Custom, Excise & Service Tax Tribunal
Kalpataru Power Transmission Ltd vs Ahmedabad-Iii on 10 June, 2022
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.3
Service Tax Appeal No.11064 of 2015
Service Tax Miscellaneous (ORS) Application No. 10542 of 2021
(Arising out of OIO-AHM-EXCUS-003-COM-029-14-15 dated 20/01/2015 passed by
Commissioner of Central Excise-AHMEDABAD-III)
Kalpataru Power Transmission Ltd ......Appellant
101, Part III, Gidc Estate,
Sector-28,
Gandhinagar, Gujarat
VERSUS
C.C.E. & S.T.-Ahmedabad-iii ......Respondent
Custom House... 2nd Floor,
Opp. Old Gujarat High Court, Navrangpura,
Ahmedabad, Gujarat- 380009
WITH
Service Tax Appeal No.11243 of 2015
Service Tax Miscellaneous (ORS) Application No. 10543 of 2021
(Arising out of OIO-AHM-EXCUS-003-COM-029-14-15 dated 20/01/2015 passed by
Commissioner of Central Excise-AHMEDABAD-III)
Mohan Krishna Harsh ......Appellant
C/O, Kalpatrau Power Transmissions Ltd, 101,
Part-III, Gidc, Sector-28,
Gandhinagar, Gujarat
VERSUS
C.C.E. & S.T.-Ahmedabad-iii ......Respondent
Custom House... 2nd Floor,
Opp. Old Gujarat High Court, Navrangpura,
Ahmedabad, Gujarat- 380009
APPEARANCE
Shri Prakash Shah & Shri S.J Vyas, Advocates for the Appellant
Shri T.G Rathod, Additional Commissioner (Authorized Representative) for the
Respondent
CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR
HON'BLE MEMBER (TECHNICAL), MR. RAJU
Final Order No. A/ 10685-10686 /2022
DATE OF HEARING: 11.02.2022
DATE OF DECISION: 10.06.2022
RAMESH NAIR
The present appeals have been filed by Appellants against the Order-
in-Original No. AHM-EXCUS-003-COM-029-14-15 dated 20.01.2015
2. Briefly stated the facts of the case are that the intelligence was
gathered that appellant received the various services from abroad but had
not been paying service tax appropriately on the value of services received
from the service providers who are not having fixed establishment in India
under the provisions of Section 66A of the Finance Act, 1994. Investigation
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against the Appellant was initiated. As a result of investigation, it is found
that Appellant have not paid /short paid service tax amounting to Rs.
10,01,69,147/- under different services. Resultantly, the appellants were
issued notice dated 17.04.2013 demanding service tax on the following
services received during the period July 2007 to March 2012 from the
abroad. Following are the services for which demands are raised.
Sr. No. Service Category Demand amount
1. Banking and Other Financial Rs. 3,69,11,891/-
Services
2. Business Auxiliary Service Rs. 3,61,80,696/-
3. Legal Consultancy Service Rs. 9,06,692/-
4. Supply of Tangible Goods Service Rs. 1,33,62,965/-
5. Technical Testing and Analysis Rs. 16,51,412/ -
Service
6. Cargo Handling Service Rs. 95,92,040/-
7. General Insurance Service Rs. 12,92,403/-
8. Information Technology Software Rs. 2,71,047/-
Service
The Adjudicating Authority vide impugned order confirmed the above
demand of Service Tax amounting to Rs. 10,01,69,146/- along with interest
and imposed penalty at the rate of Rs. 200/- per day or 2% per month,
whichever is higher under Section 76 and also imposed a penalty equal to
tax demanded under Section 78 of the Act. In addition, he also imposed
penalty of Rs. 10,000/- in terms of the provisions of Section 77(2) of the
Finance Act,1944. Separate penalty also imposed of Rs. 10,000/- or Rs.
200/- per day, whichever is greater, in terms of the provisions of Section
77(1)(C) of the Finance Act, 1994 on Shri M K Harsh. Hence, the appellants
have filed present Appeals before this Tribunal.
3. Shri Prakash Shah and Shri S.J Vyas, Learned Counsel appearing on
behalf of the appellant submits that the demand includes the service tax on
the provision made at the end of the year for preparation of financial
account of the company in order to maintain the books of account on
mercantile systems. The provision is only the adjustment entry to derive the
correct profit of the company at the end of the financial year in view of legal
provisions to follow mercantile systems of accounting. It is nowhere provided
in the statute that the service tax is liable to be paid on provisions made at
the end of the year.
3.1 He submits that Cenvat Credit of input services available to the
Appellant, the disputed service tax is available as credit to the Appellant and
entire exercise is revenue neutral. During the period of dispute, Appellant
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paid both service tax and excise duty in cash in excess of impugned
demand. Further, no service tax is payable under reverse charge for the
services used in relation to exports of goods or services. He placed reliance
on the following decision:-
3i Infotech Ltd - 2017 (51) S.T.R. 305
Genom Biotech Pvt. Ltd. Vs. Commissioner - 2016(42) STR 918
Jet Airways - 2016 (44) STR 465 (Tri. Mumbai)
J.P.P. Mills Pvt. Ltd. -2016 (46) STR 317
3.2 He also submits that Ld. Commissioner has confirmed the demand of
Rs. 3,69,11,891/- under the "Banking and Financial Service" allegedly
received by the Appellant by Foreign banks on the reverse charge basis
under Section 66A of the Finance Act, 1994. The said demand comprises of
two activities. First demand pertains to the bank charges charged by the
foreign banks to the Appellant‟s bank in India for collecting and remitting the
proceeds of the goods/ services from the overseas buyer/customers of the
Appellant. The second demand pertains to the commission charged by the
overseas banks to the Appellant‟s bank in India for providing bank
guarantees to the overseas customers of the Appellant both prior to and
post the award of contracts. Appellant is required to give bank guarantees to
its overseas customers in regard to the contract of supply and /or erection
and commissioning of high-tension transmission towers to be executed
outside India. None of the bank guarantees provided by the foreign banks
were in relation to the business and commerce of the Appellant in India. The
Appellant approached its bankers in India to provide the bank guarantees of
overseas bank to Appellant‟s overseas buyers. The Banks in India
approached foreign bank to provide the guarantee and enter into contract
with foreign bank to issue guarantee to overseas buyers of the Appellant.
The Appellant does not enter into any contract with the foreign bank and
there is no privity of contract between the foreign bank and the Appellant.
The Appellant availed the services of Indian Bank. The foreign bank does not
provide any services to the Appellant. Ld. Commissioner committed an error
of law in holding that the foreign bank charged bank guarantee commission
from the Appellant. There is nothing on record to reach these findings. The
Chief Commissioner of Central Excise, Mumbai issued trade notice No.
20/2013 -14 S.T. -1 dated 10.02.2014 clarifying that, in cases where the
foreign Banks are recovering certain charges for processing of Import/
Export documents regarding the remittance of foreign currency, the banks in
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India would be treated as recipient of service and therefore required to pay
Service tax. He also placed reliance on the following decisions:-
Dileep Industries Pvt. Ltd. 2017(10)TMI 1231
Themis Exports Pvt. Ltd. 2019(26) GSTL 104
Greenply Industries Ltd. 2015(38) STR 605
Final order No. A/85816/2018 dtd. 23.03.2018 - Raymond Ltd.
KPIT Cummins Info Systems Ltd. Vs, CCE - 2014 (33) STR 105
3.3 As regard the demand of Rs. 3,61,80,696/- under the taxable service
of "Business Auxiliary Service" provided by the overseas service providers to
the Appellant‟s branch in relation to the overseas projects, he submits that
Ld. Commissioner has proceeded on the footing that the Appellant employed
sales commission agent, marketing agents, technical advisors for liasoning
activity with various customers and agencies, advisory or consultancy for
settlement of disputes in connection with promotion of their business
interest abroad. Admittedly neither the SCN nor the impugned order specify
sub-clause of Section 65(19) under which service tax is demanded. In the
absence of invocation of specific sub-clause, the impugned demand cannot
be sustained. He placed reliance on the following decisions:-
United Telecom Ltd. -2011(21)STR 234
Sharma Travels - 2017 (52) STR 272 (Tri. Del)
Amrit Foods - 2005 (190) ELT 433 (SC)
3.4 He also submits that Appellant has paid service tax on reverse charge
basis when service have been received from nonresident service provider in
India under the taxable service category of business auxiliary service, for
which payment has been made by the Appellant to the nonresident service
providers. However, the services which have been provided by the
nonresident service providers directly to the overseas site office of the
Appellant and payment of which has also been made by the overseas site
officers, no liability to pay service tax would arise on the part of the
appellant as recipient of the service on reverse charge basis. Therefore, the
Appellant did not pay service tax on commission or fees paid by the site
officers of the appellant in foreign countries. Since the foreign site officers
are paying all the applicable taxes/ duties, applicable in the foreign country.
He submits the sample copy of invoices raised by the commission agent on
the foreign site offices for providing services in respective foreign countries.
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3.5 He also submits that Ld. Commissioner has confirmed the demand
claiming that the overseas office of the Appellant is a temporary
arrangement made for the convenience of the Appellant and the overseas
branch worked under the umbrella of the office of the Appellant in Gandhi
Nagar and that the income and expenditure of the overseas office are finally
incorporated in the balance sheet of the Appellant. In any event and without
prejudice, the Appellant‟s office in India its overseas site office are distinct
entities under Section 66A (2) and any service availed by the overseas
branch/ office in relation to business outside India cannot be said to have
been received by the Appellant in India and subjected to service tax in India.
He placed reliance on following decisions:-
Steel Authority of India - 2020 (4) TMI 346 -CESTAT, New Delhi
3i Infotech Ltd. - 2017 (51) STR 305
3.6 Without prejudice he also submits that demand on the provisions
made in the books of account is liable to be set aside. Ld. Commissioner
failed to appreciate that the department had already issued show cause
notice for the part of the demand for the years 2007 to 2009 on 29.09.2010
which was duly adjudicated by the Ld. Additional Commissioner vide Order
No. 11/ADC (SC)/ 2011 dated 03.02.2011. The overseas service providers
have paid local VAT/GST. This aspect is not disputed by the department. It is
settled position of law that for the services rendered abroad, if the tax
liabilities such as GST/VAT etc. have been discharged in accordance with the
local laws, on the same transaction, the authorities in India do not have any
Jurisdiction to impose Service tax. He placed reliance on the following
Judgments:-
M/s Torrent Pharmaceuticals Ltd. Vs. CST 2014-TIOL-2647-CESTAT-
AHM
KPIT Cummins Info Systems Ltd. Vs CCE 2014(33)STR 105(Tri.
Mumbai)
3.7 As regard the demand of Rs. 9,06,692/- under the „Legal Consultancy
Service‟ under reverse charge for the services provided by the overseas
service providers he submits that non-resident service provider had provided
the service to the overseas site offices and the payment has been made by
the overseas site offices. When the service provider as well as service
recipient (overseas site offices) both are located outside India, no tax is
payable in India. Further, Legal Consultancy service has become taxable
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with effect from 01.09.2009. Consequently, the demand prior to 01.09.2009
is liable to be set aside.
3.8 He also submits that Ld. Commissioner has confirmed the demand
under the Legal Consultancy Service on the ground that Appellant has
accounted for in the books of accounts as Legal and Professional Services.
There is a general term in the books of account named as „Legal and
Professional Expenses‟ which is not exactly similar to the definition of the
„Legal Consultancy Fees‟ as defined in the Finance Act, 1994. Therefore
general terms cannot be considered as strict definition in the statute. Some
of expenses in Legal and Professional Services are for registration fees in
Ukraine, Municipal tax is Saudi Arabia, Fees for land, chamber of commerce
etc. These expenses are not for providing legal and consultancy services.
The Ld. Commissioner has completely overlooked the aforesaid facts and
wrongly confirmed the demand under legal consultancy service. It is settled
position in law that prior to 01.07.2012, the service tax was payable under
the defined taxable services from the date notified by the Government of
India.
3.9 As regard the demand of Service tax of Rs. 1,33,62,965/- under the
supply of Tangible Goods Services he submits that appellant had imported
pipe layer machine /caterpillar pipe layer machine on lease/rent from outside
India for execution of laying of long distance pipe line work in India. The said
transaction were import of goods and not import of services. The Appellant
on import of machinery paid the appropriate customs duty Further, the
machinery imported by the Appellant on lease/rent no service tax was
payable as the effective control and possession of the machinery was with
the Appellant. The Appellant was required to pay to any damage to the
machine was sufficient to show that the effective control and possession of
the imported machine was with the Appellant.
3.10 Without prejudice, he further submits that in any event, the Appellant
had an agreement with Saygili P.D.C. Ltd., Cyprus, for providing the
technical/machine operators etc. at site for operating machinery of CRC
Evans. The service provided by Saygili cannot be covered by supply of
tangible goods as they did not provide any goods to the Appellant. They only
provided engineers. The demand of Service tax on the consideration paid to
Saygili under supply of Tangible Goods is liable to be set aside. The demand
under „Supply of Tangible goods Service‟ for the services provided by
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HIDELECO for carrying out the survey and providing technical consultancy
service for the transmission line project at Algeria Soinelgaz is clearly
untenable in law. No goods were supplied by HIDELECO.
3.11 As regard the demand of Service tax of Rs. 16,51,412/- under the
taxable service category of „Technical Testing and Analysis Service‟ on
reverse charge basis he submits that Ld. Commissioner held that the
Consultants of EdD and PB towers visited Bangalore in connection with the
tower test witness of tower type ED for WO-126 and they were paid in Euros
in Bangalore. The Ld. Commissioner relied upon the Journal Voucher dtd.
31.01.2009 and emails reproduced in impugned order to confirm the above
demand. The Ld. Commissioner rejected the contention of the Appellant that
the payment made to the foreigners were reimbursement of travel
expenses. In order to tax the services under technical testing and analysis, it
is necessary that such services are in relation to physical, chemical,
biological or any scientific testing or analysis of goods or materials. In terms
of the contract with the overseas buyers for supply of material, the Appellant
has to perform testing of tower parts in its factory in the presence of the
representative of the overseas buyers. The representatives of the overseas
buyers merely witnessed testing process at the factory of the Appellant. The
Appellants were required to and reimbursed only travel expenses. The
payment is not for any services provided by the representative of overseas
buyers. In addition to the visit of the representatives of the buyers in
Bangalore, India, the representative of the buyers had also visited to witness
testing of the towers parts in China. The testing took place in China. The
representatives of the overseas buyers were paid travel expenses for
remaining present during the testing. Travel expenses paid for visiting
Bangalore and China to witness the testing of the tower parts are not
covered by taxable services of technical testing and analysis services.
Alleged testing by the representatives of the buyers at China are covered by
Rule 3(3)(ii) of the Import of Service Rules and the alleged services are
provided outside India and no part of services are provided in India and no
service tax is payable on the alleged services in China.
3.12 He further submits that Journal Voucher dated 31.01.2009 showing
the description of testing expenses cannot by itself mean that the
consideration was paid for rendering technical testing and analysis services.
The contract does not provide for any technical testing and analysis services
to be provided by the overseas buyers. The contract with the buyers clearly
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provides for payment of travel expenses to witness the testing of the tower
parts.
3.13 As regard the demand of Rs. 95,92,040 under taxable service of cargo
handling services he submits that Ld. Commissioner held that Appellant had
availed services of M/s World Wide Logistics Partners Inc USA, for providing
custom clearing and handling charges and freight forwarding charges both
India and abroad and the services rendered by the World Wide Logistics is
taxable under Cargo Handling under Section 65(105)(zr) of the Finance Act.
The Ld. Commissioner has further held that cargo handling Service fall in
Rule 3 (ii) of the Import of Service Rules and Services are partly performed
in India and partly outside India and therefore liable to pay Service tax. The
consideration paid to World Wide Logistics is for the services rendered
outside India and no part of the services are rendered in India. The
Appellant paid the cargo handling charges from the overseas sites, having
permanent establishment overseas. These payment were exclusively related
to the services overseas for the purpose of business and commerce
overseas. During the impugned period, the Appellant received contracts from
the following parties wherein cargo handling was in the scope of the
Appellant.
Ethiopian Electric Power Corporation, Ethiopia
Tanzania Electric Supply Co. Ltd., Tanzania
SocieteNetionale D‟ Electrricite (SNEL), Congo
All the payment made by the overseas site office of the Appellant from the
bank account of overseas country. In case of Ethiopian Electric Power
Corporation, it was mandatory to have the shipment through Ethiopian
Shipping Line. The Appellant had provided support to the overseas
customers in handling of the materials as per contractual terms and
conditions, from the overseas port to the premises of the customers for
which the customers had paid directly to overseas site offices of the
Appellant. Thus, for handling of the material from overseas port to the
premises of the customers, the Appellant have engaged local clearing and
forwarding agency and payment of which were made directly from the
overseas site offices from the consideration received from the overseas
customers. Further the Appellant have also engaged an agency namely M/s
World Wide Logistics Partner Inc, USA, to cater the need of handling of
goods at the both the end that is from factory of the Appellant to the Indian
port and from the destination port in overseas country to the premises of the
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overseas customers. For handling of the materials from the factory to the
Appellant to the Indian Port and for carrying out activity of handling of
material in India, M/s World Wide Logistics Partner Inc, USA, had engaged
their Indian Partner M/s Pisces Container Line Pvt. Ltd. , Thus M/s Pisces has
provided clearing and forwarding services for clearing of material from the
factory premises of the Appellant to the Indian port. Thus to that extent
clearing and forwarding services were performed in India and received in
India. For provision of said service M/s Pisces has charged service tax from
the Appellant and raised invoices on the head office of the Appellant directly.
The foreign site office in Congo has availed the service of M/s Gectrans for
the clearance from port in Congo and transportation of the goods from port
to the site of customer. The payment has been made directly by the foreign
site office to the Foreign Service provider. Further, the activity has been
performed wholly in Congo i.e. outside Indian and is part and parcel of the
balance sheet maintained by the foreign site office at Congo, which is to be
considered as business income and expenditure of Congo, for the purpose of
Income tax and accordingly the same is for the purpose of business and
commerce carried out in congo. No service tax is payable on said amount by
the Appellant.
3.14 He also submits that the foreign site offices had availed the service for
the purpose of clearance of the exported goods at the foreign country port
and transportation to the site of customer. The activity have been performed
wholly outside India and is part and parcel of the balance sheet maintained
by the foreign site office, which is to be considered as expenditure of the
foreign site office, for the purposes of Income tax and accordingly the same
for the purpose of business and commerce carried out in foreign country.
3.15 He also submits that CBEC vide circular F.No. B.11/1/2002-TRU dated
01.08.2002 clarified that services provided in relation to export cargo and
passenger baggage are excluded from tax net. It is not in dispute that the
Appellant have exported goods to the foreign customers and the services of
M/s Pisces Containers (I) Ltd. has been received with respect of export
goods only. Thus, without admitting that the services of M/s Worldwide
Logistics and M/s Pisces Containers (I) Ltd. falls under the scope of cargo
handling services but the same is carried out for export cargo, hence the
amount paid by the foreign site office is not chargeable to service tax.
Hence, in any case, the Appellant were not liable to pay Service tax.
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3.16 In respect of service tax demand of Rs. 12,93,403/- under the
category of General Insurance Service on reversed charge basis he submits
that during the relevant period appellant had paid the Insurance Premium
from the overseas site and is part of overseas insurance of the material
during the period of erection in the overseas country. The expenses has
been incurred in relation to business or commerce carried out outside India
and not in relation to business or commerce carried out in India. The
Insurance charges paid directly from the site office in the local currency of
the overseas country, the Appellant is not liable for payment of service tax
as said services cannot be considered as service received in India.
3.17 As regard the demand of Rs. 2,71,047/- on the information and
technology services, he submits said demand pertains to the expenses
shown in foreign currency under the head „Computer Expenses‟. The said
expenses related to the maintenance of computer, replacement of part etc in
the foreign site offices. Therefore, no service tax is payable. Further, the
internet charges incurred by the foreign site offices cannot be taxed under
the category of „Information Technology Software Service‟.
3.18 He also submits that extended period of limitation is not invokable in
the present case as there was no suppression of facts with an intent to
evade payment of service tax. The Department had carried out audits
regularly of the records maintained by the Appellant during the disputed
period. Appellant also filed Service tax return regularly. Hence extended
period cannot be invoked. He placed reliance on the various decisions.
3.19 Without prejudice he also submits that the Central Excise officer
empowered to issue show cause notice under Section 73 of the Finance Act
1994 is only the Jurisdictional officer of the Appellant. The DGCEI officers are
not the Central Excise Officers empowered to issue show cause notice. Thus
the present show cause notice is without Jurisdiction. He placed reliance on
the decision of Canon India (P) Ltd. Vs. Commissioner of Customs 2021-VIL-
34-SC.
4. Shri T.G Rathod, Learned Additional Commissioner (AR) appearing for
the Revenue relies on the impugned order and he submits that the foreign
banks charged fees in the name of bank charges. These charges are in the
nature of charges towards providing Banking and Financial Services and
service tax is sought to be recovered on such charges paid by the Appellant.
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Appellant has availed the services from the foreign entities and the local
banks merely acted on the instructions of Appellant. Appellant have not
disputed the facts that they have incurred expenditures in foreign currency
towards bank guarantee commission and foreign bank charges for
remittance in India. Further, the facts that the service providers do not have
an establishment in India is also not disputed. Thus Appellant is liable to pay
service tax under the Banking and other financial service.
4.1 He also submits that the arrangement to set up an overseas office is a
temporary arrangement made for the convenience of Appellant. The ultimate
facts are that the site offices abroad work under the umbrella of the head
office located in Gandhinagar. The income /expenditure of the overseas
offices are finally incorporated in the balance sheet of Appellant. This fact
has been admitted by Shri M K Harsh. The facts remains that Appellant is
the entity who is availing such services for the business. The appellant has
not disputed the facts that the alleged services are covered under the
Business Auxiliary Service. Further, the facts that the service providers do
not have an establishment in India is also not disputed. Thus, Appellant are
required to pay service tax on such expenses incurred by them under the
reverse charge mechanism in terms of the provisions of Section 66A of the
Finance Act 1994.
4.2 He also submits that Appellant have failed to drive home the point as
to how the services availed by them were not classifiable under the legal
consultancy charges. There is no dispute regarding the facts that such
expenses had been booked under the head „Legal and Professional Expenses‟
in the books of account and as such it has to be construed that such legal &
professional consultancy service have been received and the same is liable
to be classified as „Legal Consultancy Service.
4.3 Further as regard the demand of service tax under the category of
Supply of Tangible Goods Services he submits that in the agreement entered
with foreign entities, the value of hiring charges and other charges are
separately specified. Appellant was to pay hiring charges and other charges
separately. But in case of agreement entered with the other two companies
the value of hiring charges included all expenses. Further, if the machineries
were fully under the control of Appellant, hire charges would have been
uniform for the period of hiring. But, the hiring charges varied from month
to month depending upon the usage of the machineries in that period. These
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factors disprove Appellant‟s claim of having effective control of the
equipment during the period of hire. The overseas offices were an integral
part of the Appellant and were nothing but an extended arm of the Indian
entity. Thus, the argument put forth by the appellant that services of
HIDELECO was related to the immovable property and used outside India,
therefore the service tax was not payable is not sustainable. In the instant
case the goods were obtained on hire basis, however for their entry into
India the customs formalities call for payment of appropriate duty since no
exemption has been provided for such situation. However, such situation
has been encompassed under Section 74 of the Customs Act, wherein the
Customs Duty paid at the time of importation of such goods is off-set by way
of duty drawback at the time of re-export of such goods. Accordingly, the
argument that both customs duty and service tax cannot be levied fails to
impress.
4.4 As regard the demand of Service tax under Technical Testing and
Analysis Services he submits that emails indicate that consultants from
companies viz. EdD and PB Power visited Bangalore in connection with the
towers test witness of tower type ED for WO-126. These technicians were
paid in Euro at Bangalore. This proves that Appellant has also received
services from foreign entities in India towards testing of towers. The
argument of Appellant that they had reimbursed traveling allowance as per
their contractual obligation is not sustainable.
4.5 He also submits that since the overseas offices were an integral part
of the Appellant and were nothing but an extended arm of the Indian entity,
the contention of Appellant found to be incorrect that they had paid the
cargo handling charges from their overseas site have permanent
establishment at overseas country and these payments are exclusively
related to the services at overseas country for the purpose of business and
commerce at overseas country. Cargo Handling Service fall in category (ii) of
Rule 3 of import rule and as such even if this service is partly performed in
India, it shall be treated as Services provided from outside India and
received in India. Thus, Appellant are required to pay service tax on such
expenses incurred by them under the reverse charge mechanism in terms
of the provisions of Section 66A of the Finance Act, 1944 and the Taxation of
Services (Provided from Outside India and Received in India) Rules, 2006.
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4.6 He also submits that General Insurance Service as defined under
Section 65(105)(zl) of the Finance Act, 1994 is covered under Rule 3(iii) of
the Taxation of Services (Provided from Outside India and Received in India)
Rule, 2006. For the services covered under Rule 3(iii), if the services are
received by the recipient located in India for use in relation to business or
commerce shall be treated as services provided from outside India and
received in India. Appellant are required to pay Service tax on such
expenses incurred by them under reverse charge mechanism.
4.7 He also submits that the expenses pertain to annual maintenance of
software, software licence fees, software purchase, internet charges etc. are
covered under the definition of "Information Technology Services‟ as defined
under clause 65(105)(zzzze) of the Finance Act, 1994. The argument of
Appellant that said expenses related to the foreign site offices and they are
not liable to pay service tax on said expenses is not sustainable, since the
overseas offices were an integral part of the Appellant.
4.8 He placed reliance on the following decisions in support of his
arguments.
2016(41) STR 689 (Tri. Mum) -Tata Steel Ltd. Vs. CST, Mumbai -I
2018(8) GSTL 386 (Tri. Del) - Air India Ltd. Vs CST, Delhi
2015(39) STR 97 (Tri. Ahmd)- Torrent Pharmaceuticals Ltd. Vs CST,
Ahmd.
2019 (29) GSTL 304 (Tri. Mum)- Board of Control for Cricket In India
Vs CST, Mumbai -II
2005(183) ELT 241(SC) - Dharampal Satyapal Vs CCE, New Delhi
2011(265) ELT 81 (Tri. Del)- CCE, Chandigarh Vs Dharampal Prem
Chand Ltd.
2019(20)GSTL 198 (Bom) -McKinsey & Company INC Vs CCE.
2016 (46) STR 297 (Tri. Del) Lakhan Singh & Co. Vs. CCE Jaipur
2015 (40) STR 993 (Tri- Mum) -Axis Bank Ltd. Vs CST Mumbai -I
2010 (256) ELT 369 (Guj) -CCE, Surat -I Vs Neminath Fabrics Pvt. Ltd.
(xi) 2013 (290) ELT 322 (Guj) SalsarDyg&Ptg Mills Pvt. Ltd. Vs. CCE,
Surat -I
2015(38)STR 884 (Tri. Mum) -Star India Pvt. Ltd. Vs. CCE Thane-I
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4.9 He also submits that the Appellant has misplaced themselves in making
a plea that officers of DGCEI neither have the „Jurisdiction‟ nor are they
„Proper Officer‟ for issuance of show cause notice. There exists no ambiguity
in as much as the DGCEI officers are given the „Jurisdiction‟ and are also
declared as the „proper officer‟ by way of investing them with powers of
„Central Excise officers‟ vide Notification No. 38/2001- Central Excise (N.T.)
dated. 26.06.2001. The Appellant have misplaced themselves while relying
on the Judgment in the case of Canon India (P) Ltd., in as much as there
was not „assessment‟ as such by any Central Excise Officers which has been
proposed to be „reassessed‟ in the Appellant‟s case by the officers of DGCEI
by way of a show cause notice. The captioned show cause notice was
adjudicated by the Ld. Commissioner of Service tax who exercised
Jurisdiction over the appellant. Thus, the reliance placed by the Appellant on
the ratio of decision of the Hon‟ble Apex Court in the case of Canon India (P)
Ltd. entirely misplaced. He also placed reliance on the decisions of M/s
National Building Construction Company W.P. (C) 1144/2016 -High Court of
Delhi.
5. We have considered the submissions made by both the sides and
perused the records. We find that from the arguments advanced by both the
sides, the issue to be decided in this case is whether the appellant are liable
to pay Service tax under reverse charge mechanism on above 8 services
which have been provided by the service providers who are not having fixed
establishment in India under the provisions of Section 66A of the Finance
Act, 1944 and the Taxation of Services (Provided from Outside India and
Received in India) Rules, 2006.
5.1 We now deal with the above issues and decide on each service -wise
basis as under:-
Banking and Other Financial Services.
5.2 The case of the department is that the Appellant was required to
furnish Bank Guarantee in respect of the work of erection, commissioning
and installation of high-tension power transmission towers abroad. For this
the foreign banks charged bank guarantee commission. Also while remitting
foreign currency earning in India, the foreign bank charged bank charges.
These charges are in the nature of charges towards providing Banking and
15 | P a g e ST/11064, 11243/2015-DB
Financial Service and Service tax is sought to be paid on such charges paid
by the Appellant. We find that no documents have been produced by the
department showing that foreign bank has charged any amount from the
appellant directly. Therefore, to presume that they are receiving services
from the foreign bank is not correct. The facts as narrated in the impugned
order clearly indicate that it is the Indian Banks who had paid the charges to
the foreign banks. We find that the Appellant solely deal with the Indian
Bank and appellant do not have any kind of interaction with foreign banks.
Clearly, in this matter service if any has been received it is by the Indian
Bank and not by the appellant. Hence, amount charged by foreign banks to
Indian banksprima facie cannot be considered as service received by the
appellant.The following judgments relied upon by the appellant squarely
applicable to the facts of the present matter.
Dileep Industries Pvt. Ltd. 2017(10)TMI 1231
Themis Exports Pvt. Ltd. 2019(26) GSTL 104
Greenply Industries Ltd. 2015(38) STR 605
Final order No. A/85816/2018 dated 23.03.2018 - Raymond Ltd.
In view of this, the appellant cannot be treated as service recipient and no
service tax can be charged from them under Section 66A of the Finance Act.
Business Auxiliary Service.
5.3 The demand for Service Tax under the category of "Business
AuxiliaryServices" has been made on the ground that Appellant employed
sales commission agent, marketing agent, technical advisors for liasoning
activity with various customers and agencies, advisory or consultancy for
settlement of dispute in connection with promotion of their business interest
abroad. The revenue alleges that service tax ought to be paid on such
expenses under the Business Auxiliary Service under reverse charge
mechanism. However, we observe that definition of „Business Auxiliary
Services‟ contained numerous sub-heads and it was necessary for Revenue
to point out under which head of the said definition the demand was raised.
It is important to classify the activity under the specific sub-clause before
confirming the demand. We find that the same has not been done in the
present matter. In the absence of the specification of the exact sub-clause
under which the demand was raised the said demand cannot be sustained.
In this regard, the judgment relied upon by the appellant in the case of
16 | P a g e ST/11064, 11243/2015-DB
United Telecoms Ltd. v. Commissioner of Service Tax - 2011 (22) S.T.R. 571
(supra) , Sharma Travels - 2017(52) STR 272 (supra) and Balaji Enterprises
v. C. Ex. & S.T. - 2020 (33) G.S.T.L. 97 (supra) support their case. The said
decisionsare squarely applicable to the facts of the present case and hence
we find that the demand for service tax cannot be sustained on this ground
alone.
5.4 Without prejudice, we also find that provisions of Section 66A(1) of the
Finance Act, 1994 reproduced below provide as under.
''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.
(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.
17 | P a g e ST/11064, 11243/2015-DB
Explanation 2. - Usual place of residence, in relation to a body
corporate, means the place where it is incorporated or otherwise
legally constituted.‟‟
Above Section 66A(2) and its Explanation -I make it clear and to fix service
tax liability on recipient of services under reverse charge mechanism that
both the permanent establishments in India and abroad of a business person
are to be treated as separate persons. The above clarification made in
Section 66A is only for making an identification to determine whether a
service is provided and consumed in India or abroad.A comprehensive
reading of Section 66A of the Finance Act, 1994, make it clear that 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 and such
establishment situated abroad as a „separate person‟, will be understood to
have been prescribed only to determine the provision of service whether in
India or out of India. In the present matter we find that department has not
disputed the facts that the payment to overseas consultant/ agents/ service
providers was made from the overseas projects site branch/ office of the
Appellant and said Foreign Service providers have charged local
VAT/GST/Service tax as applicable in the respective foreign countries in
invoices issued by them to foreign site /project office /Branch office of
Appellant. The said facts clearly established that the services have been
provided by the foreign agents to the foreign site office/branch office of
Appellant and thus, the service cannot be said to be received in India when
the same is provided outside India, used outside India and paid outside
India. Therefore, demand of service tax in the impugned matter legally not
correct on this ground also.
5.5 We also find that in this matter Ld. Commissioner has confirmed the
demand on the ground that the arrangement to set-up an overseas office is
a temporary arrangement made for the convenience of Appellant. The
ultimate facts is that the site office abroad work under the umbrella of the
head office located in Gandhinagar. At this stage it will be relevant to
examine the judgment of M/s. British Airways v. CCE (Adj.), Delhi 2014 (36)
S.T.R. 598 (Tribunal) (supra). The facts of this case were that M/s. British
Airways PLC (BA, UK); with its registered office at Harmondsworth, UK; were
an Airline engaged in providing the service of transportation of passengers
and Cargo by air throughout the world. BA (UK) also had a branch office in
18 | P a g e ST/11064, 11243/2015-DB
India (BA, India). BA (UK) entered into agreement with several CRS/GDS
companies for maintaining database regarding flight schedules of BA (UK)
Flights, fares, seats availability etc. and this information was made available
to IATA agents of British Airways all over the world including BA (India). All
the CRS/GDS companies were located outside India and had no branch office
in India. CRS/GDS companies also provided certain hardware to IATA agents
for providing connectivity for retrieving data and bookings etc. Entire
payment to CRS/GDS was made by BA (UK) based on the number of tickets
issued by IATA agents. It was the view of the Revenue in that case that
services availed by IATA agents in India are liable to service tax under
reverse charge as services received in India. Para 31.2 (5) and (6) of this
case law is the view recorded by Member (Technical), which became
majority view and is reproduced below :-
„„31.2 .......
(5) When the service has been received by the Head Office of the
appellant at UK against its agreements with CRS/GDS Companies and
as accepted in the impugned order, entire payment has been made
abroad by the Head Office directly to CRS/GDS Companies and when
in view of the provisions of Section 66A (2), the appellant-BA, India
and their Head Office at UK, BA, UK are to be treated as separate
persons, the entire transaction of provisions of service has to be
treated as having taken place outside India and the service received
by the Head Office at UK cannot be treated as service received by the
Appellant, in India.
(6) In my view, the only situation where in respect of the service
provided by a service provider „A‟ located outside India against as
agreement/ contract with Head office of a company „B‟, incorporated
outside India i.e. located outside India, the service tax can be charged
from the branch office „B-l‟ in India of the Company „B‟ when :-
(a) the Headquarter of the Company „B‟ has entered into a
framework agreement/ contract with the service provider „A‟ by the
way of centralized sourcing of service for Provision of service at
various branches located in different countries including India; and
(b) the service has been provided at the branch in India and the
role of the Headquarter is only as a facilitator.
In such a situation service tax can be charged from the branch office in
India by treating it as service recipient even if the payment for the
service received was made by the head office, as in such a situation,
the Indian branch office can be treated as having made the payment
indirectly. But in this case, as discussed above, from the agreements
19 | P a g e ST/11064, 11243/2015-DB
of „BA, U.K.‟ with CRD/GDS Companies, it is seen that there is nothing
in these agreement from which it can be inferred that the CRD/GDS
Companies were required to provide location specific service to the
branches of „BA, U.K.‟, all over the world. There is neither allegation
nor evidence that „BA, U.K.‟ have charged any amount from the
Appellant directly or indirectly by way of the debit/ credit notes,
account adjustment or by other indirect means, for any services
provided by the CRS/GDS Companies.‟‟
From the above interpretation made in the case of M/s. British Airways v.
CCE (Adj.), Delhi (supra) it has to be seen in the present proceedings
whether while procuring services branch offices /site offices of the appellant
abroad have acted only in the capacity of „facilitators‟ and the services so
procured were consumed in India or the services so availed were consumed
outside India. In the light of the judgment of M/s. British Airways v. CCE
(supra), the foreign branches/establishments of the appellant have not acted
as „facilitators‟ but have actually consumed those services abroad for which
local VAT/GST/ Service tax of the respective country has been paid.
Therefore, payment of local tax abroad will be an indicator to decide whether
a service is provided and consumed outside India or has been
consumed/received in India.
In view of the above discussions and analyses we find that the impugned
order confirming the service tax liability on the appellant cannot be
sustained
Legal Consultancy Service
5.6 On the third issue regarding Service Tax liability on legal consultancy
Service, we find that Ld. Commissioner hasnot disputed the facts that the
payment to overseas consultant/professional was made from the overseas
projects site branch/ office of the Appellant on the basis of invoices issued
by the said service providers to site office /branch office. Therefore, as
already discussed the issue in above paras, the said services have been
provided by the foreign consultants /professionals to the foreign site
office/branch office of Appellant and thus, the service cannot be said to be
received in India by the Appellant when the same is provided outside India
to site office of appellant, used outside India by the site office of the
appellant and paid outside India by the site office of the Appellant. The
20 | P a g e ST/11064, 11243/2015-DB
services were provided and consumed outside India, therefore, demand of
service tax in not sustainable.
5.7 Without prejudice, we also noticed that in the impugned matter
revenue demanded the service tax on the basis of expenses booked under
the accounting head of „Legal and Professional Expenses" under the service
category of Legal Consultancy Service as defined in Section 65(105) (zzzzm)
of the Finance Act, 1994 which reproduced below.
(105) "taxable service" means any service provided or to be provided,
-
(zzzzm) (i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;
(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;
(iii) to any business entity, by an arbitral tribunal, in respect of arbitration.
Explanation. --For the purposes of this item, the expressions "arbitration" and "arbitral tribunal" shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996 (26 of 1996);] As per the above provisions, it is clear that the services in relation to advice, consultancy or assistance in any branch of law and representational services before the court and authority are taxable under this category. However without verifying the vital facts related to above services only on the basis of expenses booked under the accounting head "Legal and Professional Expenses‟ demand of service tax from the Appellant not sustainable. Moreover, Appellant also provided the reasons for which their overseas office /branch office paid the amount to services providers. For example - fees for documents certification for submission to customers, local registration fees paid in Ukraine, Local municipal tax paid in Saudi Arabia, Fees for land for Brazil, paid to Saudi Chambers of Commerce for office maintenance and electricity charges, consultancy for CIS market for country Armenia etc. The said expenses cannot be concluded that the same was paid for the Legal Consultancy Service as defined in the Act. Hence the demand of service tax under wrong classification of service is not sustainable in law. Accordingly, we decide this issue also in favour of the Appellant. 21 | P a g e ST/11064, 11243/2015-DB Supply of Tangible Goods Services 5.8 The next issue relates to demand of Service tax under the head of "Supply of Tangible Goods Services" in respect of machinery imported by the Appellant on lease /rent basis in India for their required purposes. The Section 65(105)(zzzzj) of the Finance Act, 1994 defines "supply of tangible goods services" as follows :-
"any services provided or to be provided to any person by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances".
5.9 The Appellant claims that transfer of possession and effective control of the machinery was with them, consequently the said transactions do not fall under the above service provision and they are not liable for payment of Service tax. The Adjudicating Authority, however, did not accept the contention of the appellant and observed that the agreement entered with overseas party, the value of hiring charges and other charges are separately specified and in case of agreement entered with the two overseas party, the value of hiring charges included all expenses. The agreement does have provision that the machinery supplier would make available service engineers from beginning to end of period of hire. Further, if the machineries were fully under control of Appellant, hire charges would have been uniform for the period of hiring. These factors disprove Appellant‟s claim of having effective control of the equipment during the period of hire. However, we find from the facts on record that the appellant had entered into agreement with overseas parties for lease of machineries required for laying of long distance pipe line and for use of such machineries in India accordingly the Contract Law governed under International Chamber of Commerce. We find that during the lease period appellant has full right to use equipment in India as per their wish and in India for their required purpose, further we also observed that department nowhere disputed the facts that Appellant operated the machineries through their own operators and lessor had no control over the use of the machinery leased to the Appellant. Thus, it is clear that under the lease rental agreement exclusive right to use along with effective control and possession of the equipment has been transferred to the Appellant during the lease period. We also note that Tribunal in the case of Kinetic Communications Vs. Commissioner2017 (3) G.S.T.L. 319 (supra) 22 | P a g e ST/11064, 11243/2015-DB in which the Tribunal has set aside the demand for service tax under above category has observed as follows :-
7. It is seen from the records that there is no dispute as to the fact that the capital goods are in the possession of the lessee and is being used by him for the intended purpose without any interference or hurdle from the appellants. Ongoing through the clauses of agreement, as produced before us, we find that the appellants had handed over the capital goods‟ possession to the lessee as also the right to use. These two important factors that determine the requirement as to whether the service is a taxable service or otherwise under supply of tangible goods for use services‟. We find strong force in the contentions raised by the appellant that the case does not fall under supply of the tangible goods for use service. We also find that identical issue is settled by the Tribunal in the case of Praveen Engineering Works and Bhima SSK (supra).
8. In the facts and circumstances of this case and the authoritative judicial pronouncements on issue, we find that the impugned orders are unsustainable and liable to be set aside and we do so.
5.10 In view of the above facts and decisions we hold that the appellant‟s transactions are not covered under the entry "supply of tangible goods Service". Accordingly, we set aside the demand on this service.
5.11 We also observed that service tax demand is related to services received by the abroad site office /branch office of Appellant from HIDELECO, confirmed by the Ld. Commissioner on the ground that the overseas offices were an integral part of Appellant and were nothing but an extended arm of the Indian entity. As per the invoices submitted by the Appellant, we find that the overseas site office of Appellant has received the service from HIDELECO for carrying out the survey and provided technical consultancy services for the transmission line project at Algeria Sonelgaz.
Since the service of survey and technical consultancy is in relation to erection, commissioning and installation of transmission line, prima facie demand of service tax under the category of „supply of tangible goods services is wrong. Further, the said service was provided and consumed outside India, therefore, demand of service tax is not sustainable. 23 | P a g e ST/11064, 11243/2015-DB Technical Testing and Analysis Service 5.12 As regard the service tax demand under the taxable service category of „Technical Testing and Analysis Service, we find from the para 11 of the impugned show cause notice that service tax demand was related to re- imbursement expenses made to the overseas technical persons on account of their travel expenses, accommodation charges etc. In terms of the contract with the overseas customers for supply of materials it is mandatory on the part of Appellant to conduct the testing of the equipments and parts manufactured by Appellant. The representative of the overseas buyers merely witnessed the testing process carried out by the Appellant at factory. The Appellant paid the traveling and accommodation charges to representative of overseas buyers and did not pay service tax on said re- imbursements expenses. We find that the said amounts cannot be considered as taxable under „Technical Testing and Analysis service‟, as under the category of said service, the amount can be taxed as a testing fees or technical testing and analysis fees paid by the appellant, if any, to representative of overseas buyers. On perusal of the details submitted by the Appellant, we find that there are no such type of service charges paid by the appellant. The appellant has not paid any testing charges / testing fees and has only reimbursed the expenses incurred by representative of overseas buyer, in our view, the said expenses cannot be taxed under „Technical Testing and Analysis service‟.
5.13 We observed that the CESTAT in the matter of Geno Pharmaceuticals Ltd. Vs. Commissioner of Central Excise, Goa, 2017 (47) S.T.R. 264 (Tri. - Mumbai) held that "2. Heard both sides and perused the records.
3. The appellant herein appointed an agent named Shri S. Gupta by an agreement dated 3-3-2006. The said agreement provided that the agent shall provide services of promoting and marketing of the product sold to M/s. Nebula Trading Co. in the interior parts of Myanmar and the expenses to be incurred for travelling tickets, telephone charges, postage, hotel accommodation, fooding, etc.; appellant reimbursed the expenses incurred by Shri S. Gupta on the actuals as per the bills raised by Shri S. Gupta. It is the case of the Revenue that the appellant is liable to pay service tax under the reversecharge mechanism under the category of „business auxiliary services‟ as it is undisputed that Shri S. Gupta has rendered services of promoting and marketing of the appellant‟s goods.
4. The learned counsel brings to our notice the factual matrix of the case and takes us to the e-mails which have been sent by Shri S. Gupta to the appellant. It is his submission that these e-mails indicate that they were actually reimbursable expenses. It is his further 24 | P a g e ST/11064, 11243/2015-DB submission that the Hon‟ble High Court of Delhi in the case of Intercontinental Consultants &Technocrafts Pvt. Ltd. reported in 2013 (29) S.T.R. 9 (Del.), has struck down the provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, which mandated for inclusion of reimbursable expenses, also for paying the service tax liability.
5. The learned departmental representative reiterates the findings of the lower authorities.
6. In our considered view, the Revenue has no case on merits for more than one reason. Firstly, on perusal of the various e-mails sent by Shri S. Gupta to the appellant they clearly indicate that the said Shri Gupta has claimed tour expenses monthly and it indicates only the air fare, car hire, hotel charges and petrol charges incurred by him for a particular month. The said e-mails or the expenses statement seem to have been accepted by the Revenue authorities as they are claiming service tax on the amount claimed as reimbursement by Shri S. Gupta.
7. If the amounts which are claimed by Shri S. Gupta, are actual expenses, we find that the said amounts cannot be considered as taxable under „business auxiliary services‟, as under the category of BAS, the amount can be taxed as a commission paid by the appellant, if any, to Shri S. Gupta. On perusal of the agreement entered into by the appellant with Shri S. Gupta, we find that there is no mention of any commission payable to Shri S. Gupta by the appellant. If the appellant has not paid any commission and has only reimbursed the actual expenses incurred, in our view, the judgment of the Hon‟ble High Court of Delhi in the case of Intercontinental Consultants &Technocrafts Pvt. Ltd. (supra) will directly apply and the said expenses cannot be taxed under „business auxiliary service‟.
8. In view of the foregoing, we hold that the impugned order is unsustainable and liable to be set aside and we do so."
5.14 We also find that provisions of Rule 7(1) of the Service Tax (Determination of Value) Rules, 2006 would apply to this case. The said Rule 7(1) is reproduced below:
"7. Actual consideration to be the value of taxable service provided from outside India - (1) The value of taxable service received under the provisions of Section 66A, shall be such amount as is equal to the actual consideration charged for the services provided or to be provided."
It can be seen from the above reproduced Rule 7, as this rule is specifically applicable for reverse mechanism under Section 66A and for the purpose of discharge of Service Tax for the service provided from outside India, the value is equal to the actual consideration charged for the services provided or to be provided. In the impugned matter it is on records that in case of fees/ remunerations paid to overseas technicians Appellant have paid the service tax. Since the alleged amount was not paid for services but paid for 25 | P a g e ST/11064, 11243/2015-DB travelling expense, accommodation charges etc. clearly said expenses cannot be considered as value of taxable service. Hence, demand of service tax not sustainable on said expenses.
Cargo Handling Service 5.15 As far as the demand of service tax under the head „Cargo Handling Service‟ is concern, we find that the argument put forth by the Appellant before the Ld. Commissioner was that they had paid the cargo handling charges from their overseas site office. These payment are exclusively related to the services at overseas country for the business and commerce at overseas country. However Ld. Adjudicating authority rejected the contentions of the Appellant on the ground that the overseas office were an integral part of the Appellant and were nothing but an extended arm of the Indian entity. In this context, we already in above paras and in the light of the judgment of M/s. British Airways v. CCE (supra), held that 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 and such establishment situated abroad as a „separate person‟. Therefore, demand of service tax confirmed by the Ld. Commissioner on above ground legally not correct.
5.16 We also find that there is no dispute that Appellant manufactured the goods at their factories located in India and then taken the goods from India to overseas site location of customers and carry-on erection, commissioning and installation work. In this process they take the services of companies for handling goods at ports. The term „cargo handling service‟ has been defined under Section 65(23) of the Finance Act, 1994 which reads as follows :
"cargo handling service" means loading, unloading, packing or unpacking of cargo and includes, -
(a) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and
(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking, 26 | P a g e ST/11064, 11243/2015-DB but does not include, handling of export cargo or passenger baggage or mere transportation of goods.
The perusal thereof makes it clear that for anything to be defined as cargo handling service, it should be a bundle of activities as that of loading, unloading, packing or unpacking of the cargo along with providing for freight with or without the containers. The definition itself has an exclusion clause for excluding handling of export cargo or passenger baggage. Even mere transportation of goods is also specifically excluded. In the present matter it is not dispute that the Appellant have exported the goods to foreign customers and alleged services have been received for export purpose. Clearly, the handling of export cargo not taxable under the „Cargo Handling Service‟. After having gone through the aforesaid definition, it leaves no amount of doubt in our mind that such a service tax could not have been levied on the cargo handling services availed by the Appellants for export purpose.
5.17 We also find that the Board vide Circular No. 11/1/2002-TRU, dated 1- 8-2002 as regard the cargo handling service had also clarified as under:-
6. All goods meant for export are excluded from the scope of this levy. There may be cases where goods may be transhipped at a place other than the place of packing before reaching a place from where it is exported. For example goods are packed say at Agra for transportation to Bhopal where it is transhipped and ultimately reaches Mumbai, from where it is exported. A doubt has been raised as to whether service tax would be leviable on cargo handling service at Agra. It is clarified service provided in relation to any cargo which is meant for export, would not be taxable irrespective of the fact that it reaches the place of export after transhipment. However, the relevant documents should show that the Goods are for export In view of above, there is no merit in the impugned order on the issue with regard to the demand of service tax on Cargo Handling Service. Consequently, the demand on this service is set aside.
General Insurance Service 5.18 On the said issue the case of the department is that Appellant have shown expenditures in foreign currency under the head "Insurance Charges"
27 | P a g e ST/11064, 11243/2015-DB and appellant accepts order from the overseas customers with the conditions to Door delivery price, in such contract appellant pays insurance charges. General Insurance Service as defined under Section 65(105)(zl) of the Finance Act, 1994 is covered under Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rule, 2006. We find that in impugned show cause notice in para 12 department rely upon the statement of Shri M. K. Harsh, Vice President (Taxation) of the company. Against the question 34 he stated as under :
Question No. 34: Foreign currency expenditure in the head of "Insurance Charges" is shown. But for the past years no such expenses are separately shown. What are these expenses relates to ? Answer- 34 : I state that insurance charges are related to insurance of goods during the transportation of goods from overseas custom port to site of customer.
5.19 We also find that the said insurance charges paid directly from the overseas site office of the Appellant to overseas insurance company. The Appellant also produced documents in this support. However, the finding of the Ld. Commissioner that overseas offices were an integral part of the Appellant and were nothing but an extended arm of the Indian entity, Thus the Appellant‟s contentions do not merit consideration. We do not agree with the finding of Ld. Commissioner as per our detailed discussion made in above paras that the comprehensive reading of Section 66A of the Finance Act, 1994, clearly provide that 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 and such establishment situated abroad as a „separate person‟, will be understood to have been prescribed only to determine the provision of service whether in India or out of India. In the present matter we find that department has not disputed the facts that the payment to overseas insurance company was made from the overseas projects site branch/ office of the Appellant and said service was used only for the transportation of goods from overseas custom port to site of overseas customer. Moreover the overseas insurance company directly raised invoice on the foreign site office of the Appellant along with applicable taxed in respective foreign countries. The said facts clearly established that the services have been provided by the foreign Insurance Company to the foreign site office/branch office of Appellant and thus, the service cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India. In view of the above, we find that the 28 | P a g e ST/11064, 11243/2015-DB impugned order is not sustainable with reference to the above-mentioned Service Tax liability confirmed against the appellant.
Information Technology Software Service 5.20 We find that Ld. Commissioner confirmed the demand of Service tax under the service category „Information Technology Software Service pertains to the expenses shown in foreign currency under the head „Computer Expense‟. The said expenses related to the maintenance of computer, replacement of part, internet charges, etc in the foreign site offices of the appellant. The services provided by the overseas service provider to the overseas site offices of the appellant cannot be said to be received in India when the same is provided outside India, used outside India and paid outside India, consequently demand is not sustainable.
5.21 Since the demand of service tax itself not sustainable in the present case on merit, we are not going into the other issues such as jurisdiction, revenue neutral, limitation etc., addressed and raised by the Appellant in appeal memo/ submissions and during the course of arguments.
6. In result, the impugned order is set aside and the appeals filed by the Appellants are allowed with consequential relief, if any, as per law. MA also stands disposed off. MAs also stands disposed off.
(Pronounced in the open court on 10.06.2022) RAMESH NAIR MEMBER (JUDICIAL) RAJU MEMBER (TECHNICAL) Geeta