Custom, Excise & Service Tax Tribunal
M/S Infosys Ltd vs Commissioner Of Service Tax, - ... on 26 February, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order Nos. 20282, 20294 & 20293/2014 Appeal(s)Involved: ST/2045/2011, ST/1912/2012 & ST/26109/2013 [Arising out of Orders-in-Original No. 85/2011 dated 27.4.2011, 47/2012 dated 28.3.2012 & 158/2012 dated 28.12.2012 passed by Commissioner of Service Tax, Bangalore] M/s Infosys Ltd. (Formerly known as M/s Infosys Technologies Ltd.) Electronics City, Hosur Road, Bangalore-560100. Appellant(s) Versus Commissioner of Service Tax, - BANGALORE, 1ST TO 5TH FLOOR, TTMC BUILDING, above BMTC BUS STAND,DOMLUR BANGALORE-560071 Respondent(s)
Appearance:
Mr. K. RAVI SHANKAR, ADV., 152, Race Course Road, BANGALORE-560004 For the Appellant Mr. A.K. Nigam, A.R. For the Respondent CORAM:
HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER ________________________________________ Date of Hearing: 13/02/2014 Date of Decision: /2014 Per B.S.V.MURTHY The appellant has obtained centralized service tax registration under various service categories viz., Transport of Goods by Road, Maintenance or Repair Service, Commercial Training or Coaching, Scientific and Technical Consultancy, management Consultancy Service, Test Inspection and Certification, Manpower Recruitment Agency, Online Information and Data, Consulting Engineer, Erection, Commissioning or Installation, Public Relation Service, Advertising Space or Time, Sponsorship Service, Business Support Service, Renting of Immovable Property, Development and Supply of Content Services, Legal Consultancy, Business Auxiliary Service and Information Technology and Software Service. The appellant availed Cenvat credit on various input services including tax paid on group health insurance of employees and construction services availed at Mysore campus. Further the overseas branches of the appellant undertook several projects relating to software development etc., which were entrusted to overseas sub-contractors. The appellant received certain services outside the territory of India relating to data link and communication charges from foreign service providers, who were not licensed in terms of the provisions of section 4 of the Indian Telegraph Act, 1885. The department issued a show-cause notice dated 09.4.2010 proposing to deny Cenvat credit of Rs. 1,67,10,577/- on Employee Group Health Insurance and Cenvat credit of Rs. 9,47,02,918/- as pointed out in the audit enquiry dated 31.8.2009 for the period from April 2006 to March 2009. The issues relating to demand of tax under reverse charge mechanism on services received by overseas branches and data link charges etc. was not raised by the department in the said show-cause notice. The appellant contested the matter before the Commissioner of Service Tax, Bangalore, who passed an adverse order-in-original No. 85/2011 dated 27.4.2011 which is now in appeal before the Tribunal in ST/2045/2011.
2. There are three proceedings which have culminated into three impugned orders which are being considered together since some of the issues are common to all the three appeals. All the cases have been taken up for final hearing in view of the early hearing application filed by Revenue. The issues involved are briefly as under:
(a) The benefit of the service tax paid on premium paid for health insurance of employees as cenvat credit has been held to be irregular on the ground that the said service was received by the employees and not by the appellant and hence it could not be said to be an input service.
(b) It was also noticed that they had availed Cenvat credit on construction services/repair and maintenance services for Gym, hostel and Global Training Centre at Mysore. It was viewed that the said services were utilized for providing lodging facilities / recreational facilities/training to the trainees and in no way used for providing output service. Therefore Cenvat credit availed on these services is not admissible.
(c) The appellant had incurred expenditure in foreign currency towards the communication and data link charges which falls under category of Lease Circuit which was taxable from 18.4.2006 under Import of Service Rules, 2006.
(d) It was noticed that the appellant had incurred foreign exchange expenditure towards receipt of sub-contract services from overseas sub-contractor. The appellant had overseas branches and in case the clients of the appellant were in a country close to where these branches were located the appellant get the job done through these branches. The branches in turn used the service of sub-contractors and got the job done. The payments to the sub-contractors were done by the appellant through their EEFC account in foreign currency. According to Revenue, from the trail of transactions it was seen that the services were received by the appellant from the sub-contractors through their overseas branches and payments were received by the appellants through their branches and payments for such services had been made by the appellant. Assuming but not accepting the contention of the appellant that the services were received by their overseas branches, it was felt that in turn the branches were providing services to the appellant and as per the provisions of section 66A(2) the overseas branch would be a separate person for the purpose of charging service tax under import of service. The appellant had received some sub-contracting services from overseas subcontractors and the same was chargeable to tax under Import of Service under the category of Information Technology Software Service from 16.5.2008 onwards, as per the provisions of section 65(105)(zzzze) of the Act.
3. As a result of verification of records, three proceedings were initiated and the details of three proceedings and amounts involved, penalty imposed are as under :
Service Tax Appeal No Period Cenvat credit availed on (Rs.) Demand of ST under RCM u/s 66A (Rs.) Penalties imposed Insurance Premium in r/o Group Health Insurance Scheme Construction of premises viz. Hostel, Food Court, Gym, etc. Inter-national Private Leased Circuit (IPLC) ITSS (Services received from overseas subcontractors to overseas branches of the appellant 2045/11 10/04 to 03/09 16710577 94702918 - - -
1912/12 4/09 to 09/10 14212230 22356648 137701500 800457133 u/s 76 not quantified;
u/s 77 Rs. 1000/-; u/s 78 Rs. 938158633 26109/13 10/10 to 09/11 3150668 2827549 23182382 523114133 u/s 77 Rs. 5000/- & u/s 78 Rs. 552274733 TOTAL 34073475 119887115 160883883 1323571266 The grand total of service tax demanded and Cenvat credit denied comes to Rs. 1,63,84,15,739/-.
4.1. The first issue that we would like to take up is the admissibility of credit of service tax paid on Insurance Premium in respect of Group Health Insurance Scheme for the employees of the appellant. This issue has been considered by the Honble High Court of Karnataka in the case of Commissioner of Central Excise vs. Micro Labs Ltd. [2011 (270) ELT 156 (Kar.)] and in the case of Commissioner of Central Excise vs. Stanzen Toyotetsu India (P) Ltd. [2011 (23) S.T.R. 444 (Kar.)]. On a specific query from the Bench as to whether Heath Insurance Policy covered the employees alone or the parents and others also, there was no categorical submission that it covers only employees. In our opinion, if the insurance policy covers persons other than employees and no contribution is required from the employees towards such coverage, the service tax paid on insurance premium to that extent on a proportionate basis will have to be reversed. It cannot be said that the insurance provided to the parents or family towards all the employees is relatable to output services provided by the appellant. Therefore, while we follow the decision of the Honble High Court of Karnataka, we consider that this matter is required to be reconsidered in view of the fact that investigating officers/adjudicating authority would not have considered this aspect since the entire credit was proposed to be denied. Therefore we consider it appropriate that the matter should be remanded to limit the demand to the extent admissible.
5.1. The second issue is admissibility of credit of service tax paid on various activities relating to construction of Hostel, Food Court, Gym & Global Education Centre which have been constructed at Mysore campus. It was submitted during the hearing by learned counsel that in the campus, software development and its export took place during the relevant period. It was his submission that global education centre is required for recruitment and training of over 10000 employees in their software development and export activities. The training centre is clearly one where the activities related to business is conducted which is training to employees who participated in software development; and hostel and food court were part of the campus in which employees participating in work/training stay and use them for the purpose of discharging the duty as employees. It was also submitted that the global education centre is not only used for training for employees of only Infosys but also used for conducting training programmes for others. The appellant were discharging service tax under the category of Commercial Training and Education Services. In view of the decision in the case of Commissioner of Central Excise vs. Sai Samhita Storages (P) Ltd. [2011 (23) S.T.R. 341 (A.P.)], when the premises was used for providing commercial training and education service and service tax is paid on such activities, credit would be admissible even if a view is taken that credit was not admissible for global education centre in respect of training conducted for appellants own employees. Learned counsel also relied upon the decision in the case of Commissioner of Customs vs. ITC Ltd. [2013 (32) S.T.R. 288 (A.P.)] to submit that as per this decision, even credit of service tax paid on security service, maintenance, etc. for residential colony would also be admissible since the company had to provide this facilities in view of the remote location of their factory. It was submitted that Infosys campus in Mysore is situated far away from city and facility like hostel, food court, etc. which are part of global education centre have to be provided so that the employees can put their best efforts and they do not get stressed out in transportation and travelling and looking for food etc. He also submitted that in the case of C.C.E. vs. Raymond Zambaiti Pvt. Ltd. [2010 (18) S.T.R. 734 (Tri.-Mum.)], the Tribunal has taken a view that Credit of service tax paid on construction of compound wall would also be admissible.
5.2. However, learned AR on behalf of Revenue relied upon the decision of the Honble Gujarat High Court in the case of C.C.E. & C. vs. Gujarat Heavy Chemicals Ltd. reported in 2011 (22) STR 610 (Guj.) and the decision of Honble High Court of Bombay in the case of C.C.E., Nagpur vs. Manikgarh Cement [2010 (20) S.T.R. 456 (Bom.)] to submit that in both the decisions, it was held that services of repair, maintenance and civil construction used in residential colony is not admissible. He also relied upon the decision of Supreme Court in the case of Maruti Suzuki Ltd. vs. Commissioner of Central Excise, Delhi-III [2009 (240) E.L.T. 641 (S.C.)] to submit that there has to be a nexus between input service and output service.
5.3. As regards the nexus, no doubt, in the case of Maruti Suzuki Ltd. (supra), Honble Supreme Court took the view that there has to be a nexus between input service and output. Further, this decision was rendered in the case of a manufacturer and not in the case of service provider. After the decision in the case of Maruti Suzuki Ltd. (supra) was rendered, the very same issue had come up before the Honble High Court of Bombay. After considering the decision of the Honble Supreme Court, Honble Bombay High Court in the case of C.C.E. vs. Ultratech Cement Ltd. [2010 (20) S.T.R. 577 (Bom.)] held that if the activity is related to business of the manufacturer and the service is covered by inclusive definition, credit would be admissible. That decision was also rendered in the case of a manufacturer and not in the case of an output service provider.
5.4. It was submitted by learned counsel that inclusive part of definition of input service has to be read in such a way that when considered, it would include the service rendered for hostel, gym, training centre, etc. Therefore, it would be appropriate to examine the definition of input service. Even though there are two periods under which the definition is required to be divided in the case of the appellants, the modification which came subsequent to 1.4.2011 would be relevant only for the period of about six months covered in the third show-cause notice. That would be applicable in respect of Insurance Premium. Therefore, the definition as it read prior to 1.4.2011 is being considered herein. The definition of input service reads as under :
input service means any service, -
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products up to the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place or removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal; It was the submission of learned counsel that words activities relating to business would be applicable with the whole of inclusive part of definition of input service. That is to say in respect of all input services which can be said to have a nexus with output service, credit would be admissible. In our opinion, this submission is not correct. This is because when we consider the definitions provided for input service in respect of a manufacturer and an output service provider, it would show that the definition in respect of an output service provider is more restrictive when compared to the definition in case of a manufacturer. In case of an output service provider, input service is required to be used by a service provider for providing an output service whereas in the case of a manufacturer, the words directly or indirectly, in or in relation to the manufacture of final products have been used. The words in or in relation to and directly or indirectly have far wider connotation and coverage when compared to the words used for. While inclusive definition covers both a manufacturer and a service provider, it cannot be said that both are treated on par as far as availability of credit is concerned. Therefore, we cannot import the words used in respect of input service definition for the manufacturer and apply to a service provider. Moreover in the case of a manufacturer, Honble Supreme Court in the Maruti Suzuki (Supra) has held that inclusive part of the definition of the definition of input service has to be read with the main part. Therefore, it becomes necessary to examine the definition of input service in respect of a service provider by looking at Rule 2(l) (i) of the Cenvat Credit Rules with inclusive part.
5.5. Again while considering the provisions of inclusive part of definition also, in our opinion, it has to be read in the following manner.
(a) includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises;
(b) services used in relation to advertisement, sales promotion, market research, storage up to the place of removal, procurement of inputs;
(c) services used in relation to activities relating to business such as accounting, audit, financing, recruitment and quality control, coaching and training, computer net work, credit rating, share registry and security;
(d) services used in relation to inward transportation of inputs or capital goods or outward transportation up to the place of removal.
5.6. Inclusive part of the definition as understood expands the scope of main definition and since main definition is restrictive, inclusive part which expands cannot be read very liberally and in such a manner that the services on which credit is allowed go beyond the scope of input service when main definition and the inclusive part are read together.
5.7. When the definition is considered in this manner, it is quite clear that the services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such premises only would be considered as input service for allowing Cenvat credit. In this case, the legislature has used the word premises in the case of output service provider in the place of factory for a manufacturer. Therefore, both have to be taken as place which is used for doing the work of provision of service or related to the same. The credit is also provided for service used in respect of an office relating to the premises of a service provider which, in our opinion, would cover branches and other offices used by service provider for providing the services. Therefore, as far as the premises of the service provider or an office relating to a service provider, both have to be places from where service is provided.
5.8. When we examine the situation before us, it is seen that the appellant has taken the credit in respect services rendered for global training centre, hostel and gym which have been disallowed. As regards global training centre, in view of the fact that learned counsel has made vehement submission that the appellant was providing commercial training and coaching service and the premises of global training centre is often used for conducting commercial coaching service on which service tax is paid, credit would be admissible since it becomes a premises of the service provider for providing the service of commercial training or coaching centre. At this juncture, it becomes necessary to note the fact up to 1.4.2011, setting up of a premises of output service provider was also an activity for which services used were eligible for credit. Therefore, in respect of construction services used for setting up global training centre, in our opinion, would be covered by definition of input service up to 1/4/2011, since it is the claim of the appellant that the services were used for setting up a global training centre. Our view is supported by the decision of Honble High Court of Andhra Pradesh in the case of Sai Samhita Storages (P) Ltd. [2011(23) S.T.R. 341 (A.P.)]. However, subsequent to 1.4.2011, it is to be made clear that the services used in respect of modernization, renovation or repairs of premises from where service is provided only would be admissible.
5.9. As regards hostel and gym, in respect of which various services received had been claimed to be input service, it is quite clear from the definition discussed above that both of them cannot be considered as premises from where the service is provided or an office relating to the premises from where service is provided. Therefore, the question of their necessity or essentiality, in our opinion, is not really material once it is clear that the services are not covered by the definition itself. Needless to say that our conclusion is supported by the two decisions of Honble High Court of Bombay and Gujarat relied upon by learned AR.
5.10. The detailed discussion would show that the matter has to be sent back for recalculation of admissible amount since we have held that -
(a) Credit is admissible in respect of global training centre up to 1.4.2011;
(b) After 1.4.2011, the services used for setting up of global training centre would not be input service but services used for repairs, renovation or modernization would be admissible;
(c) Cenvat credit of service tax paid on services used in respect of hostel and gym whether it is setting up or repair or renovation or modernization cannot be considered as input service.
We are remanding the matter and the Commissioner is required to re-quantify the amount in the light of decisions given herein above.
6.1. The next issue to be considered is the liability of the appellant for payment of service tax on services received in respect of International Private Leased Circuit (IPLC). In this category, an amount of Rs. 16,08,83,883/- has been demanded for the period from April 2009 to September 2011.
6.2. Learned counsel relied upon the Boards Circular issued in F. No. 137/21/2011-S.T. dated 19.12.2011 to submit that the Government has accepted the position that service tax is not payable by the service provider in respect of such service. He also submitted that the very same issue had come up for consideration of the Commissioner in the case of their own sister company, M/s Infosys BPO Ltd. and the Commissioner in Order-in-Appeal No. 122/20012 dated 12.10.2012 had dropped the demand with the following observations :
In view of the Boards clarification, I hold that the demand of service tax amounting to Rs. 1,72,49,472/- made in the show-cause notice on the expenditure incurred in foreign currency by the assessee during the period from 1.10.2010 to 30.9.2011 towards payment for service (International Private Leased Circuit) provided my M/s ATMT, BT, MCI, etc. under reverse charge mechanism under the category of Business Support Service is not sustainable. In this case also, service has been received from the same suppliers and the facts under consideration are also same. Therefore, Boards clarification referred to above to be applicable. Moreover, we also find that the service is correctly classifiable under Tele Communication Services and such services are taxable only when the same is provided by person who has been granted a licence under Indian Telegraph Act, 1985. It is not the case of the department that foreign service suppliers have been licensed under the Indian Telegraph Act. Therefore, the demand in this category is not sustainable and is set aside.
7.1. The next issue is whether appellant is liable to pay service tax in respect of information technology software services received from overseas sub-contractors to overseas branches of the appellant. The following points were submitted on behalf of the appellant:
a. the foreign branches of the appellants received the service abroad, consumed the service abroad, which was provided abroad, and thus Section 66A has no application.
b. the foreign service providers have charged local taxes, such as VAT, as evidenced by the invoices raised by them for the foreign service delivered, provided and rendered by them to the branches of the appellant.
c. the branches of the appellant are sustained, maintained and funded out of the appellant HO in India, and the branches survive from the money sent to them, and payment made by the branches to the service providers abroad for overseas services, if taxed would amount to taxing fund transfers and is not service tax at all, and loses it character, and pith and substance. The demand is untenable.
d. the foreign sub-contractors who rendered service have direct nexus with the branches abroad for the reason that the contracts were entered into by the overseas branches, purchase orders placed by the branches and invoices raised by the service providers on the respective service receiving overseas branches, thereby not rendering the overseas transactions liable to tax in India.
e. Section 64 of the Finance Act, 1994 makes it clear that the Act applies to India. Foreign territories cannot be brought under the taxable jurisdiction of the Indian Government, by virtue of the above mandate read with the provisions of the Indian Constitution.
f. A foreign branch is treated as a separate legal entity by Section 66A itself, which is in tune with Section 64, and this being the position, services consumed by and rendered to such a separate entity outside of India jurisdiction, cannot be subjected to tax in India, for mere fund transfers made to such separate entity by the HO which is treated as a different/separate legal entity by the very mandate of Section 66A. The Order-in-Original and show-cause notice have in fact brought out the separateness aspect in law, but ignored the legal effect thereof.
g. The impugned orders are wrong in assuming that the branches have rendered services to the HO, whereas the branch merely performs the same activity at the behest of the HO, and the HO instead of exporting from India, has an extended arm in the form of branches to perform on-site activities which cannot be taxed in India, the same being outside the territory of India.
h. There is no consideration paid to the branches to assume that there is a contract of service for performance by the branch so as to warrant receipt of service by the HO.
7.2. Before proceeding to consider various submissions, it would be appropriate to see on what basis the adjudicating authority has come to the conclusion that appellant is liable to pay service tax. Para 71 of the impugned order is reproduced herein below:-
71. I find from the records placed before me that, the noticee has incurred foreign exchange expenditure towards receipt of sub-contract services from overseas sub-contractor. The noticee has overseas branches and in case the clients of the noticee are in a country close to where these branches are located, the noticee gets the job done through these branches. The branches in turn use the service of sub-contractors and get the job done. The payments to the sub-contractors are done by the noticee through their EEFC account in foreign currency. It is evident from the trail of transaction that services are received by the noticee from the sub-contractors through their overseas branches and payments have been made by the noticee to the overseas sub-contractors. Hence services have been received by the noticee through their overseas branches and payments for such services have been made by the assessee which is evident from the expenditure incurred to the tune of Rs.259,08,53,512/- for the period from 16/05/2008 to 31/03/2009. Further, as per the provisions Section 66A (2) the overseas branch will be a separate person for the purpose of charging service tax under port of services. The noticee has received some sub-contracting services from overseas sub-contractor and the same is chargeable to tax under Import of Service under the category of Information Technology Software Service from 16/05/2008 onwards, as per the provisions of Section 65(105)(zzzze) of the Finance Act, 1994.
The most important evidence for identifying a service recipient is the agreement between the parties where it is available, invoices raised by the service provider to the service recipient and details of evidence relating to the nature of the service provided if any. As can be seen the observations of the Commissioner that these aspects have not at all been considered. The conclusion of the Commissioner about the liability has arisen on two grounds viz. the appellant has incurred foreign exchange expenditure towards services received by sub-contractors/branches and the payments made by the appellant directly or through branches can be said to have been made for services received. He has observed that services have been received by the appellant from the sub-contractors through their branches only on the ground or on the basis of payments in foreign exchange made.
7.3. We considered a Sub-Contracting Agreement between AG Tech USA Inc. and branch office of the appellant at Plano, TX 6100 Tenniyson Parkway Suite 200 Plano TX 75024 dt. 1st January 2009. In this agreement, the definition of services means the services provided to the appellants branch. Appellant also produced a sample invoice issued by AG Tech. The invoice dt. 02/02/2010 shows that it has been issued by AG Tech to Infosys Technologies Ltd. Branch Office at Plano and heading is US Sub-Contractor payments. The charges made are towards consultancy charges in relation to DBA support for SAP Basis. Another invoice in relation to Purchase Order dt. 31/12/2009 also is similarly made on the branch office of Infosys.
7.4. Another sub-contracting agreement considered by us is between Brainhunter Inc. and the branch office of Infosys at Toronto, Ontario 5140 Yonge Street, Suite 1400, Toronto, Ontario M2N 6L7. Here also the definition of service is the same as in the case of AG Tech USA and the invoice also has been addressed to the branch office of the appellant.
7.5 If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or the benefit of service rendered abroad has been received in India, the tax, in our opinion, would not be payable.
7.6. The taxable event when service tax is paid by the service receiver under reverse charge mechanism is the receipt of service and of course their liability would arise when payment is made. Unlike the case of availment of CENVAT credit where the receipt of service is required to be proved and shown to the Department by the assessee, in the case of determination of liability for service tax in the hands of receiver or provider, it is for the Department to show that taxable event has taken place. This issue is no longer res integra and there are several decisions in the case of Central Excise matters and Customs matters wherein it has been held that taxable even has to be proved by the Revenue. In the case of Central Excise duty, it is for the Revenue to show that manufacture has taken place and if the Revenue cannot show it, no liability arises. Therefore in this case the observation of the Commissioner that payment has been made by Infosys and when the payment is made by the branch, it has been made by Infosys through their branch and therefore obviously service has been received cannot be a conclusion and especially in this case when such an allegation is made and is rebutted, such rebuttal will have to be properly considered and evidence shown to show why such rebuttal is not accepted which, in our opinion, has not been admitted even.
7.7. It is not the case of the appellant that money was not paid. It is the case of the appellant that whatever consideration is received for services rendered by them abroad goes into EEFC account and the appellant is entitled to spend 75% of such receipts in EEFC account for payments abroad. Therefore the fact that appellants have made payment from EEFC account and not from funds in the hands of Infosys in India would go to show that whatever payments were made were made from export earnings only. This would mean that services were paid for by the earnings abroad. In a similar case in the case of KPIT Cummins Infosystems Ltd. Vs. CCE, Pune-I in the Final Order No.A/676/13/CSTB/C-I dt. 06/03/2013, the Tribunal had taken the view that in such cases there will be no liability of service tax on the assessee in India as a receiver of service. In that case in Para 5.1 the Tribunal observed as follows:-
5.1. The provisions of Section 66A are attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad. In the present case, the appellant has provided services through their branches abroad to customer located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has received proceeds of the service rendered abroad by their branches, after deduction of expenditure incurred for rendering of services abroad. Therefore, prima facie, we are of the view that the provisions of Section 66A are not at all attracted.
The observations made by the Tribunal in the case of KPIT are similar to the one which we have also made above. There also there was no evidence to show that KPIT had received some services. In that case also, they had paid. The only difference being in that case, there was evidence to show that the appellants had received payments for the services provided abroad and the payments made were much less than the amounts received. In our opinion, when payments are made from EEFC account, it would automatically mean that the amount received for services provided are much more than the amount payable. In any case, the appellants have produced evidence to show that according to agreements and the invoices, the payments were received for services rendered abroad, utilised abroad and paid from funds received abroad. That being the position, concrete evidence to show that the payments made by the appellants either directly or through their branches to the sub-contractors in different countries has to be linked with service received in India and in the absence of any evidence to show that such receipt of service in India, the demand for service tax in the hands of receiver cannot be sustained.
7.8. At this juncture, it has to be noted that in paragraph 20 of the impugned order, it has been stated that the appellant had enclosed the sub-contracting agreement with Brainhunter Inc. which is the same one we have considered. We also find that many of the points which were urged before us had been urged before the original authority also.
7.9. There is also another interesting fact that was found when we were considering the adjudication order impugned before us. We have already reproduced paragraph 71 earlier as part of our discussion. The corresponding paragraph 5 in the show-cause notice is reproduced below:-
5. During the course of verification of financial records it is noticed that, the assessee has incurred foreign exchange expenditure towards receipt of sub-contract services from overseas subcontractor. The assessee has overseas branches and in case the clients of the assessee are in a country close to where these branches are located the assessee gets the job done through these branches. The branches in turn use the service of sub-contractors and get the job done. The payments to the sub-contractors are done by the assessee through their EEFC account in foreign currency. It is evident from the trail of transaction that services are received by the assessee from the sub-contractors through their overseas branches and payments have been made by the assessee to the overseas sub-contractors. Hence services have been received by the assessee through their overseas branches and payments for such services have been made by the assessee which is evident from the expenditure incurred to the tune of Rs.259,08,53,512/- for the period from 16/05/2008 to 31/03/2009.
When this is compared with paragraph 71, it can be seen that except omission of some words which does not affect the contents and substance at all, the same is reproduced as findings. This is the reason why there is no discussion about the agreement or invoice or the taxable event in the impugned order. Again in paragraph 75, the conclusion has been reached after reproducing statutory provisions and the conclusion is the reproduction of a portion of subsequent continuation of Para 5 which we have reproduced earlier. Paragraph 75 and relevant portions of paragraph 5 are reproduced below to show this aspect:-
Para 5. .
Whereas, as per Section 66A of the Finance Act, 1994, 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 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 (herein 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 purpose of this section, taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, ."
75. In terms of Section 66A read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and Rule 3(iii) of the import of Service Rules, 2006, the service provided or to be provided by a person who has established a business or has a fixed establishment form 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 received by a person/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. The above conclusion has been reached on the ground that a branch office also has to be treated as a separate person for the purpose of Section 66A. If the branch office has to be treated as a separate person for the purpose of Section 66A, when the invoice is raised on the branch office for service rendered and contract is entered into between the branch office and the service provider, it cannot be said that such contract has been entered into by the company located in India. This is because for the purpose of levy of service tax in the hands of receiver, the branch office is treated as a separate person but for the purpose of determining as to who has received the service, the branch office is treated as part of the appellant. This, in our opinion, is not correct.
7.10. In view of the above observations and discussions, we find that Revenue has not been able to show that ITSS has been received through their branch office in India and in the absence of receipt of service, in our opinion, there is no taxable event and therefore there is no liability on the receiver to pay tax. Therefore the entire demand of Rs.132,35,71,266/- cannot be sustained and has to be set aside and is set aside.
8. The next issue is suppression of facts and imposition of penalty under Section 78 of the Finance Act, 1994. After considering the submissions made by both the sides and going through the records and our discussion above would clearly show that in all the cases, there can be two views on various issues and the demands have arisen because of interpretation of legal provisions, notifications, circulars, instructions etc. In all these cases, wherever there is demand for service tax, the appellant would be eligible for the benefit of CENVAT credit also and therefore it cannot be said that there was any intention to evade payment of duty. In the case of insurance premium and constructions activities and maintenance and repair, question involves interpretation of definition of input service which in our opinion is yet to attain finality and there are several grey areas. We spent considerable time herein on the subject and learned counsel submitted very detailed arguments and also brought to our notice why the interpretation given by us may not be correct according to him. We feel that in view of the above position, the invocation of suppression of facts and imposition of penalty in respect of CENVAT credit also cannot be sustained. Therefore, the demands wherever are sustainable in our opinion and where we have held so, would be only to the extent of denial of CENVAT credit within the normal period of limitation with interest but penalties are not sustained.
11. Our conclusions are summed up as under:-
(a) Denial of CENVAT credit and demand for the same in respect of service tax paid on insurance premium in respect of group health insurance scheme as regards employees is set aside. However, the matter is remanded to verify and limit the demand to the extent of service tax payable on insurance premium attributable to families of employees, if other family members are covered and expenses are borne by the appellant.
(b)(1) Denial of CENVAT credit attributable to services utilised for construction, maintenance or repair or renovation of Global Training Centre up to 01/04/2011 is not sustainable and is set aside. However for the period subsequent to 01/04/2011, if any service has been used for setting up of global training center, such credit would not be available. To examine this aspect and to quantify the amount in this regard, the matter is remanded to Original Authority.
(b)(2) As regards credit of service tax paid on services used in respect of hostel, food court, gym etc., in view of the interpretation of definition we have given, CENVAT credit would not be admissible in respect of service tax paid relating to construction, maintenance, repair or renovation to these facilities. We find that credit has been simply disallowed in relation to all services attributable to construction service and maintenance or repair service. The adjudicating authority is requested to get each invoice verified and quantify the demand. It would be better for the appellants to segregate items for which they are not eligible in accordance with the view taken by us above and give the details to the adjudicating authority so that the issues can be decided quickly.
(c) The demand of service tax with interest in respect of Telecommunication service is set aside as observed by us in paragraph 6.2 above. As regards service tax on international private leased circuit, the demand for service tax against the appellant is set aside in its entirety.
(d) The demand for service tax in the capacity of receiver for ITSS received from overseas sub-contractor by overseas branches of the appellant is also set aside.
(e) In view of the discussions above, we set aside all the penalties under various Sections imposed on the appellant in their entirety.
12. The appeals are disposed off in above terms.
(Pronounced in the open court on .)
(S.K. MOHANTY)
JUDICIAL MEMBER (B.S.V. MURTHY)
TECHNICAL MEMBER
/vc/