework for such 'tax shifting', various organizational forms may have to be disaggregated - accordingly, a branch in another country is deemed to be an establishment distinct for the purposes of ascertaining the receipt of service. Therefore, notwithstanding the identifiability of all the essential factors relevant to charge of tax, viz., supplier, customer, supply and place of provision, tax becomes leviable to the extent that receipt of service in India is established. The 'business auxiliary service' that the impugned order has found to have been rendered by the branch office of the appellant-assessee has to cross this hurdle. 16. Section 66A of Finance Act, 1994 taxes all taxable services received by a person who 'has his place of business, fixed establishment, permanent address or usual place of residence in India' from 'a person who has established or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in a specific context, it is not elastic enough to govern the corporate intercourse and commercial indivisibility of a headquarters and its branches. Therefore, any service rendered to the other contracting party by branch as a branch of the service provider would not be within the scope of Section 66A. Merely because there is a branch and that branch has, in some way, contributed to the activities of the appellant-assessee in discharging its contractual obligations, the definition of 'business auxiliary service' in Section 65(19) of Finance Act, 1994 may not apply. That is where the impugned order has erred in not reading Section 65(105) along with Section 66A and Rules framed for the purpose of charging tax on services received from abroad. Unless both are applied together, the jurisdiction to tax would be in question. 20. It would be worthwhile to look at the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 xxx xxx xxx xxx 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disaggregation merely for the purpose of tax when similar domestic structures are not taxed and when commercial soundness calls for establishment of branches would be clearly inequitable. 24. Hence, the legislative intent of this legal fiction may have to be ascertained. In doing so, the goals of the appellant as an exporter cannot be far from our mind. 25. Section 66A requires taxing of taxable services rendered by an overseas branch to its head office and the two sets of Rules limit tax demand only to the extent that these services are received in India in relation to business or commerce. A plain reading would make it apparent that the services referred to must be for pursuit of business or commerce in India. The two sets of Rules provide for availment of Cenvat credit of the tax paid by the Indian entity on 'reverse charge basis.' As an exporter, the Indian entity is entitled to claim refund of taxes lying unutilized in Cenvat credit account. There is no dispute that the activities of the branch are in connection with the export activity of the appellant-assessee. That the legislature would prescribe the collection of a tax merely for the purpose of refunding it subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of funds - by gross outflow or by netted inflow - is, therefore, nothing but reimbursements and taxing of such reimbursement would amount to taxing of transfer of funds which is not contemplated by Finance Act, 1994 whether before 2012 or after. 28. In view of our findings above, the demand of tax in the impugned order is without authority of law and does not survive. The penalties imposed on the assessee-appellant and the principal officers are also set aside. All appeals are, consequently, allowed." 8.2 We also find that this Tribunal in the case of Steel Authority of India Limited Vs. Commissioner of Service Tax, New Delhi in Final Order No.50397/ 2020 dated 26.01.2020 had held that charging section is Section 66 of the Finance Act, 1994 and not Section 66A ibid. The provision of Section 66A is only to determine whether the provision of service is in India or out of India. Therefore, it was held unless that charge of service tax is proved under Section 66 ibid, there cannot be levy of service tax only on the basis of Section 66A ibid. The relevant paragraphs of the said order is extracted and given below: "20. It is clear from the aforesaid two decisions that section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, the services should have been received in India by the recipient from the service provider who does not have any permanent establishment in India. The appellant, in the present case, is not the recipient of service and it is the head office located in Hong Kong that is the recipient of service. As the appellant has not received any service, it cannot be held liable to pay service tax in respect of the services rendered by the foreign CRS/GDS companies to the head office located outside India; (B) In the present case, the Commissioner has recorded a finding of fact that the branch office and the head office are two separate persons. This issue would, therefore, not arise for consideration. In any case, it has been found as fact that the branch office and the head office are two separate persons; and (C) The issue that arose for consideration in British Airways was whether the branch office was the recipient of service or not. The issue, therefore, that has been referred is beyond the dispute decided in British Airways. In any view of the matter, the branch office has not received any service from foreign CRS/GDS companies and it is the head office alone which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect to the space. This arrangement would, therefore, fall under the category of sharing of expense. In this connection reference can be made to the decision of the Supreme Court in Gujarat State Fertilizers & Chemicals Ltd. v. Commissioner of C. Ex. 2016 (45) S.T.R. 489 (S.C.)/[2016] 76 taxmann.com 357/59 GST 240 (S.C.). In M/s. Historic Resort Hotels (Pvt.) Ltd. v. CCE, Jaipur-II 2017 (9) TMI 1066-CESTAT New Delhi = 2018 (9) GSTL 422 (Tri.) a division of the Tribunal also held that sharing of expenditure cannot be treated as service rendered by one to another." 8.6 We further find that in the Civil Appeal filed by the department against the aforesaid order of the Tribunal holding that the sharing of expenditure cannot be treated as services, the Hon'ble Supreme Court had dismissed the appeal filed by the department, by upholding the order of the Tribunal. The extract of the said judgement of the Hon'ble Supreme Court is given below: IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6147 OF 2023 (@DIARY NO.31248 OF 2023) COMMISSIONER OF CGST, CST DELHI EAST Appellant(s) VERSUS M/S HALDIRAM MARKETING PVT. LTD . Respondent(s) ORDER Del ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
