Custom, Excise & Service Tax Tribunal
M/S.Daikin Air-Conditioning India ... vs Cce, New Delhi on 14 December, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
SCO 147-148, SECTOR 17-C, CHANDIGARH-160017
DIVISION BENCH
Court-I
Appeal No.ST/3933/2012
(Arising out of OIO No.70/AKM/2012 dt.31.8.2012 passed by the CCE (Adjudication), New Delhi)
Date of Hearing: 11.05.2017
Date of Decision: 14.12.2017
M/s.Daikin Air-conditioning India P.Ltd. Appellant
Vs.
CCE, New Delhi Respondent
Present for the Appellant: Ms.Krati Somani, Advocate
Present for the Respondent: Shri Vjay Gupta, AR
Coram: Honble Mr.Ashok Jindal, Member (Judicial)
Honble Mr.Devender Singh, Member (Technical)
FINAL ORDER NO.62143/2017
PER: DEVENDER SINGH:
The brief facts of the case are that M/s.Daikin Air-conditioning India Pvt.Ltd. (DAIPL) registered with the Service Tax Department for taxable services, namely, maintenance & repairs, erection, commissioning, installation services. The appellant is 100% subsidiary of Daikin Industries Ltd., Japan (DIL). During the course of audit for the years 2003-04 to 2007-08, the following issues emerged:
(I) Whether the commission received by the appellant from M/s.DIL as per agreement dated 22.12.2005 towards product marketing and procurement of orders is liable to service tax under Business Auxiliary Service (BAS).
(II) The demand of service tax on commercial training and coaching received by the appellants employees in Japan (III) Whether M/s.DIL provided manpower recruitment or supply service to the appellant during the 2005-06 to 2006-07 or not (IV) The demand of service tax under consultancy service during the period 2007-08 and payment made to DIL.
(V) Whether the appellant received consultancy service from M/s.DIL, Japan and whether technical consultancy fee paid by the appellant to DIL, Japan during 2004-05 and 2005-06 is liable to pay service tax under reverse charge mechanism under consultancy engineering service
2. A show cause notice was issued and, in adjudication, the Commissioner has confirmed the demand of Rs.3,66,46,339/- for issue No.I and issue No.III, along with Education cess and SHEC for 2006-07. The adjudicating authority confirmed the demand of Rs.21,31,277/- for issue No.II and issue no.IV which already stands deposited by the appellant and stands appropriated. He dropped the demand of Rs.22,33,537/- for issue no.III (for the year 2005-06) and issue No.V (for the year 2004-05 & 2005-06). He also imposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994.
3. Learned Advocate for the appellant submits that on the issue No.I relating to the demand of service tax on BAS, the appellant had entered into an agreement with DIL and was performing the following activities, namely, to forward the customers request of procuring products from DIL and forward DILs quotation and contractual proposal to the customers. For all these services, the appellant received consideration in foreign currency. He argued that under Export of Service Rules, 2005, the services provided by the appellant fall under the third category and the issue was covered by the following judgements:
(1) Paul Merchants Ltd vs.CCE-2013 (29) STR 257 (Tri.) (2) Microsoft Corporation (I) Pvt.Ltd. vs. CST, New Delhi-2014 (36) STR 766 (3) GAP International Sourcing India Pvt.Ltd. vs. CST, Delhi-2015 (37) STR 230 (Tri.-Del.) (4) International Overseas Services vs. CST, Mumbai-2016 (41) STR 230 (Tri.-Mumbai) (5) Gecas Services India Pvt.Ltd. vs.CST,New Delhi-2014 (36) STR 556 (Tri.-Del.) (6) Samsung India Electronics Pvt.Ltd. vs. CCE-2016 (42) STR 831 (Tri.-Del.) (7) Blue Star Limited vs. CST-2016 (46) STR 59 (Tri.-Mum.) (8) CST vs. SGS India Pvt.Ltd.-2014 (34) STR 554 (Bom.)
4. On issue No.II, she argued that commercial training or coaching service is specified in Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006. The receipt of such services shall qualify as import only if the services are performed in India. In the present case, as the entire activity was performed outside India and therefore, no tax is payable under reverse charge mechanism. She relied on the judgement of Honble Bombay High Court in the case of CCE vs. Maersk India Pvt.Ltd.-2015 (40) STR 1059 (Bom.). She also argued that the demand prior to 18.4.2006 amounting to Rs.5,18,605/- is liable to be set aside in view of the following judgements:
(a) Indian National Shipowners Association vs. UOI-2009 (13) STR 235 (Bom) maintained at 2010 (17) STR J57 (SC)
(b) CCE vs. Bhandari Hosiery Exports Ltd.-2010 (28) STR 713 (P&H) maintained at 2010 (20) STR J99 (SC).
5. On issue No.III, Ld.Advocate contended that the provider M/s.DIL, Japan is not a commercial concern providing manpower recruitment or supply service. He argued that various foreign nationals, who were working with M/s.DAIPL or its subsidiary, were selected by the appellant. These foreign nationals were taken on payrolls of the appellant and worked under direct control and supervision of the appellant. Their salaries were paid by the appellant partly in India and partly in Japan. Portion of salary to be paid in Japan was directly credited by M/s.DIL, Japan to the accounts. This amount was reimbursed by the appellant to M/s.DIL, Japan. She relied upon the judgements in the case of Arvind Mills vs. CCE-2014 (34) STR 610 (Tri.-Ahmd.). The above judgment has been affirmed by the Gujarat High Court in the case of CST vs. Arvind Mills Ltd.-2014 (35) STR 496 (Guj.). She also relied upon the case law of Computer Sciences Corporation India Pvt.Ltd. vs. CCE, Noida-2014 (35) STR 94 (Tri.-Del.) and Volkswagen India Pvt.Ltd. vs. CCE-2014 (34) STR 135 (Tri.-Mum.) (maintained at 2016 (42) STR J145 (SC).
On issue No.IV, she pleaded that penalty was not imposable as situation was revenue neutral. She relied on the decision of this Tribunal in Jain Irrigation Systems Ltd. vs. CCE-2015 (40) STR 752 (Tri.-Mum.)
6. Ld.Advocate further argued that even assuming that M/s.DIL was providing services to the appellant, no service tax can be charged as there was no consideration of the services provided by M/s.DIL. She contended that the entire amount of salary was paid to the foreign nationals and no amount was retained by M/s.DIL. She relied upon the judgement of the Honble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt.Ltd.-2013 (29) STR 9 (Del).
7. Ld.Advocate also made submissions on limitation and contended that the Boards Circular No.111/5/2009-ST dated 24.2.2009 was in favour of the appellant and there was confusion on interpretation of clause Used outside India.
8. Ld.AR for the Revenue reiterated the findings in the order of the Commissioner (Adjudication). Ld.AR agreed that the first issue is covered by the judgement of this Tribunal in the case of Paul Merchants Limited. On second issue, he submitted that the issue was not contested at the adjudication stage and there was no finding by the adjudicating authority. On the issue of manpower supply, he submitted that there was no evidence to show that the salary was being paid and payment was made to Japanese company as a whole. He referred to para 9.8 of the agreement at page 186 of paper book. He also referred to the article 9 of the agreement at page 184.
9. Heard rival submissions and perused the record.
10. We find that on the issue of commission income in foreign convertible exchange from M/s.DIL, Japan, M/s.DAIPL were providing business auxiliary service, the following activities:
(a) to forward the customers request of procuring Products form DIL
(b) to forward DILs quotation and contractual proposal to the customers.
11. The Ld. Commissioner has also concluded that the appellant provided BAS to M/s.DIL as end user of the services is in India. The contention of the appellant is that they exported the services. We find that under the Export of Service Rules, 2005, taxable services have been divided into three categories. Admittedly, the services provided by the appellant fall under the category 3. On the question whether the services mentioned in category 3 qualify as export, various judicial pronouncements have held that to qualify as export, the service recipient should be located outside India and the fact that the service is performed in India is not relevant. In this regard, in the case of Microsoft Corporation (I) Pvt.Ltd. vs. CST, New Delhi-2014 (36) STR 766, this Tribunal has held as below:
51.?Even otherwise also, I find that the disputed service is the service being provided by the appellant to his principal located in Singapore. The marketing operations done by the appellant in India cannot be said to be at the behest of any Indian customer. The service being provided may or may not result in any sales of the product in Indian soil. The transactions and activities between the appellant and Singapore principal company are the disputed activities. As such, the services are being provided by the appellant to Singapore Recipient company and to be used by them at Singapore, may be for the purpose of the sale of their product in India, have to be held as export of services.
12. The similar view has been taken in the following cases:
(1) Paul Merchants Ltd vs.CCE-2013 (29) STR 257 (Tri.) (2) GAP International Sourcing India Pvt.Ltd. vs. CST, Delhi-2015 (37) STR 230 (Tri.-Del.) (3) International Overseas Services vs. CST, Mumbai-2016 (41) STR 230 (Tri.-Mumbai) (4) Gecas Services India Pvt.Ltd. vs.CST,New Delhi-2014 (36) STR 556 (Tri.-Del.) (5) Samsung India Electronics Pvt.Ltd. vs. CCE-2016 (42) STR 831 (Tri.-Del.) (6) Blue Star Limited vs. CST-2016 (46) STR 59 (Tri.-Mum.) (7) CST vs. SGS India Pvt.Ltd.-2014 (34) STR 554 (Bom.).
By following the above judgments, we hold that the services provided by the appellant qualify as export of service.
13. The issue No.(II) relates to technical collaboration agreement between M/s.DIL and DAIPL under which M/s.DIL would train the employees of DAIPL with regard to the Daikin technology. For such training, DAIPL pays requisite training fee to M/s.DIL. On the issue No.(II) in the show cause notice, for which the Ld. Commissioner has confirmed the demand of Rs.9,11,856/-, learned AR contended that the demand was not contested before the adjudicating authority. We find that in their submissions recorded in para 2.3 of Order-in-Original, the appellant has not contested the issue with the Revenue authority and suo motto paid service tax liability for this issue along with applicable interest on 30.06.2008. However the appellant had contended that issuance of show cause notice was bad in law as per Section 73(3) of the Act. However, the Commissioner has given no finding on this aspect at all and has confirmed the demand and penalty. In that background, the matter is liable to be remanded back to adjudicating authority to examine the contention of appellant afresh and given proper findings.
14. On the issue No.III of manpower recruitment or supply service, we find that the department has not brought out the fact that the foreign company is a commercial concern engaged in manpower recruitment or supply service. We find that as per agreement M/s.Daikin Air-conditioning India is deputing technically qualified specialists to provide technical assistance. As per the agreement, fee and airfare and cost of the specialist is to be borne by M/s.Daikin Air-conditioning India. Admittedly, these payments are being made by Indian company to Japanese company as a whole. Ld.Advocate also invited our attention to the para B.3 of their submission before the Commissioner (Appeals) which have not been rebutted and wherein they have submitted that the appellant are obliged to pay salaries to such foreign national employees and foreign nationals are filing income tax returns in Form 16 in India. Few such returns have been enclosed in the paper book. Besides, the contract of employment between Indian company and foreign national employees has also been enclosed. We find that the issue of payments made to employees of the foreign company deputed to its Indian partner is no longer res integra. The issue is covered by the judgement of the Honble Gujarat High Court in the case of CST vs. Arvind Mills Ltd.-2014 (35) STR 496 (Guj.) wherein this Tribunal has held as below:
6.?We have to examine the definition of Manpower Supply Recruitment Agency in background of such undisputable facts. The definition though provides that Manpower Recruitment Supply Agency means any commercial concern engaged in providing any services directly or indirectly in any manner for recruitment or supply of manpower temporarily or otherwise to a client, in the present case, the respondent cannot be said to be a commercial concern engaged in providing such specified services to a client. It is true that the definition is wide and would include any such activity where it is carried out either directly or indirectly supplying recruitment or manpower temporarily or otherwise. However, fundamentally recruitment of the agency being a commercial concern engaged in providing any such service to client would have to be satisfied. In the present case, facts are to the contrary.
15. The issue is also covered by the judgement of this Tribunal in the case of Volkswagen India Pvt.Ltd. vs. CCE-2014 (34) STR 135 (Tri.-Mum.) wherein this Tribunal has held as under:
5.1?In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working as their employees and having employee-employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction.
5.2?Further, in view of the rulings relied upon by the appellant as aforementioned, we find that the facts are covered on all four corners and accordingly, the appeals are allowed and Orders-in-Original are set aside.
16. In relation to issue No.(IV) of the show cause notice are pertaining to the demand of service tax under technical consultancy service on payment made to DIL for technical consultancy service, the demand of Rs.12,19,421/- has been upheld. Ld.Advocate submits that the amount has been paid with interest for the period 2007-08. Ld.Counsel has submitted that this demand is under Section 66A and after payment of service tax, the credit has been taken and used by the appellant. The situation is therefore, completely Revenue neutral and the penalty was not justified. We find force in the contention of the appellant that the entire situation was Revenue neutral as the credit was available with the appellant themselves. As has been held by this Tribunal in the case of Jain Irrigation System Limited (supra) that the Revenue neutral situation comes about in relation to the credit available to the appellant himself and not by way of availability of credit to anyone else. Hence, the penalty in these circumstances on this ground is not justified.
17. As for the issue No.V, in the adjudication order, the Commissioner has dropped the demand under this head for the period 2004-06. Hence, the same is not under lis in this appeal.
18. In view of the foregoing,
(i) the demand of Service Tax in relation to issue No.I and III are set aside. Interest and penalties in relation to these demands also do not survive;
(ii) In relation to the issue No.II, the matter is remanded to the adjudicating authority for re-examination and de novo adjudication;
(iii) Demand in relation to Issue No.IV is upheld along with interest. However, penalty is dropped in relation to issue No.IV.
19. Appeal is disposed of as above.
(Pronounced in the open court on 14.12.2017)
(ASHOK JINDAL) (DEVENDER SINGH)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
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