Services received and consumed by permanent establishments abroad cannot be treated as received by Head Office in India and cannot be charged to service tax under section 66A

[2013] 38 taxmann.com 340 (Mumbai - CESTAT)

CESTAT, MUMBAI BENCH

KPIT Cummins Infosystems Ltd.

v.

Commissioner of Central Excise, Pune-I*

P.R. CHANDRASEKHARAN, TECHNICAL MEMBER
AND Anil Choudhary, JUDICIAL MEMBER

Order Nos. S/545/2013/CSTB/C-I
& A/676/2013/CSTB/C-I
Application No. ST/STAY/92331/2013
Appeal No. ST/85213/2013

MARCH  6, 2013 

I. Section 66A, read with section 66, of the Finance Act, 1994 and rule 3 of the Export of Services Rules, 2005 - Charge of Service Tax on services received from outside India - Period from October, 2006 to December, 2011 - Assessee, a provider of various services, had branches outside India - Assessee's foreign branches were engaged in providing Software services to overseas customers - Branches were remitting their surplus (consideration received less expenditure incurred for rendering services abroad) to Head Office India - Department sought levy of service tax thereon on ground that services rendered by overseas branches on behalf of Indian Head Office fell under 'Business Auxiliary Service' and assessee was liable to pay service tax thereon -

 HELD : Section 66A is attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad - In this case, assessee had provided services through foreign branches to foreign customers for which assessee had received proceeds; there was no receipt of services by assessee and no payment was made by assessee and, therefore, provisions of section 66A were, prima facie, inapplicable - Further, since services rendered abroad by assessee were subjected to local taxes outside India, no service tax could be levied on same transactions because there cannot be two taxing jurisdictions for same transaction - Since service tax is a destination based consumption tax, taxability would arise only at place where consumption takes place, which, in this case, was abroad and not in India - Furthermore, even if it is assumed that assessee has received service from abroad from their branches, since service was consumed by clients abroad, it would amount to export of service under Rule 3 of Export of Service Rules, 2005 in which case also no service tax can be levied - Hence, matter was remanded back for fresh adjudication keeping all issues open [Paras 5.1 to 5.3 and 6] [Matter remanded]

II. Section 66A of the Finance Act, 1994 - Charge of Service Tax on services received from outside India - Period from October, 2006 to December, 2011 - Assessee, a provider of various services, was remitting money from India for meeting various expenses of permanent establishments abroad - Department sought levy of service tax on said expenses on ground that said expenses represented services received by assessee and liable to service tax under reverse charge - HELD : In this case, service had been provided by foreign service providers abroad and service had also been consumed abroad - Hence, prima facie, no service tax was leviable in India - Hence, matter was remanded back for fresh adjudication keeping all issues open [Paras 5.3 and 6] [Matter remanded]

CASE REVIEW

Intas Pharmaceuticals Ltd. v. CST [2009] 22 STT 230 (Ahd. - CESTAT) (para 5.4); IDS Systems (P.) Ltd. v. CCE [2012] 27 taxmann.com 247 (Bang. - Cestat) (para 5.4) and Aztecsoft Ltd. v. CCE [2012] 37 STT 704/27 taxmann.com 270 (Bang. - CESTAT) (para 5.4) relied on.

CASES REFERRED TO

Aztecsoft Ltd. v. CCE [2012] 37 STT 704/27 taxmann.com 270 (Bang - CESTAT) (para 3.3), IDS Systems (P.) Ltd. v. CCE [2012] 27 taxmann.com 247 (Bang - CESTAT) (para 3.3), Intas Pharmaceuticals Ltd. v. CST [2009] 22 STT 230 (Ahd - CESTAT) (para 3.3) and Tech Mahindra Ltd. v. CCE [Stay Order No. 1239 of 2011, dated 22-11-2011] (para 3.3).