The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that onsite support service rendered by the US branch office of M/s. Cognizant Technology Solutions India Private Limited(CTS) USA to is Associated Enterprises(AE) situated outside India is exempted.
The appellant challenged the Order in Original passed by the Principal Commissioner of GST & Central Excise, Chennai North Commissionerate. During the course of audit by the officers of GST and Central Excise, it was noticed from the Income Tax Returns in Form 3CEB filed by the CTS India for the Financial Years 2012 – 13 and 2013 – 14, that they had declared to have rendered ‘On-site Development of Software relates services’ to their Branch office located in the USA (CTS USA) and have received Rs.75,82,95,595/- during the financial year 2012 – 13 and Rs.56,80,90,136/- during the financial year 2013 – 14 from their US Branch office for the services rendered to them (CTS USA).
The onsite development of software-related services provided by CTS India to their US Branch could not be treated as a service exported in terms of Rule 6A of the Service Tax Rules, 1994, therefore it appeared that the service would fall under the category of ‘exempted services’ as per Rule 2(e) of CENVAT Credit Rules, 2004.
Hence CTS India was liable to pay/ debit an amount equivalent to 6% of the value of exempted services provided by them as per Rule 6(3)(i) of the CENVAT Credit Rules, 2004. The Commissioner confirmed the demand of Rs.12,93,23,935/- being the amount payable by the appellant under Rule 6(3)(i) of CENVAT Credit Rules, 2004 for the period from July 2012 to March 2015 under proviso to section 73(1) of the Finance Act, 1994 r/w Rule 14(1)(ii) of the CENVAT Credit Rules, 2004.
Shri Rajaram Ramanan appeared for the appellant and submitted that the entire amount disclosed in the Income Tax Returns Form 3CEB reflects the provision of onsite support service rendered by the US branch office of the appellant (CTS USA) to its associated enterprise situated outside India and hence ought not to be held as an exempt service rendered by the appellant (CTS India).
He reiterated that the said amount earned by their US branch office for their services gets consolidated in the appellant’s books of accounts and in all its statutory reporting and was hence reflected in their Income Tax Returns Form 3CEB also.
He further stated that though they do not admit to the charge, even if they were found to have discharged a service that was exempt the impugned order had erroneously confirmed the demand arbitrarily at 6% of the value of alleged exempt services without giving them an option as provided under Rule 6(3)(ii) of CENVAT Credit Rules, 2004 of computing reversal using the formula based proportionate method.
AR Shri M. Ambe for the Revenue stated that it was evidenced from the books of accounts and the returns filed by the appellant under the Income Tax Act that payments were received for exempted services provided by appellant to their US branch. Since they were using common input services on which CENVAT credit was availed, and by not maintaining a separate inventory of accounts, made the appellant liable to reverse the amount as prescribed under Rule 6 of the CENVAT Credit Rules, 2004. Further, the appellant has not provided evidence, documents etc. regarding the nature of receipt of the amount from their branch.
Hence they have not proved that the amounts indeed pertain to the services rendered outside India by their US branch and not by them. He stated that had the audit team not discovered these facts during their visit to the appellant’s office, the fact would not have come to light and therefore the extended period of limitation has correctly been invoked and so has been the imposition of penalty.
The main issue before the lower authority stems from whether the service rendered in the USA as seen in the Income Tax Return was rendered by the appellant to its overseas branch as alleged in the SCN.
It has been satisfactorily demonstrated by the appellant that it was CTS USA who rendered service to their associated enterprise in the USA and received the payment for it in the USA for the amount declared in the Income Tax Form 3CEB.
In the case of Linde Engineering , the facts show that CTS USA and not CTS India was supplying services and that too to a foreign customer hence the facts are distinguished and do not support Revenue’s stand. Since the matter is decided in favour of the appellant on merits.
A two-member bench comprising Ms. Sulekha Beevi C.S., Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) held that “the main charge against the appellant fails on merits. This being so, the other issues relating to CENVAT credit and the extended time limit also do not survive. We are hence inclined to set aside the impugned order and allow the appeal with consequential relief, if any, as per law. We order accordingly”
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