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TMI Blog2025 (2) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised vide SCN dt.11.12.2012 for the period 01.04.2011 to 31.03.2012. The common issues involved in both the appeals are as follows:- a) Whether services consumed entirely abroad is taxable under section 66A of the Finance Act, 1994 and b) In the facts and circumstances of the case, who is the service recipient viz., (i) the appellant or (ii) the liaison office of the appellant or (iii) USA based clients of the appellant. 2. The Adjudicating Authority, vide his impugned order, inter alia, relying on the provisions of section 66A, came to the conclusion that the appellants have received Manpower Recruitment & Supply Agency Service (MRSAS) and not the liaison office of the appellant and therefore, the appellant is liable to pay service tax on reverse charge mechanism (RCM). The Adjudicating Authority has relied on the judgment of Hon'ble Allahabad High Court in the case of Glyph International Ltd Vs UOI [2012 (25) STR 209 (All)] and judgment of Hon'ble Bombay High Court in the case of Indian National Shipowners Association Vs UOI [2009 (13) STR 235 (Bom)], wherein the constitutional validity of section 66A was upheld. The Adjudicating Authority has also, inter alia, held at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice from outside India is governed by Service Tax Rules, 1994, which was notified vide Notification 02/1994 dt.28.06.2004. As per Rule 2(1)(d)(iv) (w.e.f. 19.04.2006), a person is liable for paying the service tax in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service will be the person liable for paying such service tax. 4. Learned Advocate has mainly relied on the judgment of Mumbai bench of this Tribunal in the case of Sharda Cropchem Vs CCGST & CE, Mumbai West [2023 (7) TMI 1121] to support that in the event of no consumption of service in India, section 66A would not make the recipient of service liable for service tax. Since it is an undisputed fact that the services were procured outside India and also consumed outside India, therefore, there cannot be any service tax liability on the appellant under RCM. They have also relied on the following judgments;- a) Infosys Ltd Vs CST Bangalore [2014-TIOL-409-CESTAT-Bang] b) KPIT Cummins Infosystems Ltd Vs CCE, Pune-I [2013-TIOL-1568- CESTAT-Mum] c) Intas Pharmaceuticals Ltd V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art from being received, for invoking section 66A, on plain reading of the provisions. He has also contested that the grounds taken as regards revenue neutrality is also not correct, inasmuch as the judgments of the Hon'ble Supreme Court in the case of Star Industries Vs CC (Imports), Raigad [2015 (324) ELT 656 (SC)], has, inter alia, held that revenue neutrality cannot be the criteria as such, for the appellant to claim the relief. Inasmuch as the Hon'ble Supreme Court felt that had it been a case of revenue neutrality, there was no need for the appellant to be in appeal against the case. He has also relied on certain other judgments to support that revenue neutrality cannot be the criteria for dropping the demand. 9. Heard both sides and perused the records. Since in both impugned orders, the common issue is taxability on Manpower Recruitment or Supply Agency service received by the appellant in terms of section 66A, apart from some other ancillary services, we propose to take up both the appeals together for disposal. 10. On perusal of the impugned orders, it is apparent that the appellants are a company incorporated in India and having registered office in India and are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided 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. (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) those specified in clause (ii) of this rule, be such services as are received by a recipient located in India for use in relation to business or commerce. Provided that where such taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is received by a recipient located in India, then such taxable service shall be treated as taxable service provided from outside India and received in India subject to the condition that the tangible goods supplied for use are located in India during the period of use of such tangible goods by such recipient." 13. He has also considered that the Hon'ble High Court of Allahabad in the case of Glyph International Ltd Vs UOI (supra) clearly held that insertion of section 66A w.e.f. 18.04.2006 is legal and proper by holding that no demand can be made in terms of the said provision for the period prior to that date by way of certain rules and notifications issued under different sections like 68(2) or by way of insertion of explanation under section 65 etc., therefore, the validity of section 66A post 18.04.2006 is not in dispute. It is also not in dispute that section 66A is in a way, deeming provision by which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecipient being outside India, the taxability was sustained invoking the provisions of Rule 3(1)(iii) of TSPOI Rules, 2006 w.e.f. 18.04.2006. 16. We find that the Adjudicating Authority has also examined one of the contracts, which clearly provided that contract is between the appellant and Plutus Solutions Inc., located at 5350, Amesbury No.2111, Dallas, Texas 75206 (sub-contractor). On going through various provisions, he found that the appellants have entered into contract with their clients for software development and in order to execute software development work, they have procured skilled personnel by manpower supply agencies like Plutus Solutions Inc. He has also observed that the liaison office of the appellant has no locus with regard to service being provided to the clients in view of the fact that the payment for services rendered by the sub-contractor is required to be made by the appellant and not by any other branch or agency related to the appellant, notwithstanding the fact that such payments have been made through the deposits made in the bank abroad, thereafter, he has gone through the various provisions including the notification issued by RBI under Foreign Exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and going by the agreements between the appellant and all these parties. 18. A great deal of reliance has also been placed on the fact that there has not been any actual receipt of manpower services in India and therefore, it has not been partly or wholly consumed in India. In other words, the argument is that even if they are recipient of service, it also needs to be consumed in India, then only they will be covered within the ambit of section 66A. We find that this argument is not tenable inasmuch as the plain reading of section 66A would itself indicate that there is no such requirement that it must also be consumed in India. The mere fact that the basic conditions that the service recipient should be located in India, service provider is located outside India and the services are received by the recipient would bring it within the ambit of section 66A, which is the deeming provision or a legal fiction to bring the recipient of taxable service under the ambit of service tax even when the provider is situated outside India. The appellant has also placed reliance on Rule 3(1)(iii) of TSPOI Rules, 2006, in support that at least a part of service received in India must be perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order of the Hon'ble High Court, which are cited below for ease of reference. "41. The charge of the Service Tax to be levied under Section 66A with the enactment of the Finance Act, 2006, is on the services received from outside India. It is not denied that the petitioner company has a fixed business establishment in India. The services by the foreign company, however, it is stated, are not received by the petitioner in India, and is in fact being rendered outside India for promotion of its business. The petitioner is specialised in providing customized solutions to publishing industry which includes publishing related services, composition, art and media services. The SSLC is a Corporation having its presence in Florida, USA and is promoting such services in USA under which SSLC provides front end support to USA based clients. Both the companies have a shared working relationship, under which SSLC has to promote publishing related services in USA to be executed by the petitioner-company in India. By the 'Master Services Agreement', dated 29.9.2006 the company decided to realign the business responsibilities and redefine roles and reach of the agreement. The offs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, can be taxed in India. For profits to be attributable directly or indirectly, permanent establishment must be involved in activity giving rise to profits. The Court while interpreting Section 9 (1) (vii) of the Income Tax Act held that it is necessary that the services not only be utilised within India, but also rendered in India or have such a live link with India that the entire income from fees as envisaged in Article 12 of the Double Taxation Avoidance Agreement (Between India and Japan) becomes taxable in India. In the facts of the case the Court held that there was nothing to show that the income derived by a non-recipient company irrespective of were rendered was utilised in India and since the entire services were rendered outside India have nothing to do with the permanent establishment, could not be held to be attributable to the permanent establishment and therefore not taxable in India. The case was decided on its own facts interpreting the Double Taxation Avoidance Agreement, and the contracts between the parties." 20. The Hon'ble High Court of Allahabad, inter alia, held that prima facie, the taxable services provided from outside India and received in India can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), wherein the Tribunal has relied on the earlier judgment of Tribunal in the case of British Airways [2014-TIOL-979-CESTAT-Del], Thai Airways International Public Co. Ltd [2013-TIOL-1117-CESTAT-Del] and Austrian Airways [2014-TIOL-1574-CESTAT-Del], wherein, by majority decision, it was held that in the facts of the case, Cenvat credit was admissible, which could have been further utilized for discharge of service tax liabilities and therefore, the demand is not sustainable on this ground of revenue neutrality even though on merit, it is sustainable. As against this reliance, the Revenue has relied on catena of judgments to support their argument that revenue neutrality cannot be a defence for not paying service tax, if otherwise found legally tenable. They have placed reliance on the decision of coordinate bench at Delhi in the case of Max Tech Oil & Gas Services Pvt Ltd Vs CST, Delhi [2017 (52) STR 508 (Tri-Del)], where the plea of revenue neutrality as a ground for setting aside the order was not accepted by the Tribunal. In the case of M/s Cords Cable Industries Ltd Vs CCGST & ST, Rajasthan, vide Final Order No. 59868/2024 dt.11.12.2024, the Delhi Tribunal, relying on the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits to be termed a taxable service and particularly under BSS, as alleged in the notice. It is seen that by definition, 'Support services of business or commerce' means 'services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational or administrative assistance in any manner, formulation for customer service and pricing policies, infrastructural support services and other transaction processing.' Explanation:- For the purposes of this clause, the expression 'Infrastructural support services' includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security." 24. He held that in view of the definition of BSS, it would, inter alia, involve processing of transaction. Therefore, in view of inclusive part of the definition, the taxable service of processing of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o relied on the Red Herring Prospectus of the appellant available on the website of SEBI, wherein, litigation on Income Tax side has been declared. On going through these details, he observed that the liaison office system was in vogue for the appellant since 2001-02 and they have been claiming expenditure in their Annual Returns of the expenses incurred in connection with the operations of such liaison offices, which was, however, disallowed by the Income Tax department. This aspect further substantiates that liaison office was only an extended arm of Indian company, not having its own books of account, income/expenses or profit/loss. He has also relied on the chronology of sequences from start of audit till the issue of SCN, which clearly showed that last of the documents were submitted by the appellant only on 01.10.2010. Therefore, we find that the Adjudicating Authority has taken into consideration all aspects and has dealt with extensively to come to the conclusion that in the given factual matrix, the invocation of extended period as well as imposition of penalty is maintainable. We do not find any infirmity in this aspect in the impugned orders. 28. Accordingly, Appeals di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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