The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) while adjudging a matter pertaining to the payability of Service Tax by an Indian entity availing services from a foreign company, quashed the invocation of extended period of limitation by the Revenue citing a Revenue Neutral situation.
The Service Tax Appeal against the Order passed by the Principal Commissioner, Service Tax – I, Kolkata was filed before CESTAT by M/s Sun Knowledge Pvt. Ltd. (Sun Knowledge), a 100% Export Oriented Undertaking registered with Software Technology Parks of India (STPI) Kolkata, and engaged in providing services in the category of Information Technology Software Services.
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The Appellant entered into an agreement with Fox Insurance Co., USA, (FICO) on 01.01.2010 to use FICO’s database as a means to expand their business opportunities in the United States of America (USA); the Appellant remitted the expenditure availed for the Services by them in foreign currency.
The Revenue department claimed that the payments made by Sun Knowledge towards FICO would be classified as “import of Services” under Section 66A of the Finance Act, 1994 read with Taxation of Services (Provided from outside India and received in India) Rules, 2006.
In light of the Revenue’s observations, the Appellant-Assessee was issued a Show-Cause Notice on 23.10.2013 by invoking the extended provisions for the period between 2008-09 to 2011-12, demanding a Service Tax amount of Rs.1,27,46,702/- subsequent to reductions made in light of the Assessee’s submission of supporting evidence.
Mr. Monoshij Sarkar, Director of Sun Knowledge along with Kamal Kejriwal, Deputy General Manager (Finance & Accounting), appearing for the Appellant company submitted that the Appellant had payable demands amounts under the following heads:
Database Usage charges
Database Usage charges of Rs.1,15,14,221/- during the Financial Year 2009-10, which was waived by FICO in light of the global recession and its deep-felt impact on the Appellant Company. The waiver was reflected in the Appellant’s P&L Account and the same was affirmed vide the Statutory Auditor’s certificate.
Legal Services
Service Tax Demand on Legal Services availed by the Appellant from consultants in the USA during the F.Y. 2009-10 and F.Y. 2010-11 were refuted by the Appellant stating that ‘Legal Services’ had been excluded from the ambit of the Finance Act during the concerned Financial Years.
Legal Services were claimed to be included under Reverse Charge Mechanism by means of Notification No.30/2012-ST dated 20.06.2012 and put in effect only from 01.07.2012.
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Salary & Reimbursement of Marketing Expenses
Further, Service Tax Demand under the heads of Salary and Reimbursement of Marketing Expenses were refused by the Appellant citing the non-inclusion of salary paid abroad under Section 65(105) of the Finance Act, 1994 and lack of Service Tax Liability on Reimbursements.
Quantification Error
As a final blow to the Revenue, Service Tax amount of Rs.2784/- was also refuted by the Appellant citing error in quantification of the demand amount.
The two-member Bench of CESTAT, Kolkata constituted by R. Muralidhar, Judicial Member and Rajeev Tandon, Technical Member observed that the Appellant had indeed been granted waiver of amounts due for Services rendered by the overseas service provider in light of the Global Financial Crisis during the period surrounding 2009.
CESTAT, on the basis of documentary evidence adduced by the Appellant noted that no actual payment effectuating outflow of foreign exchange had occurred between the appellant and the foreign entity for Database Usage Charges; CESTAT ruled that no Service Tax was required to be paid.
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With regards to the final issue of time bar raised by the Appellant, CESTAT relied on the judgment of the Supreme Court in Jet Airways (India) Ltd. v. Commissioner (2017) that the Service Charge Demand is under Reverse Charge Mechanism and even if the Appellant had paid the Service Tax Amount, they would be eligible to avail CENVAT Credit of the same amount, resulting in a revenue neutral situation.
Consequently, the Appeal was allowed by CESTAT, while setting aside the entire demand.
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