The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that deemed demutualization does not demonstrate legislative intention to tax specified transactions.
The Appellant, Kusum Healthcare Pvt Ltd is an ‘export-oriented unit (EOU) approved under the eponymous scheme in the Foreign Trade Policy for production and export of ‘pharmaceutical products and, in pursuit of its business strategy, has established representative offices at several places outside the country, as ‘cost centers’, dependent on the principal establishment in India for operational existence.
M/s Kusum Healthcare has preferred an appeal challenging OIO demanding tax on the finding that remittances made to their branches and offices abroad are ‘consideration’ for ‘taxable service’ procured from outside the taxable territory.
The appellant has pointed out that the orders, pertaining to the pre-‘negative list’ era, has held that the nature of the relationship of overseas branches with the principal office does not render their internal transactions amenable to coverage as ‘consideration’ merely by concatenation of financial flows and the clarification afforded by Explanation 1 in section 66A of Finance Act, 1994 without setting forth positive evidence of ‘taxable service’ having been rendered within the meaning of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
On the other hand, the department contended that the contents of the impugned order and pointed out that the transactions were taxable within the authority of section 66B of Finance Act, 1994 in accordance with the provisions of the relevant Rules framed for placement of performance of service within, or without, the ‘taxable territory’ in the ‘negative list’ regime.
The coram headed by the President, Justice Dilip Gupta, and Technical Member, C.J.Mathew has ruled that the Tribunal in the case of Milind Kulkarni has held that deeming provision in a statute is a temporary suspension of conventional wisdom and existing legislative formulation of a concept or situation for a specified purpose and that the graft so incorporated is intended to be applied in its entirety and within the intended context. It, then, went on to enunciate the purpose of deeming demutualization as a contrivance to assure that structuring of such dependent establishments would not provide an avenue for escapement, either overtly or covertly, from the enforcement of the levy on the ‘taxable event’; concomitantly, the deemed demutualization does not demonstrate legislative intent to tax transactions that are normal to such dependent existence.
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