Custom, Excise & Service Tax Tribunal
Prithvi Information Solutions Ltd vs Rangareddy - G S T on 21 February, 2025
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ST/21050 & 23529/2014
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench - Court No. - I
Service Tax Appeal No. 21050 of 2014
(Arising out of OIO No. 83/2013-Adjn (Commr) ST dt.30.10.2013 passed by Commissioner
of Customs, Central Excise & Service Tax, Hyderabad-IV)
M/s Prithvi Information Solutions Ltd
16-11-19/A/1, Saleemnagar Colony, ......Appellant
Malakpet, Hyderabad - 500 036
VERSUS
Commissioner of Central Tax
Rangareddy - GST
VIP Hills, Jaihind Enclave, Madhapur,
......Respondent
Hyderabad, Telangana - 500 081 and Service Tax Appeal No. 23529 of 2014 (Arising out of OIO No. 45/2012-Adjn (Commr) ST dt.28.08.2012 passed by Commissioner of Customs, Central Excise & Service Tax, Hyderabad-IV) M/s Prithvi Information Solutions Ltd 16-11-19/A/1, Saleemnagar Colony, ......Appellant Malakpet, Hyderabad - 500 036 VERSUS Commissioner of Central Tax Rangareddy - GST VIP Hills, Jaihind Enclave, Madhapur, ......Respondent Hyderabad, Telangana - 500 081 Appearance:-
Shri M. Naga Deepak, Advocate for the Appellant.
Shri P.R.V. Ramanan, AR (Special Counsel) for the Respondent.
Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) HON'BLE MR. ANGAD PRASAD, MEMBER (JUDICIAL) FINAL ORDER NO. A/30057-30058/2025 Date of Hearing: 17.01.2025 Date of Decision: 21.02.2025 [Order per: A.K. JYOTISHI] M/s Prithvi Information Solutions Ltd (hereinafter referred to as the Appellant) are in appeal against impugned OIO dt.28.08.2012 passed by the Adjudicating Authority vide Appeal No. ST/23529/2014 and against impugned OIO dt.30.10.2013 passed by the Adjudicating Authority vide Appeal No. ST/21050/2014. In Appeal ST/23529/2014, common order has (2) ST/21050 & 23529/2014 been passed in respect of the issues raised vide two SCNs dt.08.08.2011 & 18.10.2011 involving period from 18.04.2006 to 31.03.2010 and 01.04.2010 to 31.03.2011 respectively, whereas, in Appeal ST/21050/2014, order has been passed in respect of the issues 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 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 (3) ST/21050 & 23529/2014 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 overseas account in PNC Bank for which RBI has accorded approval. It was also noted that contract service agreements entered into by the appellant with their clients clearly depict the scope of services as detailed in attachment 1 (Statement of Work), which clearly described the services to be provided as 'to perform single cell functional tests, cluster drive tests post processing using Greyson equipment on EVDO and EVDO rev A Motorola Networks and FTP the collected data'. As per the agreement, the appellant was permitted to engage third parties (sub-contractors) to outsource services for the customers, who shall, notwithstanding any other agreement, will remain the prime contractor under the covenant of the agreement and will have full responsibility for delivery and performance of their services. In other words, for rendering the aforesaid software services, the appellants have entered into written agreements for supply of manpower with different manpower supply agencies. Therefore, the department felt that the MRSAS, which is covered under sub-rule (iii) of Rule 3 of Taxation of Services (provided from outside India and received in India) Rules, 2006 (TSPOI Rules), hence liable to service tax on RCM basis. Further, the statutory provisions relating to service tax with regard to import of service 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;-
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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 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 abroad only, therefore, no service tax liability would arise.
7. Insofar as the demand on 'Business Support Service' (BSS) rendered to BSNL is concerned, learned Advocate has relied on the decision of Chandigarh Bench of this Tribunal in the case of CCE & ST, LTU, Delhi Vs M/s Xerox India Ltd & Vice Versa [2018 (3) TMI 1006 - CESTAT Chandigarh/2018 (5) TMI 402 - CESTAT Chandigarh], by claiming that the appellants were merely engaged in printing bills and therefore, cannot be covered within the BSS.
8. On the other hand, learned Special Counsel for the Revenue has primarily pointed out that the constitutional validity of section 66A is no longer res integra in terms of judgment of Hon'ble Allahabad High Court in the case of Glyph International Ltd Vs UOI (supra) and Hon'ble Bombay High Court in the case of Indian National Shipowners Association Vs UOI (supra). He is mainly contesting that section 66A is a deeming provision, whereby, (5) ST/21050 & 23529/2014 certain services received from abroad have also been made liable to service tax by making the recipient of said service as the person liable to pay service tax under RCM. In this case, undisputedly, as held by the Adjudicating Authority, the services were received by the appellant and there is no such provision under the law that it must also be consumed in India, apart 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 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.
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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 establishment of such person located in non-taxable territory are treated as establishments of distinct persons. Therefore, what the argument is leading to is that the services in question were received by the branch, which is to be treated as distinct entity and therefore, the provision of RCM will not apply. Another major ground by the appellant is that admittedly, these services have not been consumed in India and therefore, relying on certain judgments of Tribunal (cited supra), unless at least a part of such service is consumed in India, no liability under section 66A can be fastened on the recipient of such service.
12. We find that the Adjudicating Authority in the impugned order, inter alia, examined the provisions under section 66A, as it existed from 18.04.2006 to 30.06.2012, as also Rule 3 of TSPOI Rules, 2006, to decide whether in the facts of the case the appellants are the recipient of service or otherwise. For the sake of clarity, the relevant portions of both the provisions are quoted below:-
"66A. Charge of service tax on services received from outside India -
(1) Where any service specified in clause (105) of section 65 is,--
(a) provided or to be provided by a person who has established a business 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 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.(7)
ST/21050 & 23529/2014 (2) 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), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzl), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzk), (zzzzl) and (zzzzo) of clause (105) of section 65 of the Act, be such services as are performed in India:
Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder;
Provided further that where the taxable services referred to in sub- clauses (zzg), (zzh) and (zzi) of clause (105) of section 65 of the Act, are provided in relation to any goods or material o any immovable property, as the case may be, situated in India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed in India, shall be treated as the taxable service performed in India.
(iii) specified in clause (105) of section 65 of the Act, but excluding -
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property; and
(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 (8) ST/21050 & 23529/2014 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 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. It was, inter alia, held that after enactment of section 66A, taxable services received outside India by a person belonging to India and also consumed outside India are taxed in the hands of Indian resident and therefore, Indian recipient of taxable service is deemed to be the service provider. Thus, in view of the said judgment, it was held that even if the services were rendered outside India, the taxability thereon, prior to insertion of section 66A, is not valid, whereas, by implication, the Government has attained the power of taxing the recipient of service who is located in India, once section 66A has been inserted.
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15. Further, he has relied on the judgment of M/s Wires & Fabricks (SA) Ltd Vs CCE, Jaipur-I [2011 (6) TMI 363 (Tri)], wherein the issue of taxability on receipt of BAS from foreign agent, which were utilized for procuring overseas orders for the purpose of export was considered by treating the demand prior to 31.12.2005 as not tenable and in the case of Rubfila International Ltd Vs CCE, Calicut [2010 (2) TMI 521 (Tri)], the issue of availing foreign agents services for procuring export order, for which commission was paid, was considered. It was held by the Adjudicating Authority that since service is in the nature of BAS and despite both the service provider and service recipient 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 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 (10) ST/21050 & 23529/2014 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 for the purpose of being recipient of the service. What is obvious in this case is that all the dealings are between the sub-contractor and the appellant, which is in relation to their providing ITSS to the clients based in the USA. Obviously, when the appellants are based in India and have entered into contract to provide ITSS, they are required to provide the same based out of India or they can provide the same by hiring personnel in the USA itself and deploying them at the locations of their clients. Therefore, there is a clear relation between the provision of service from India and procurement of such services i.e., MRSAS, for providing those services in the USA. It is not disputed that the appellants are not claiming this provision of service of ITSS to their clients in USA as export of service out of India. Therefore, there is clear linkage in terms of nature of agreements between the appellant and their clients as well as between the appellant and the sub- contractor in relation to provision of taxable services and receipt of taxable services. The argument by the appellant that it is the liaison office, who is the recipient of the service or going even to the extent of suggesting that it is the client in the USA, who is the recipient of the service, is not tenable in the facts of the case 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 (11) ST/21050 & 23529/2014 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 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 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. There is no dispute about legality of section 66A for the period post its introduction, as has been held by Hon'ble High Court of Bombay in Indian National Shipowners Association Vs UOI (supra) as well as by Hon'ble Allahabad High Court in the case of Glyph International Ltd Vs UOI (supra). The issue before the Hon'ble High Courts was whether recipient of service in India is liable to service tax from abroad before 18.04.2006 or only after the said date after enactment of section 66A. The Hon'ble Bombay High Court held that service tax can be charged only after the enactment of section 66A, which was upheld by Hon'ble Supreme Court, whereas, charging of service tax on similar service for the period prior to the enactment of section 66A was set aside. In the case of Glyph International Ltd Vs UOI (supra), the Hon'ble High Court of (12) ST/21050 & 23529/2014 Allahabad, inter alia, held that section 66A of the Finance Act, 1994 creates legal fiction to deem import of service so that the provisions of Chapter V can thereon be applied. The facts have been summarized at Para 41 & 42 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 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 services are to be executed by the petitioner from India. The financial terms provide that the petitioner company shall be entitled to a fixed share of gross revenue receivable from the clients as compensation fee on a scale-up/down basis. The fixed share of revenue shall undergo modification commensurate with the scale of operations as agreed between the companies from time to time. Prima facie, on these terms, we find that the taxable services provided from outside India, are received and can be taxed in India under Section 66A (1) (b) of the Act.
42. So far as the argument of double taxation is concerned, it was held by the Supreme Court in Ishikawajma-Harima Heavy Industries Ltd vs. Director of Income Tax, Mumbai (supra) that payment by a resident to a non-resident by way of fees for technical services must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax.
The Supreme Court laid down a test of double taxation namely that the services, which are source of income that is sought to be taxed, has to be rendered in India as well as utilised in India. Where both these conditions are not satisfied, the income is excluded from the ambit of taxation in India. It was further held that only such part of income as is attributable (13) ST/21050 & 23529/2014 to operations carried out in India, 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 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 use in relation to business or commerce. In other words, the only condition is that the recipient of the service should be located in India, which is not in doubt, as has been clearly held that the services were not received by the client in the USA or by the appellant's liaison office. It is also not the case that the liaison office was providing any service from the USA to their establishment in India. Had it been so, even they would have been treated as distinct entity for providing service for the purpose of applying RCM. Even going by section 66A, as these rules are (14) ST/21050 & 23529/2014 subjected to section 66A, explanation (1) clarifies that a person carrying on business through branch or agency in any country shall be treated as having business establishment in that country. As is apparent from the impugned order, it has been brought on record that the branch or agency of the appellant i.e., liaison office, in the USA was not carrying on any business and therefore, the same cannot be considered as a permanent establishment of the appellant in the USA. Therefore, they would also not help the argument of the appellant.
22. Insofar as the argument of revenue neutrality is concerned, we find that they have relied on the judgment of coordinate bench at Mumbai in the case of Jet Airways (I) Ltd Vs CST, Mumbai (supra), 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 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.
(15)ST/21050 & 23529/2014
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 maintenance or repair service or WCS and the only ground was that they have provided BAS to BSNL on which service tax has not been discharged. Learned Special Counsel for the Revenue submitted that it is not a simple case of merely printing the bills rather it is a case of detailed activities carried out by them, as explained in the OIO. The Adjudicating Authority has examined the agreement dt.18.04.2007 and, inter alia, observed that the agreement required the appellant to provide software for designing the various bill formats, which was required to be developed by the bidder free of cost, apart from installing and maintaining the printing system in BSNL Kolkapur's TRA unit premises. The Adjudicating Authority's views on this issue are stated at Para 27.7 of the OIO dt.28.08.2012, cited below for ease of reference:-
"27.7As per the text highlighted, it would indicate that in respect of composite activities involving sale and service, we have to look at what the parties to the transaction had in mind - whether sale or service. Accordingly, following the ratio of the Hon'ble Apex Court judgment in the case of BSNL cited above, I have no hesitation to hold that this is a service contract and is leviable to a tax of service. Once that is clear, what remains to be seen is whether the above service merits 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 (16) ST/21050 & 23529/2014 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 invoking the extended period is concerned, the appellants are mainly submitting that all the details regarding their activities including existence of Liaison Office, etc., were in public domain and the balance sheets were clearly indicating the activities of overseas liaison office. They are also submitting that the RBI was aware of the liaison office, the Income Tax Authorities were aware of the liaison office and the accounts and balance sheets are in public domain, therefore, there cannot be any suppression of facts or willful mis-statement.
27. We have also perused the impugned orders, wherein, the Adjudicating Authority has recorded that the appellants had not informed the department anything about the impugned activities and that ST3 returns never disclosed anything in specific about the overseas operations and the expenditure involved thereon under the column meant for section 66A and that entire issue was brought to the notice only after the auditing of their accounts by the department. He has also relied on the fact that they being a public limited company, should be fully aware that despite various developments in respect of payment of service tax on RCM basis, after introduction of section 66A and yet they did not come forward to discharge their service tax (17) ST/21050 & 23529/2014 liability. He has also 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 dismissed.
(Pronounced in the Open Court on 21.02.2025) (A.K. JYOTISHI) MEMBER (TECHNICAL) (ANGAD PRASAD) MEMBER (JUDICIAL) Veda