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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 of the clients, the appellants have also entered into professional services sub-contract agreements with service providers like Plutus Solutions Inc., Rpasoditech Inc., SK Tech Inc., Princeton Infotech and Virtue Group, all located in USA and the manpower provided by these contractors were deployed only at client's site in USA. Hon'ble High Court of Allahabad in the case of Glyph International Ltd Vs UOI [2011 (12) TMI 201 - ALLAHABAD HIGH COURT] 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. Whether the plain reading of the provisions under section 66A read with Rule 3(1)(iii) of TSPOI Rules, 2006, requires that not only services should be received in India but should also be consumed in India for it to become covered by the deeming provision for the purpose of charging service tax on RCM or otherwise? - HELD THAT:- There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d orders. Extended period of limitation - Penalty - HELD THAT:- 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, 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. Conclusion - i) 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the constitutional validity of section 66A was upheld. The Adjudicating Authority has also, inter alia, held at Para 25.17 that to be chargeable to service tax under section 66A, it is not mandatory that the whole or part of the service tax should be consumed in India, insofar as services covered under Rule 3(1)(iii) are concerned. The Adjudicating Authority has also, inter alia, held that there is Indian nexus in the form of (i) the appellant signing the agreement, (ii) the appellant dealing with the invoices and (iii) the appellant incurring the expenditure and therefore, held the appellant as recipient of the MRSAS. 3. The case, in brief, is that based on the audit of their records, the department observed that the appellant was providing Information Technology Software Services (ITSS), both offshore development and onshore development/onsite work and the required manpower for executing these onsite work orders was hired by them from different manpower supply agencies in USA. They entered into written agreements with manpower supply agencies and said agencies raised their bills on weekly/monthly/bi- monthly for supply of manpower and payments were made through the appellant's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g] b) KPIT Cummins Infosystems Ltd Vs CCE, Pune-I [2013-TIOL-1568- CESTAT-Mum] c) Intas Pharmaceuticals Ltd Vs CST, Ahmedabad [2009 (16) STR 748 (Tri-Ahmd)] d) Vaishali Metals (P) Ltd Vs CCE, Jaipur-I [2013 (31) STR 246 (Tri-Del)] 5. Thus, in order to invoke section 66A, the leviability of service tax would be possible only if either part or whole of the service is received in India and also consumed in India. The appellants are also relying on the revenue neutrality as one of the grounds for dropping of demand, inasmuch as that if they were required to pay any service tax under RCM, they would have also been entitled for taking credit of the same, making the entire exercise as revenue neutral, as held by Mumbai Bench of this Tribunal in the case of Jet Airways (I) Ltd Vs CST, Mumbai [2016 (44) STR 465 (Tri- Mumbai)]. 6. In relation to service tax demand on 'Business Auxiliary Service' (BAS), which was raised on the ground that appellant had paid certain amount in the nature of referral fee/commission to the service providers, who are located outside India and the amount was paid towards procurement of orders for the appellant, since the services were entirely consumed abro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arent that the appellants are a company incorporated in India and having registered office in India and are also having liaison office at Pittsburgh, USA and other places in USA. The appellants are engaged in the business of export of ITSS, on which they have not been paying service tax, as such, because the export of service is exempt. The appellants have entered into contract service agreements for providing ITSS with various clients like American Solutions Inc., M/s Wilington, M/s Inalytix and M/s Financial Oxygen, etc., whereas, for providing such services directly at the offices of the clients, the appellants have also entered into professional services sub-contract agreements with service providers like Plutus Solutions Inc., Rpasoditech Inc., SK Tech Inc., Princeton Infotech and Virtue Group, all located in USA and the manpower provided by these contractors were deployed only at client's site in USA. 11. The first argument taken by the appellant is that the work of providing such services will take place in the USA at the respective sites and therefore, in terms of explanation (2) to section 66A, an establishment of a person located in the taxable territory and another esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1. - A 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." "3. Taxable services provided from outside India and received in India.- Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services - (i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India; (ii) specified in sub-clauses (a), (f), (h), (i), (G), (I), (n), (0), (w), (z), (zb), (zc), (zi), (zj). (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.04.2006 is not in dispute. It is also not in dispute that section 66A is in a way, deeming provision by which the recipient of service himself is deemed to be the provider of service for the purpose of paying service tax under certain specified circumstances. Further, he has also relied on the Hon'ble Supreme Court's decision in the case of All India Federation of Tax Practitioners Vs UOI [2007 (7) STR 625 (SC)] to come to the conclusion that section 66A does not suffer from the vice of unconstitutionality, either on the ground of lack of legislative competence, or on the ground of extra territorial operation of laws. Thus, the basic defence taken by the appellant that no service tax can be levied on the services rendered and consumed abroad will not hold good in view of the deeming provisions created by constitution under section 66A of the Finance Act, 1994. 14. He has also relied on the judgment of Hon'ble High Court of Bombay in the case of Indian National Shipowners Association Vs UOI (supra), which was duly upheld by the Apex Court, wherein, the issue of whether there can be any service tax liability on certain services obtained and consumed outside India was involved. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, he has gone through the various provisions including the notification issued by RBI under Foreign Exchange Management Act, 1999 (FEMA), where the definition of 'liaison office' has been given. As per the definition, 'liaison office' means a place of business to act as a channel of communication between the principal place of business or head office by whatever name called and entities in India but which does not undertake any commercial/trading/industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel. He has also gone through the provisions under Indo-US Tax Treaty and finally came to the conclusion, keeping in view the explanation (2) to section 66A, that liaison office in USA is not the recipient of service from sub-contractor. 17. We find that the reasons cited by the Adjudicating Authority for treating the appellant as the recipient of MRSAS from abroad is correct, as there is no evidence that these were actually received by their liaison office. They were merely acting as coordinating office and cannot become, by virtue of explanation (2) to section 66A, a separate legal entity f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Rule 3(1)(iii) of TSPOI Rules, 2006, in support that at least a part of service received in India must be performed or consumed in India. We have gone through the provisions of Rule 3 and we find that the said provision in relation to taxable services provided from outside India and received in India are subject to section 66A and by virtue of certain proviso, certain conditions have been attached in order to attract the provisions of section 66A for the purpose of payment of service tax on RCM. The appellant's reliance on the case of Sharda Cropchem Vs CCGST & CE, Mumbai West (supra), is not of much help, inasmuch as the facts of the case are distinguishable. In the said matter, the goods were being purchased in the foreign country and were also being sold in the same foreign country and therefore, it was neither imported into India nor exported outside India. Whereas, in the present case, it is not disputed that it is relating to service as well as the fact that they were providing ITSS to their client in USA, which was being claimed by them as export of service from India. 19. Therefore, the short issue is whether the plain reading of the provisions under section 66A read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company decided to realign the business responsibilities and redefine roles and reach of the agreement. The offshore facility, in the definition clause of the agreement, means and includes such facility as owned/maintained by the petitioner for carrying out the publishing related services presently located at Noida and/or such other places, where ADIPL shall set up similar facilities. The publishing related services are defined in the agreement to include services with respect to electronic publishing including but not restricted to indexing, paging, graphics & designing, artwork, drawing & redrawing, conversion, translation, typesetting, copy editing, multimedia solutions etc. under the agreement purporting to realign the business responsibilities and redefining the roles and reach, it was decided that the scope of the agreement would be to execute publishing related services, secured by SSLC from the clients located in the territory (in U.S.) by offshore facility at Noida. The functions under the agreement include the petitioner to assume the role of the principal contractor for successful execution of all publishing services related contracts. All the publishing related service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia, held that prima facie, the taxable services provided from outside India and received in India can be taxed in India under section 66A(1)(b). In fact, the Hon'ble High Court also dealt with the argument about double taxation and distinguished the judgment of Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd vs. Director of Income Tax, Mumbai [(2007) 3 SCC 481]. 21. We have also perused Rule 3 of TSPOI Rules, 2006 and find that Rule 3 only speaks about taxable services provided from outside India and received in India and thereafter, classified certain services and provides for certain conditions. For example, Rule 3(1) provides for services in relation to immovable property situated in India. In other words, these services, when imported from outside India, must be in relation to immovable property situated in India. The 'Manpower Recruitment or Supply Agency Service' is falling under section 65(105)(k) of the Finance Act, 1994. Therefore, it is neither falling under Rule 3(i) nor Rule 3(ii), it will fall under Rule 3(iii). For this category of service, the only condition is that such services are received by recipient located in India for u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd Vs CCGST & ST, Rajasthan, vide Final Order No. 59868/2024 dt.11.12.2024, the Delhi Tribunal, relying on the judgment in the case of The Board of Control for Cricket in India Vs CST, Mumbai-II [2018-TIOL- 2641-CESTAT-Mum], held that the plea of revenue neutrality cannot be accepted as it would make the entire scheme of RCM futile. We, therefore, find that the ground of revenue neutrality taken by the appellant is not sustainable in view of catena of judgments cited by the Revenue and respectfully following the same, we do not consider this ground as tenable for dropping the demand when it is otherwise chargeable to service tax in terms of section 66A on merit. 23. On the issue of demand of service tax on the consideration received from BSNL, learned Advocate has argued mainly that they were only engaged in printing bill at the premises of BSNL in terms of agreement between BSNL and relied on the judgment of the coordinate bench at Chandigarh in the case of Xerox India Ltd (supra), wherein the Tribunal examined the leviability of service tax under the category of BSS or BAS or under WCS. In the present facts of the case, it is not alleged that they were engaged in either mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. Therefore, in view of inclusive part of the definition, the taxable service of processing of transaction is also covered within the ambit of BSS. We find that the view of the Adjudicating Authority is correct as it is not a mere printing activity rather it involves developing of software, deploying of man and machines, whereby, certain processing is done to generate a bill and if they would not have done this, then it would have to be done by BSNL themselves. Therefore, it is in the nature of BSS and not BAS or WCS, as being claimed by the appellant. 25. Therefore, in view of the discussions in the foregoing paras, we find that the impugned orders upholding the demand of Service Tax from the appellant in respect of non-payment of Service Tax under 'Manpower Recruitment or Supply Agency Service', non-payment of Service Tax under 'Business Auxiliary Service' on referral fee and commission paid to the service provider located outside India i.e., USA and non-payment of Service Tax under 'Business Support Service' provided to M/s BSNL, do not suffer from any infirmity and therefore, we do not find any reasons to set aside the impugned orders. 26. In so far as the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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