Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has held that no Service Tax liability can be imposed under the reverse charge mechanism on an Indian branch where the software maintenance services were contracted, received, and consumed entirely outside India. The Tribunal has further held that payments made towards hotel accommodation of guests cannot be taxed as “Sponsorship Services”.

Also Read: Customs | Post-Clearance Reassessment Of Bills Of Entry Not Permissible Solely To Secure Refund On Strength Of Later SC Verdict: CESTAT Mumbai

A Division Bench comprising Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi allowed the appeal filed by M/s Silk Air (Singapore) Pvt. Ltd. and set aside the Service Tax demand confirmed under Section 73(2) of the Finance Act, 1994. The dispute emanated from an order of the Commissioner (Appeals), Cochin, upholding demands under two categories: (i) alleged receipt of “Maintenance Services” on imported SAP software during 2010–11 to 2013–14, and (ii) “Sponsorship Services” for the financial year 2012–13.

The appellant contended that the Indian branch neither made any payments to SAP Singapore nor entered into any maintenance contract with the foreign entity. The licenses were procured by Singapore Airlines from SAP Asia Systems, and the related services were consumed by Silk Air in Singapore. Relying on the decision in British Airways v. CCE , the Tribunal noted that Service Tax being a destination-based levy, liability cannot be fastened on an Indian branch when both the service provider and service recipient are located abroad and consumption occurs outside India. The Tribunal held that there was “no evidence on record to show that ‘Maintenance Services’ are received by the appellant,” and therefore, the demand under this category was unsustainable.

Also Read: CESTAT Chennai: Service Tax Not Payable on Rent-A-Cab Services Provided to SEZ Units Due to Overriding SEZ Act Exemption

Regarding the demand on “Sponsorship Services,” the Tribunal recorded that the appellant had already discharged Service Tax on the full amount spent for conducting a tournament. The remaining expenditure sought to be taxed consisted primarily of payments made to various hotels for guest accommodation. The Bench noted that the Commissioner (Appeals) had not provided any findings establishing how these hotel payments constituted sponsorship of events. It also found that such expenses were unrelated to sponsorship and therefore could not attract tax under Section 65(105)(zzzn) of the Finance Act, 1994.

The Bench further noted that the Revenue had not disputed the appellant’s claim that Service Tax had been paid on the actual sponsorship expenditure. Since the remaining amounts pertained solely to guest accommodation, the Tribunal concluded that the demand lacked legal basis.

Also Read: CESTAT Mumbai Rules, Sales Tax Discharged Through NPV Under State Incentive Scheme Cannot Be Added Back To Excise Transaction Value

Given these findings, the CESTAT held that both Service Tax demands—under "Maintenance Services" and "Sponsorship Services"—were without merit. It accordingly set aside the impugned order in its entirety and allowed the appeal with consequential relief.

Appearance

Appearance for Appellant: Ms. Susan Mathew, Chartered Accountant

Appearance for Respondent: Shri M.A. Jithendra, Assistant Commissioner (AR)

Cause Title: Silk Air (Singapore) Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Cochin

Case No: Service Tax Appeal No. 20886 of 2017

Coram: P.A. Augustian (Judicial Member), R. Bhagya Devi (Technical Member)