Custom, Excise & Service Tax Tribunal
Itemax Engineering Services Pvt Ltd vs Service Tax-I, Kolkata on 16 April, 2025
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
EASTERN ZONAL BENCH : KOLKATA
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 75350 of 2016
(Arising out of Order-in-Original No. 09/Commr/ST-I/Kol/2015-16 dated 23.11.2015
passed by the Principal Commissioner of Service Tax, Service Tax-I Commissionerate,
Kendriya Utpad Shulk Bhawan, 180, Shantipally, Rajdanga Main Road,
Kolkata - 700 107)
M/s. ITeMax Engineering Services Private Limited : Appellant
GN-34/2, 1st Floor, Ashram,
Sector-V, Salt Lake City,
Kolkata - 700 091
VERSUS
Principal Commissioner of Service Tax : Respondent
Service Tax-I Commissionerate, Kendriya Utpad Shulk Bhawan,
180, Shantipally, Rajdanga Main Road,
Kolkata - 700 107
APPEARANCE:
Shri Gautam Banerjee, Chartered Accountant (FCA), for the Appellant
Shri S. Dey, Authorized Representative, for the Respondent
CORAM:
HON'BLE SHRI K. ANPAZHAKAN, MEMBER (TECHNICAL)
HON'BLE SHRI ANGAD PRASAD, MEMBER (JUDICIAL)
FINAL ORDER NO. 75907 / 2025
DATE OF HEARING: 27.03.2025
DATE OF DECISION: 16.04.2025
ORDER:[PER SHRI K. ANPAZHAKAN] M/s. ITeMax Engineering Services Private Limited, GN-34/2, 1st Floor, Ashram, Sector-V, Salt Lake City, Kolkata - 700 091(hereinafter referred to as the "appellant") are registered for providing taxable services under the category of 'Information Technology Software Services' as defined under Section 65(53a) of the Finance Act, 1994, as amended.
Page 2 of 12Appeal No.: ST/75350/2016-DB 1.1. A Show Cause Notice dated 21.10.2013 was issued to the appellant inter alia demanding Service Tax of Rs.1,21,84,943/- (inclusive of cesses) for the period from 2008-09 to 2011-12 on the allegation that the appellant had not paid Service Tax on 'import of services' received by them, by wilfully suppressing their activities from the Department.
1.2. The said Notice was adjudicated by the Ld. Principal Commissioner vide the Order-in-Original No. 09/Commr/ST-I/Kol/2015-16 dated 23.11.2015 (hereinafter referred to as the "impugned order") wherein the demands of Service Tax, along with interest and penalties, were confirmed against the appellant.
2. Aggrieved by the confirmation of the said demands, the appellant has filed the present appeal before the Tribunal.
3. The Ld. Counsel appearing on behalf of the appellant submits that they have rendered the following services to M/s. Dowco Consultants Limited located in USA/Canada: -
(i) Designing job relating to a foreign country with use of software under Licence through M/s. Dowco Consultants Limited;
(ii) Supervision service rendered by M/s. ITe Max Inc. to M/s. Dowco Consultants Limited in foreign country.
3.1. The Ld. Counsel submits that the management and ownership of business carried on by M/s. Dowcomax Services (India) Pvt. Ltd. was promoted, owned and managed by foreign shareholders; the said foreign shareholders have discontinued the business Page 3 of 12 Appeal No.: ST/75350/2016-DB of M/s. Dowcomax Services (India) Pvt. Limited and a new company by the name of M/s. ITeMax Engineering Services Pvt. Ltd. (the appellant) has been formed under the Companies Act, 1956 to start business without taking the Assets and Liabilities of the aforesaid shareholders.
3.2. Regarding the demands made to M/s. ITeMax Engineering Services Pvt. Ltd./appellant, it is submitted by the Ld. Counsel that as per Section 66A of the Finance Act, 1994, services rendered by a person located outside India to a recipient of service located in India are liable to Service Tax under the category of 'import of service'; however, in the present case, they have not imported any service into the country as the provider of service (M/s. ITeMax Inc.) and the recipient of service (M/s. Dowco Consultants Limited) were all located in the foreign country and hence, there is no import of service existing in the present case.
3.3. Regarding payments made to M/s. Dowco Consultants Limited on account of Licence, the Ld. Counsel submitted that the relevant Licence is an authority, a permission which is an intangible right to do designing work on account of M/s. Dowco Consultants Limited; this Licence is restricted to job work rendered by the appellant to M/s. Dowco Consultants Limited restricting the right of service to any other party. He submits that annual charge for annual permission has been shown under the heading of maintenance of licence for the purpose of carrying of the job. Contending that this is an intangible right which cannot be repaired like a tangible commodity and not 'maintenance' within the meaning of service Page 4 of 12 Appeal No.: ST/75350/2016-DB under the Act, the appellant submits that Sec. 66A of the Act is not applicable to their case.
3.4. The appellant has further submitted that the entire demand has been raised only on the basis of the foreign exchange expenditure shown by them in their books of accounts. It is pointed out that the Department has not brought in any evidence to prove the allegation that the appellant has imported services relating to software maintenance, service and supervision into the country to attract 'import of service'. Accordingly, the appellant contends that the demand of Service Tax confirmed in the impugned order is not sustainable.
3.4.1. In support of their above contentions, the appellant relies on the decision of the Tribunal at Ahmedabad in the case of M/s.Kalpataru Power Transmission Ltd., Gujarat v. Commissioner of C.Ex. & S.T., Ahmedabad-III & anr. [Final Order No. A/10685-10686/2022 dated 10.06.2022 in Servcie Tax Appeal No. 11064 of 2015 (CESTAT, Ahmedabad)].
3.5. The appellant has also raised the ground that the entire demand is barred by limitation. In this regard, the appellant submitted that they have not suppressed any information from the Department and were registered with the Department; they were also filing their returns regularly, disclosing foreign expenditure receipts regularly in their books of account. It is the appellant's contention that as the demand in this case has been raised on the basis of the information available in the books of accounts, no suppression of facts established in this case. The appellant submits that the Show Cause Notice in this Page 5 of 12 Appeal No.: ST/75350/2016-DB case for the period from 2008-09 to 2011-12 was issued on 21.10.2013. Thus, the appellant has contended that in the absence of any suppression of facts with the intention to evade payment of tax existing in this case, the demand confirmed against them by invocation of the extended period of limitation is not sustainable.
3.5.1. It is also the appellant's submission that they were under bona fide belief that Section 66A of the Act is not applicable in this case; further, the service tax if any paid would be available to them as credit, as recipient of service and hence the entire issue is revenue neutral. Thus, the appellant submits that extended period of limitation is not invocable in respect of cases where revenue neutral situation exists. Accordingly, the appellant submits that penalty is not imposable on them.
4. On the other hand, the Ld. Authorized Representative of the Revenue reiterated the findings in the impugned order. He has contended that the appellant has imported the said services and thus, are liable to pay Service Tax under the category of 'import of service' as demanded vide the impugned order. In support of his contention, he has cited the decision of the Tribunal at Mumbai in the case of M/s. Lear Automotive India Pvt. Ltd. v. Commissioner of Service Tax-II, Mumbai [2019 (5) TMI 464 - CESTAT, Mumbai] wherein, under similar facts and circumstances, the Tribunal held that Service Tax is payable under 'management, maintenance or repair service' w.e.f. 01.03.2008.
5. Heard both sides and perused the appeal records.
Page 6 of 12Appeal No.: ST/75350/2016-DB
6. We find that the Department has issued the impugned Show Cause Notice on the basis of foreign exchange expenditure shown by the appellant in their books of account. The foreign expenditure has been incurred towards cost of service and management fees. Accordingly, it was presumed that these expenditures were incurred on account of import of service. However, we find that there is no evidence produced by the Revenue to establish that the appellant has actually received any service within the country which can be categorized as 'import of service'. A perusal of the Show Cause Notice shows that the notice has been raised on the basis of scrutiny of the documents available with the appellant. However, we observe that no documentary evidence has been brought on record to substantiate the allegation that the appellant has imported 'management, maintenance or repair service' relating to software into the country, for demanding Service Tax under the category of 'import of service'.
7. We have taken note of the submission of the appellant that the company was engaged in providing services in British Columbia in Canada. It has been stated that the entire activities of rendering services was out of Indian territory and no work was ever done in India. The company incurred expenses in foreign currency for purchase of goods and services from outside India. The company being engaged in export of services to a foreign land from a foreign land, used to pay for purchase of goods and services used for rendering such export of services and these goods or services were always received/used outside India. They were never brought to India or used in India in any manner. The payment for these goods or services Page 7 of 12 Appeal No.: ST/75350/2016-DB were made in foreign currency and outside India. For purposes of financial accounts, the value of exports as well as value of expenses incurred in foreign currency were converted to Indian currency and reported in Audited Accounts. Showing the foreign currency expenditure in their books of accounts would not automatically mean that the appellant has imported the services into India.
7.1. In the Show Cause Notice and the impugned order, it has been stated that the appellant made payment of foreign exchange. This is not denied or disputed. The twin conditions of reverse charge mechanism for import of services were that the service must be rendered from outside India and the services must be received in India. In this case the services were rendered by payees of Foreign Currency from outside India but, we find that there is no evidence available on record to show that any part of these services were received in India. There is no finding by the lower authorities that the services were received in India. Only incurring of foreign currency does not render the transaction chargeable under service tax under Section 66A of Finance Act, 1994 read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. F For the sake of ready reference, the said Invoice dated 31.12.2010 and the relevant annexure thereto, are reproduced hereunder: -
7.2. We have gone through the Invoice No. dmi/10-
11/05 issued on 31.12.2010 produced by the appellant in support of their contentions wherein it is categorically stated that the services were rendered by M/s. IteMax Inc., USA to M/s. Dowco Consultant Ltd., British Columbia, Canada. For the sake of ready Page 8 of 12 Appeal No.: ST/75350/2016-DB reference, the said invoice along with the relevant annexure thereto are reproduced below: -
Page 9 of 12Appeal No.: ST/75350/2016-DB 7.3. Regarding the demand of service tax under the category of 'Import of service', we observe that the demand has been raised by the Department based on the earnings in foreign exchange. However, there is no indication that these services were actually received in India. Thus, we find that in this case, the services were procured from abroad and utilized abroad by their foreign clients and hence the same are not liable for service tax under the category of import of service. We find that there is no evidence available to indicate that the appellant had received these services in India and utilized in India. Therefore, we are of the view that the services utilized abroad are to be considered as 'export of service' at the hands of the appellant. Consequently, we hold that there is no liability to Service Tax for the services procured and utilized abroad. Accordingly, we hold that the demand of service tax confirmed in the impugned order is liable to be set aside.
8. Regarding invocation of extended period of limitation to confirm the demand in the impugned order, we observe that the company was under the belief that the transactions for which foreign currency expenses were incurred did not attract service tax on reverse charge basis or otherwise. We find that in the Financial Year 2011-12, there was no foreign currency expenditure incurred. The proceedings initiated by issue of the present Show Cause Notice on 21.10.2013 in respect of Financial Years 2008-09 to 2011-12 are all time-barred as on date of issue of the Show Cause Notice. Thus, we hold that the demand confirmed by invoking the extended period of limitation is not sustainable.Page 10 of 12
Appeal No.: ST/75350/2016-DB
9. In this regard, we find it relevant to refer to the decision rendered by the Tribunal at Ahmedabad in the case of M/s. Kalpataru Power Transmission Ltd., Gujarat v. Commissioner of C.Ex. & S.T., Ahmedabad- III & anr. [Final Order No. A/10685-10686/2022 dated 10.06.2022 in Service Tax Appeal No. 11064 of 2015 (CESTAT, Ahmedabad)] wherein the following has been observed: -
"5.4 Without prejudice, we also find that provisions of Section 66A(1) of the Finance Act, 1994 reproduced below provide as under.
...............
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."Page 11 of 12
Appeal No.: ST/75350/2016-DB
10. We observe that the Revenue, in support of their contention, has relied on the decision of Tribunal Ahmedabad in the case of M/s. Lear Automotive India Pvt. Ltd. v. Commissioner of Service Tax-II, Mumbai [2019 (5) TMI 464 - CESTAT, Mumbai]. We have perused the order cited by the Revenue. In the said order, as per the software usage agreement, the appellant therein was required to pay the annual maintenance charges which their counterpart at USA require to pay various vendors of the software. Hence, the amount paid by the appellant therein was considered as the consideration paid towards management, maintenance or repair service and hence considered leviable to service tax under the said category. However, in the present case on hand, we find that the software was procured from abroad and utilized in abroad. Thus, we observe that the facts of the present case are not similar to that of Lear Automotive India Pvt. Ltd. (supra). Thus, we find that the case law cited by Revenue is not applicable to the present case.
11. Accordingly, we hold that the demand confirmed in the impugned order on the basis of the data recovered from the balance sheet is not sustainable and hence we set aside the same. Since the demand of Service Tax is not sustainable in the instant case, the question of demanding interest or imposing penalties thereon does not arise.
Page 12 of 12Appeal No.: ST/75350/2016-DB
12. In view of the above discussions, the appeal filed by the appellant is allowed, with consequential relief, if any, as per law.
(Order pronounced in the open court on 16.04.2025) Sd/-
(K. ANPAZHAKAN) MEMBER (TECHNICAL) Sd/-
(ANGAD PRASAD) MEMBER (JUDICIAL) Sdd