Refund of service tax paid on legal services availed for foreign office.

PJ/CASE LAW/2015-16/2912

Case:- HCL COMNET SYSTEMS & SERVICES LTD. VERSUS COMMR. OF C. EX., NOIDA

Citation:-2015 (40) S.T.R. 621 (Tri. - Del.)

Brief facts:- Appeal has been filed against Order-in-Appeal No. 400/ST/APPL/Noida/2012, dated 26-12-2012, which upheld the Order-in-Original dated 26-6-2012 in terms of which out of their total refund claim of Rs. 2,52,16,002/- claimed under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 05/2006-C.E. (N.T.), dated 14-3-2006, refund of Rs. 2,35,981/- has been rejected by the primary authority on the ground that “the services relating to this amount were provided at the premises of M/s. HCL Comnet Systems and Service, USA, which is not registered premises in India and therefore the refund of Cenvat credit involved in such invoices amounting to Rs. 2,35,981/- was not admissible”. The appellate authority upheld the primary order essentially on the following grounds :-
“4.3 The appellants in their appeal submitted that the service is covered under the definition of ‘Input Service’ and the refund cannot be denied on the grounds that the service was provided a copy of a sample invoice No. IINL0100099653, dated 14-4-2011; on its perusal it is found that the ‘professional services’ was provided by Ernst & Young Pvt. Ltd., Gurgaon in respect of filing of state tax returns of US PE of HCL Comnet Systems and Services. The service provider Ernst & Young Pvt. Ltd. Gurgaon is providing the service from India. The service was provided in USA. The service was utilized for tax compliance in USA in respect of the permanent establishment of the appellant in USA. The service was not utilized in India, nor it was utilized in respect of the registered establishments of the appellant. Hence, I found that the service was neither consumed/utilized by the appellants in their registered premises nor it was consumed/utilized in relation to provision of output service. Albeit, it was utilized in respect of an establishment in USA. In the present case the appellant is not the recipient of the service. Therefore, I am of the opinion that the appellants are not entitled to avail Cenvat credit as well as refund thereof As the appellant is not the recipient of the service, there is no requirement to find out the nexus under Circular No. 120/01/2010-S.T., dated 19-1-2010.”

Appellant’s contention:- The appellants have contended that they are exporters of services falling under Business Support Service (BSS). In terms of Double Taxation Avoidance Treaty (DTAT) with the US they are required to have a permanent establishment in that country and in respect of such establishment certain returns have to be submitted to the US Govt. They engaged the services of M/s. Ernst & Young Pvt. Ltd., Gurgaon for submitting such returns and on the basis of the invoices of M/s. Ernst & Young Pvt. Ltd. which were raised on them (i.e., Appellants, Gurgaon), they took Cenvat credit of the Service Tax indicated therein as it was input service and therefore the impugned refund is admissible. They also contended that their permanent establishment in the US does not have a separate legal persona and is just an office of theirs.

Respondent’s contention:- Ld. Departmental Representative on the other hand stated that the services were rendered and consumed abroad and therefore cannot be called “input service”.

Reasoning of judgment:- The essential issue to be decided is whether the impugned credit is admissible to the appellant (in which case, it will also become eligible for refund as claimed by them). It is seen that the invoice of M/s. Ernst & Young Pvt. Ltd. for rendering service (which show the impugned amount of Service Tax) was actually raised on the appellants and not on the US establishment. Further, the permanent establishment in US is not a legal entity and is merely an office of the appellants. The onus to fulfill the legal requirement relating to that office clearly rests on the appellants and it was in the discharge of that onus that they engaged M/s. Ernst & Young Pvt. Ltd. engaged on the service. The definition of input service given in Rule 2(l) of Cenvat Credit Rules, 2004 clearly covers that “any service used by a provider of taxable service for providing an output service” and specifically includes the “legal services”. It is evident that the service rendered by M/s. Ernst & Young Pvt. Ltd. engaged by the appellants were to fulfill the legal requirements relating to the appellants’ office in the US. Thus the impugned Service Tax amount is clearly in respect of input service availed by them. Indeed the Allahabad High Court in the case of CCEv. HCL Technologies Ltd. - [2014-TIOL-2001-HC-ALL-CX] = 2015 (37)S.T.R.716 (All.)inter alia has held as under :-
“7. As regards Consultancy Services, these were comprised of the payment of invoices of the charges involved in relation to the filing of the tax return in the US. The Commissioner held that the service was governed by the definition of “input service”. The second related to Legal Consultancy Services which have also been held to fulfil the definition of the expression “input service”. Both are admissible.”
In the light of the foregoing, they are of the view that the impugned Cenvat credit is admissible and as a consequence, the very basis for denying the refund thereof disappears. Accordingly, they set aside the impugned order and allow the appeal.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that cenvat credit is admissible for legal services obtained in relation to filing of state tax returns of office of appellant in U.S.A. Credit of Service Tax on legal charges paid by appellant denied on ground of services having been provided to entity abroad and hence it is not input service. It was found that the establishment in U.S is not a separate legal entity but merely an office of appellant. Consequently, the onus to comply with U.S. laws for its office thereon rested with appellant and legal services obtained by it essential for such compliance. Services received are covered in ‘input services’ and hence Cenvat credit and consequent refund of accumulated credit cannot be deniable.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2912

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