Whether the demand of service tax is correct when services was provided outside India ?

PJ/CASE LAW/2016-17/3068

Case:-COMMR. OF C. EX., S.T. & CUSTOMS Versus MAERSK INDIA PVT. LTD.

Citation:-2015(40) S.T.R. 1059(Bom.)

Brief Facts:-During the period 1-7-2003 to 30-9-2006, the employees of the respondent assessee were sent outside India to receive training from institute abroad. These training institutes did not have any office in India. The employees paid for themselves and were thereafter reimbursed by the respondent. The appellant issued a demand notice demanding service tax for the period 1-7-2003 to 30-9-2006 under Section 73 of the said Act.
The notice was issued to the respondent as a recipient of services liable to discharge service tax under Rule 2 of the Service Tax Rules, 1994. The basis of the demand was that the respondent’s employees received training abroad and the same were liable to service tax under the category of ‘Commercial Training’ and ‘Coaching Services’ under the Section 65(105)(zzc) of the said Act. The demand for the period 1-7-2003 to 18-4-2006 was under Section 68(2) of the Act while the demand for the period 19-4-2006 to 30-9-2006 was under Section 66A of the Act read with Rule 3 of Taxation of Service (Provided from outside India and Received in India) Rule, 2006.
The Assistant Commissioner of Service Tax by an order dated 10-4-2008 confirmed the notice demanding Rs. 2.48 lacs and also imposed penalties of Rs. 2.52 lacs each under Sections 76 and 78 of the said Act respectively.
In first appeal the Commissioner of Central Excise (Appeals) by an order dated 16-10-2009 held that no service tax was payable in respect of services falling under Section 65(105)(zzc) of the said Act as the same were fully performed outside India. Consequently, the order dated 10-4-2008 of the Assistant Commissioner of Service Tax was set aside.
The appellant Revenue took the matter in appeal to the Tribunal. The Tribunal by its order (22)S.T.R.187 (Tri.-Mum.)] upheld the order of the Commissioner of Customs (Appeals). The Tribunal held that prior to 18-4-2006, Section 66A of the said Act was not in force and the issue was also covered by the decision of this Court in the matter of INSA v. Union of India reported in 2009 (13)S.T.R.235 which has been upheld by the Apex Court, reported in 2010 (17)S.T.R.J57. Besides on facts it held that coaching has been availed not by the respondent but by its employees. The respondent only reimbursed the payments to the employees. Therefore, the respondent was not liable to pay service tax.
Thereafter the revenue filed appeal before High Court under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 (‘said Act’) challenges the order [2011 (22)S.T.R.187 (Tri.-Mum.)] passed by the Tribunal.
The appellant has formulated the following questions of law for consideration of this court :

(a) Whether in the facts and circumstances of the case and in law the Tribunal has rightly considered Boards’ Circular No. 59/8/2003, dated 20-6-2003, Clause (105) of Section 65 of the Finance Act, 1994 as well as Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 in case of M/s. Maersk (I) Ltd.?
(b) Whether in the facts and circumstances of the case and in law the Tribunal is correct in confirming the order passed by the Commissioner (Appeals) without taking into consideration the GATS agreement wherein it is clearly mentioned that the employees deputed by M/s. Maersk (I) Ltd. for training abroad will fall under import of service and these services are utilised by M/s. Maersk (I) Ltd. in their business activities which are squarely liable for payments of service tax on these services consumed in their business activities?
(c) Whether in the facts and circumstances of the case and in law the Tribunal is correct in dismissing the appeal of the department when the CESTAT has agreed that the services were received by Maersk employee abroad and the coaching fee was reimbursed by Maersk and these employees were sent by Maersk outside, they have not gone abroad in individual capacity, employees sent abroad were part of Maersk only, so if they paid the fees first and later it was reimbursed by the Maersk does not make any difference as ultimately Maersk has incurred that cost?

Appellant’s Contention:-The Revenue on instruction state that they are not challenging the order of the Tribunal dropping the demand for the period 1-7-2003 to 18-4-2006 as the same is covered by the decision of this court in the matter of INSA (supra). However, for the period 19-4-2006 to 30-9-2006 they contend that the service tax is payable in view of Section 66A of the Act read with Rule 3 of the Taxation of Service (Provided from outside India and Received in India) Rules, 2006. The Revenue particularly invited Court’s attention to Rule 3(ii) of the Taxation of Service (Provided from outside India and Received in India) Rules, 2006, which states taxable service provided from outside India and received in India as specified Section 65(105)(zzc) of the Act are liable to tax “be such services as are performed in India”. It is their contention that coaching services which fall under Section 65(105)(zzc) of the said Act are to be taxed in India as if such services have been deemed to be performed in India as her interpretation of the words “be such services as are performed in India.”
Reasoning of judgment:-The High Court heard the matter and finds that they are unable to accept the construction put upon the words “be such services as are performed in India” to be read as ‘deemed to have been performed in India’. The aforesaid Rule 3(ii) according to the Tribunal only makes coaching services liable to tax under the Taxation of services (Provided from outside India and Received in India) Rules, 2006 if such services are performed in India. It is an admitted position that no coaching services have been performed/rendered in India by the coaching classes situated abroad. Further the services have been received by the employees of the respondent assessee abroad and they were only reimbursed by the respondent assessee. Further, these are concurrent findings of fact that services under Section 65(105)(zzc) of the said Act have been performed outside India by the Commissioner (Appeals) and the Tribunal. In view of the above, the order of the Tribunal [2011 (22)S.T.R.187 (Tri.-Mum.)] cannot be faulted. All the three questions raised by the appellant Revenue are not substantial questions of law. Therefore, the appeal is dismissed. No order as to costs.

Decision:- Revenue’s appeal dismissed.
Comments:-The essence of this case is that employee of the assessee went to outside India to receive training from institute abroad. These training institutes did not have any office in India. The employees paid for themselves and were thereafter reimbursed by the respondent. The Revenue raised demand on the ground that Rule 3(ii) of the Taxation of Service (Provided from outside India and Received in India) Rules, 2006, which states taxable service provided from outside India and received in India as specified Section 65(105)(zzc) of the Act are liable to tax “be such services as are performed in India”. But the High court rightly decide that matter and finds that the aforesaid Rule only makes coaching services liable to tax under the Taxation of services (Provided from outside India and Received in India) Rules, 2006 if such services are performed in India. It is an admitted position that no coaching services have been performed/rendered in India by the coaching classes situated abroad. Hence revenue’s appeal has been dismissed.

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PJ/CASE LAW/2016-17/3068

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