No evidence of Payment in Foreign Currency to Foreign Personnel: CESTAT deletes Order imposing Service Tax under RCM [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has deleted an order passed by the service tax department imposing tax on Fox Conn India for non-payment of tax under the reverse charge mechanism on the ground that there was no evidence available with the department to prove the payment in foreign currency to the foreign personnel.

The department asked the appellant-Company to pay service tax under Management Consultancy Service by observing that the appellant had paid DA amount to the foreign engineers / professional to cover their incidental expenses. The payment of such amount would fall under Management Consultancy Service which was brought into the service tax net with effect from 16.10.1998.

While allowing the plea of the appellant, the Tribunal bench comprising Judicial Member SulekhaBeevi C S and Technical Member P Anjani Kumar observed there is no agreement furnished by the department to establish that the appellant has received management consultancy service from M/s. Fox Conn, China.

“On perusal of the invoices, it is seen that the amounts are in the nature of vehicle hire charges, cost of fuel charges, hostel charges, selling expenses, meal expenses, salary to staff attending the foreign personnel etc. There is no evidence for payment of remuneration to the foreign personnel in foreign currency by the appellant. Even though the appellant might have expended huge amounts for the said foreign personnel, unless there is evidence that these amounts are paid to foreign personnel for providing management consultancy service, the demand is incorrect,” the Tribunal said.

Concluding the order, the Tribunal added that “the demand is raised under reverse charge mechanism as seen in para 3.3 of the Show Cause Notice. It is stated that appellant is liable to pay service tax with effect from 18.4.2006 in terms of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. There is no evidence of payment in foreign currency to the foreign personnel. The invoices on which the demand of management consultancy service is raised shows merely expenses incurred by the appellant in Indian currency in the nature of hotel, transport and other expenses. There is no evidence to prove that they have received management consultancy service or paid fees for such services so as to be liable to pay service tax under reverse charge mechanism. On this ground, we hold that the demand under Management Consultancy Service cannot sustain.”

To Read the full text of the Order CLICK HERE

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