RS Software India Limited vs. Commissioner of Service Tax - (Customs, Excise and Service Tax Appellate Tribunal) (04 Jun 2024)

Services received by permanent establishments of Appellant abroad cannot be considered as services received in India, demand of service tax is not sustainable

MANU/CK/0157/2024

Service Tax

The Appellant is engaged in development of software at its development centre in Kolkata. The Appellant is registered with Service Tax Commissionerate, under the category of Management Maintenance or Repair Service and Business Auxiliary Service. For running their business, the Appellant has set up branch offices at various countries, which are all their permanent establishments.

The department initiated an investigation against the Appellant alleging that the services received by them from non-resident banks are liable to service tax under the category of Banking and other Financial Services, under reverse charge mechanism. Accordingly, it was alleged that the Appellant was liable to pay service tax of Rs.94,20,154 for the period from 1st April, 2007 to 31st March, 2012.A Show Cause Notice was issued to the Appellant demanding service tax of Rs.94,20,154 and proposing to deny the Cenvat credit of Rs.3,05,57,728. The said Notice was adjudicated vide the impugned order and the demands raised in the Notice has been confirmed along with interest and penalty. Aggrieved against the confirmation of the demands, the Appellant has filed present appeal.

Regarding the demand of service tax of Rs.94,20,154, present Tribunal observe that, the Appellant has been working through a network of branch offices located abroad. These branch offices are permanent establishments and not mere representative offices. They provide services to their clients in their own rights, raise invoices, incur expenditure, avail bank facilities, have its own technical and human resources and operate as independent units. They do not claim any reimbursement of expenditure from the Corporate Office.

Section 66A(2) of the Finance Act, 1994 clearly lays down that permanent establishments in different countries shall be treated as separate persons. Therefore, the services received by these permanent establishments of the appellant abroad cannot be considered as services received by the appellant in India, on reverse charge basis. Thus, the demand of service tax from the Appellant is not sustainable and accordingly, present Tribunal set aside the demand confirmed in the impugned order on this count. Since the demand itself is not sustainable, the question of demanding interest and imposing penalty does not arise. As the demand is not sustainable, no penalty imposable under Section 77 of the Finance Act, 1994 and Rule 7(c) of the Service Tax Rules, 1944.

Regarding, disallowance of Cenvat Credit, present Tribunal observe that, the Appellant produced photo copies of the invoices before the adjudicating authority at the time of personal hearing. However, the adjudicating authority rejected those invoices on the ground that they were not authenticated and the invoices were not legible. The Appellant now submits that they have the original copies of all the invoices and they can submit the same before the concerned authorities for verification. For the purpose of verification, the matter needs to be remanded back to the adjudicating authority.

The demand of service tax of Rs.94,20,154 along with interest and penalty equal to the tax imposed on the Appellant is set aside. Penalties imposed under Section 77 of the Finance Act, 1994 and Rule 7(c) of the Service Tax Rules, 1944 are also set aside.With respect to denial the Cenvat credit of Rs.3,05,57,728, present Tribunal set aside the demand of Cenvat credit disallowed along with interest and penalty and remand the matter back to the adjudicating authority. Appeal disposed off.

Tags : DEMAND PENALTY LEGALITY