Hi Everyone
We have Branch in USA and HO in Banglore. Banglore office is registered under Service tax.
Certain services are received by Branch office in USA and payments are also made by branch office directly.
is HO liable to pay service tax on services received by branch under reverse charge mechanism or department can say that branch and HO being distinct person, Branch provides marketing service and hence liable for service tax.
Plz help it is urgent.
Both person are same. No need to pay service tax.
but then explanation 2 to section 65B(37) of person deeming two establishment of person located in taxable and non taxable territory as distinct person would not get attracted.
I feel this is a very interesting situation and I am keeping this question bookmarked and will post an answer if I am able to gather any solution after asking my seniors.
Regards,
There Can Be 2 Situations:-
1. Service Provided by Branch to H.O
explanation 2 to section 65B(37) of person deeming two establishment of person located in taxable and non taxable territory as distinct person.
So both the establishment will be treated as Different person & as per 68 H.O would be liable to pay service tax under reverse charge Mechanism ( The Rationale behind this concept is that there is a outflow of foreign currency out of India ,so in order to discourage such an arrangement between the two establishment of the same organisation, this explanation had been introduced .Due to this concept both of the establishment is treated as different person hence Service tax would be paid by the establishment who is receiving the Service)
2. Service Provided by HO to Branch
In this Case Service Provided by H.O to Branch will be treated as Export of Service because as per Explanation 2 to section 65B(37) of person deeming two establishment of person located in taxable and non taxable territory as distinct person.
But then Govt observed that if we treat both the establishment as different person in this case then government will have to bear Revenue Loss(TAX Loss) Because as you know service tax is not leviable on the services provided outside India & also such service is not an Exempt service as per Rule 2(P) of CCR 2004 so CCR on input service taken to this service will also be available so there will be Refund of whole amount of CCR.
So for this Purpose Govt has amended Rule 6-A of STR 1994 i.e Export of Service.(Please Refer By Yourself)
The service provided By HO to Its Branch has been excluded by the Govt from the Definition of Export of Service. So by that effect, the deeming provision of explanation for treating the two different establishment of the same organisation will not be applicable when service provided by the Establishment in India to Establishment Outside India
Conclusion :- The Explanation will be applicable in case where service is provided by Establishment outside India (Branch ) to the Establishment in India (H.O)
The Explanation will not apply in case where Service is Provided by Establishment in India (H.O) to Establishment outside India (Branch) becasue of exclusion made by govt. under rule 6-A of STR 1994
I hope my Explanation will help you.
CAclubindia
