Service Tax

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This PPT talks about the services rendered outside the Territorial waters and the Service Tax applicability on the same. Under the International Law, recent developments have shown that the territory of a country, for exercising their jurisdictional rights and internal laws, has been extended to the Continental shelf and the Exclusive Economic Zones. But the rights given to the coastal country are limited and restricted. When compared with the previous notification passed by the Central Government, now the service tax will be charged irrespective of the area being designated or non-designated in the EEZ and the Continental shelf. This paper will analyse the implementations of the new amended notification. It will also compare the new notification with the other notifications of the Customs & Excise Act and Income Tax Act for drawing an extent of the applicability of the act to the territory of India, whether or not Service Tax can be charged for an area outside the territorial waters.

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Service Tax

  1. 1. Presentation on Services rendered outside Territorial waters: Applicability of Service Tax Law on the modified Territory Akshata Srinath, 4 th Year, School of Law, Christ University Bangalore. Mentor- Ms. Amudha, Lakshmi Kumaran and Sridharan, Delhi
  2. 2. Synopsis of the Presentation <ul><li>Service Tax- A glimpse </li></ul><ul><li>Budget 2009 </li></ul><ul><li>Notifications </li></ul><ul><li>Definition and words </li></ul><ul><li>Redefining the Territory of India </li></ul><ul><li>Implications of the Notification </li></ul><ul><ul><li>The Amendment- Indian National Ship-owners Association and Others v. Union of India and Anothers- 2009 (111) Bom. L. R. 1529. </li></ul></ul><ul><ul><li>Changes after the Notification </li></ul></ul><ul><ul><li>Reserve Charge Mechanism - § 66A </li></ul></ul><ul><li>Questions </li></ul><ul><li>Conclusion </li></ul>
  3. 3. Service Tax- A glimpse <ul><li>Chapter V of the Finance Act 1994. </li></ul><ul><li>Article 265 of the Constitution of India. </li></ul><ul><li>Constitution (95th Amendment) Act, 2003. </li></ul><ul><li>Amendment to 7th sch., List 1- Union List- 92 C- Article 268 A </li></ul><ul><li>Taxable Services- § 65 </li></ul>
  4. 4. Budget 2009 Finance Bill 2009: Changes in Indirect Taxes <ul><li>Territorial jurisdiction </li></ul><ul><li>of India extended </li></ul>Composition scheme under works contract service Exemption to a particular service under certain existing category Amendments in Cenvat Credit Rules, 2004 Duty rate and exemption Service tax on transfer of right to use IT software New services and expansion of some services
  5. 5. Notifications <ul><li>No. 21/2009-ST dated 7th July 2009 </li></ul><ul><li>In the said notification, for the portion beginning with the words “designated areas in the Continental Shelf” and ending with the words “with immediate effect”, the words “ installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India ” shall be substituted. </li></ul><ul><li>No. 1/2002-ST dated 1st March 2002 </li></ul><ul><li>Central Government hereby extends the provisions Chapter V of the Finance Act (32 of 1994) to the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the Notifications of the Government of India in the Ministry of External Affairs Nos. S. O. 429 (E) dated the 18th July 1986 and S.O. 643 (E), dated the 19th September, 1996 with immediate effect. </li></ul>
  6. 6. Diagram
  7. 7. Words and Definitions <ul><li>The Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 </li></ul><ul><ul><li>Continental shelf </li></ul></ul><ul><ul><li>Exclusive Economic Zones </li></ul></ul><ul><ul><li>Designated and Non designated areas </li></ul></ul><ul><li>United Nations Convention on the Law of the Sea </li></ul><ul><li>Installations and Structures- Not defined </li></ul><ul><li>Vessels - Section 2(z) The Major Port Trust Act, 1963 </li></ul><ul><li>Foreign Going Vessel- Section 2(21) The Customs </li></ul><ul><ul><li>Act, 1962 </li></ul></ul><ul><li>Caisson - Under Definition of Vessel </li></ul><ul><li>Intention of the Parties </li></ul><ul><li>Interpretation </li></ul>
  8. 8. Redefining Territory of India <ul><li>The Constitution of India </li></ul><ul><ul><ul><li>Part 1 Article 1 </li></ul></ul></ul><ul><ul><ul><li>Article 297 </li></ul></ul></ul><ul><li>The Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 </li></ul><ul><ul><li>Section 3- Sovereignty over, and limits of territorial waters. </li></ul></ul><ul><ul><li>Section 6(5), 6(6), 7(6) </li></ul></ul><ul><li>United Nations Convention on the Law of the Sea </li></ul><ul><ul><ul><li>Part V </li></ul></ul></ul><ul><ul><ul><li>Part VI </li></ul></ul></ul><ul><ul><ul><li>Part VII </li></ul></ul></ul><ul><li>Notifications </li></ul><ul><ul><ul><li>No. 22/2002-Cus ., dated 23 rd April 2002 </li></ul></ul></ul><ul><ul><ul><li>No. GSR 304(E), dated 31 st March 1983 </li></ul></ul></ul><ul><ul><ul><li>No. 25/2009- ST dated 19 th August 2009 </li></ul></ul></ul><ul><ul><ul><li>No. 22/2009 dated 07 th July 2009 </li></ul></ul></ul>
  9. 9. Conti… <ul><li>Section 2(28) General Clauses Act, 1897 - India Shall mean- (a) as respects any period before the establishment of the Dominion of India, British India together with all territories of Indian Rulers then under the suzerainty of His Majesty, all territories under the suzerainty of such an Indian Ruler, and the tribal areas; (b) as respects any period after the establishment of the Dominion of India and before the commencement of the Constitution, all territories for the time being included in that Dominion; and (c) as respects any period after the commencement of the Constitution, all territories for the time being comprised in the territory of India. </li></ul><ul><li>Cases </li></ul><ul><ul><li>Aban Loyd Chiles Offshore Ltd. v. Union of India, 2008 (154) ECR 0213 (SC)- </li></ul></ul><ul><ul><li>Amerhsip Management (P) Ltd. & ors. v . Union of India & ors. , 1996 (86) ELT 15 (Bom) </li></ul></ul><ul><ul><li>Coen Company v. Commissioner of Central Excise (Appeals), Mangalore, 2006 (2) S.T.R. 488 (Tri- Bang.). </li></ul></ul><ul><ul><li>Mc Dermott International Inc . v. Deputy CIT </li></ul></ul><ul><ul><li>[1994] 49 ITD 590 (Delhi- Trib) </li></ul></ul><ul><ul><li>Pride Foramer v. Union of India and Ors., </li></ul></ul><ul><ul><li>AIR 2001 Bom 332. </li></ul></ul>
  10. 10. Implications of the Notification
  11. 11. <ul><li>Petitioner Challenged Constitutional Validity of </li></ul><ul><ul><li>Section 66A </li></ul></ul><ul><ul><li>Explanation to Section 65 (105) </li></ul></ul><ul><ul><li>Rule 2(1) (d) (iv) </li></ul></ul><ul><li>The respondents are seeking to levy and recover tax from </li></ul><ul><ul><li>Persons resident in India on the services </li></ul></ul><ul><ul><li>Services are rendered and/or performed outside India </li></ul></ul><ul><ul><li>By non resident service providers </li></ul></ul><ul><li>The services are provided outside India, tax collected and levied from recipient of services based in India </li></ul><ul><li>Petitioners -Indian National Ship owners Association (Non profit making co.), members are the owners of the India Flag Vessels </li></ul>The Amendment Indian National Ship-owners Association and Others v. Union of India and Anothers 2009 (14) STR 289 (BOM)- Facts of the Case
  12. 12. Merchant Shipping Act, 1958 <ul><li>Customs House Agents services </li></ul><ul><li>Steamer Agent services </li></ul><ul><li>Clearing and forwarding Agents services </li></ul><ul><li>Port services </li></ul><ul><li>Cargo Handling services </li></ul><ul><li>Storage and Warehouse services </li></ul><ul><li>Maintenance or Repair services </li></ul><ul><li>Technical Inspection and Certification services </li></ul><ul><li>Other Port services </li></ul><ul><li>General Insurance services </li></ul><ul><li>Manpower Recruitment and Supply Agency’s services </li></ul><ul><li>Management Consultant’s services </li></ul><ul><li>Banking and other Financial services </li></ul><ul><li>Business Auxiliary services </li></ul><ul><li>Technical Testing and Analysis services </li></ul><ul><li>Telegraph services </li></ul>Taxable services under Section 65 (105) Substantially Amended
  13. 13. <ul><li>No demand of Service Tax made till February 2002 </li></ul><ul><li>After Coming of the Notification, First time demand for Service Tax was made to the petitioner- Services rendered beyond the EEZ and Continental shelf </li></ul>Service Tax Circular No. 36/4/2001 dated 8th October 2001 clarified Service Tax beyond the territorial waters not applicable Service Tax Circular No. 1/2002 dated 1 st March 2002 clarified Service Tax beyond the territorial waters applicable to designated areas Notification No. 36/2004 ST dated 31 st December 2004 Powers given to Central Govt., Section 68 (2) <ul><li>Telephonic connection/pager/telex etc </li></ul><ul><li>General Insurance </li></ul><ul><li>Insurance auxiliary service </li></ul><ul><li>Transport of goods by road </li></ul><ul><li>Factories/ Companies/ Corporations </li></ul><ul><li>Societies and Cooperative Societies </li></ul><ul><li>Dealer of Excisable goods </li></ul>1 st Jan ‘05 A) Services B <ul><li>Any taxable service provided by a </li></ul><ul><li>person who is non resident or is from </li></ul><ul><li>outside India and have no office in India </li></ul><ul><li>Any Body Corporate </li></ul>
  14. 14. <ul><li>Reading Notification and Subsection 2 of 68 and scheme of the Act- Recipients of the service cannot be made liable. </li></ul><ul><li>Rule 2 amended on 16 June 2000- Invalid quote acc. to Counsel: Contrary to Scheme </li></ul><ul><li>18 th April 2006- Section 66 A was added. No Service Tax could be charged before this date. </li></ul><ul><li>Rule 2(d)(iv) should be read harmoniously complementing Section 68 (2) </li></ul><ul><li>Challenging payment of service tax from 1-3-2002 to 17-4-2006 </li></ul><ul><li>Was there a valid law in this time period which authorizes the levy of service tax in relation to the services rendered outside India? </li></ul>(iv) In relation to any taxable services provided or to be provided by a person, who has established a business or has fixed establishment from which the service provided or to be provided, or has his permanent address or usual place of residence, in a country other than India, and such service provider does not have any office in India, the person who receives such services or has pace of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India
  15. 15. <ul><li>Section 65, 66, 68 and 69 are pertinent to the present case- Subsequently amended </li></ul><ul><li>Provisions of section 65 (105)- Taxable services </li></ul><ul><li>Notification of March 2002- Does not the effect of levying service tax on recipients p.15 </li></ul><ul><li>The provision of the rule (Contrary to 68(2))- in relation to the taxable services provided by person non resident to person receiving taxable service in India- Provided Services are received in India </li></ul><ul><li>Rule not applicable becomes the services are rendered outside the Country </li></ul><ul><li>Section 64- Powers to the Central Govt. </li></ul><ul><li>Invalidity of the Rule 2 (d) (iv) </li></ul><ul><li>Explanation- Services provided by non resident outside India to person in India declared to be taxable </li></ul><ul><li>The charge of the service Tax continues to be on the provider of the service- scheme of the Act </li></ul>Before 18-4-2006 The charge of ST is on person responsible for collecting Service Tax
  16. 16. Judgment in a Nutshell Bombay High Court <ul><li>Notification no. 1/2002- St dated 1-3-2002 does not levy service tax on the service recipients </li></ul><ul><li>Rule 2 (d) (iv) does not apply to levy of service tax on services rendered from outside India </li></ul><ul><li>Under the above rule, service receipts cannot be made liable to pay tax </li></ul><ul><li>The above rule would apply as services were received by the assessee outside India and not in India </li></ul><ul><li>The notification 1/2002- does not have the effect of levying </li></ul><ul><li>service tax on recipients- is plainly without the authority </li></ul><ul><li>of Law </li></ul>
  17. 17. Changes after Notification <ul><li>Increase in the Indirect Tax Revenue </li></ul><ul><li>No Difference between the Designated and Non designated areas- Eastern Coastal areas ie. KG Basin, PV3 and the Bombay high oil drilling wells of Western Coastal areas </li></ul><ul><li>Increase in the cost of oil exploration </li></ul><ul><li>Defining the words; Installations and Structures </li></ul>
  18. 18. Reverse Charge Mechanism- § 66A <ul><ul><li>Notification no. 31/2007 dated May 22, 2007. </li></ul></ul><ul><ul><li>Recipient of services in India will be charged with service tax. </li></ul></ul><ul><ul><li>Applicable only to services under Section 65 (105) of the Finance Act, 1994. </li></ul></ul><ul><ul><li>Two elements; </li></ul></ul><ul><ul><li>1. Services received by person on India </li></ul></ul><ul><ul><li>2. Service provider situated outside India </li></ul></ul><ul><ul><li>M/S Intas Pharmaceuticals Ltd . V. CST, Ahmedabad , STO 2009 CESTAT 914- held that where reverse mechanism is not applicable, Service Tax would not be levied. The reverse charge mechanism basically shifts the burden of service tax to the receiver and if there is no liability on the service provider, the question of shifting the charge does not arise and hence non applicability of Service Tax is acknowledged. </li></ul></ul>
  19. 19. Service Tax Pre/Post Budget Next Taxable on a reverse charge basis in case of ‘installations, structures and vessels’ ’ Not taxable Outside India Non-designated coordinates Taxable in the hands of service provider in case of ‘installations, structures and vessels’ Not taxable Within India Non-designated coordinates Taxable on a reverse charge basis in case of ‘installations, structures and vessels’ Taxable on a reverse charge basis Outside India Designated coordinates Taxable in the hands of service provider in case of ‘installations, structures and vessels’ Taxable in the hands of service provider Within India Designated coordinates Post-Budget period Pre-Budget period Location of service provider Place of performance of service
  20. 20. Questions <ul><li>According to notification installations, structures and vessels are territory of India </li></ul><ul><li>Rights to Extend to ‘Area’?- What constitutes an area in EEZ and Continental Shelf? </li></ul><ul><li>Comparison with notification from Income tax, customs, excise dept. </li></ul>
  21. 21. Conclusion <ul><li>The Notification extends to all the area of Installations, Structures and Vessels </li></ul><ul><li>Therefore the distinction between the designated and non designated area has been removed </li></ul><ul><li>Modification for the territory of India for the applicability of the Act </li></ul><ul><li>Increase in the revenue from the Structures, </li></ul><ul><li>Installations, Vessels in the EEZ and the </li></ul><ul><li>Continental shelf </li></ul><ul><li>The amendment of the notification- given </li></ul><ul><ul><li>rise to the other unanswered queries </li></ul></ul>
  22. 22. Nothing is certain but death and Tax -Benjamin Franklin
  23. 23. The Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 <ul><li>Section 6- Continental shelf </li></ul><ul><li>The Continental shelf of India comprises of the sea bed and the subsoil of the submarines areas , extends beyond the limits of territorial waters with the distance of 200 N.M . from the base line; the outer edge of the Continental margin does not extend up to that distance. </li></ul><ul><li>India has full and the exclusive rights on the continental shelf includes </li></ul><ul><ul><li>exploration, exploitation, conservation and management of all resources; </li></ul></ul><ul><ul><li>exclusive rights and jurisdiction for the construction, maintenance or operation of artificial islands, off-shore terminals, installations, structures and devices for the above and the convenience of shipping or for any other purpose </li></ul></ul><ul><ul><li>exclusive jurisdiction to authorize, regulate and control scientific research; and </li></ul></ul><ul><ul><li>exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution </li></ul></ul><ul><li>No person except from the orders of the Central Govt. is allowed to explore. </li></ul><ul><li>Central Govt. can make provisions, extend any enactment or even declare areas as designated through notification. </li></ul>
  24. 24. The Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 <ul><li>Section 7- Exclusive Economic Zones </li></ul><ul><li>The Exclusive Ecconomic Zones of India comprises of area beyond and adjacent to the territorial waters and the limit is 200 N.M. from the base line. </li></ul><ul><li>Alteration of the Limit, with due respect to the International Law and State Practice </li></ul><ul><li>Resolutions to be passed by Both the Houses of the Parliament </li></ul><ul><li>India has full and the exclusive rights on the EEZ includes </li></ul><ul><ul><li>exploration, exploitation, conservation and management of all resources </li></ul></ul><ul><ul><li>exclusive rights and jurisdiction for the construction, maintenance or operation of artificial islands, off-shore terminals, installations, structures and devices for the above and the convenience of shipping or for any other purpose </li></ul></ul><ul><ul><li>exclusive jurisdiction to authorize, regulate and control scientific research; and </li></ul></ul><ul><ul><li>exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution </li></ul></ul><ul><li>No person except from the orders of the Central Govt. is allowed to explore. </li></ul><ul><li>Central Govt. can make provisions, extend any enactment or even declare areas as designated through notification. </li></ul>
  25. 25. The Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 <ul><li>Designated and Non designated area </li></ul><ul><li>Section 6 (5) and 7 (6) of the Act- Not expressly defined. </li></ul><ul><li>Difference between the two areas – “Recognition of the Central govt.” </li></ul><ul><li>The Central Government may, by notification in the Official Gazette,- (a) declare any area of the continental shelf/ exclusive economic zone to be a designated area; and (b) make such provisions as it may deem necessary with respect to,- (i) the exploration, exploitation and protection of the resources of such designated area; or (ii) other activities for the economic exploitation and exploration of such designated area such as the production of energy from tides, winds and currents; or (iii) the safety and protection of artificial island, off-shore terminals, installations and other structures and devices in such designated area; or (iv) the protection of marine environment of such designated area; or (v) customs and other fiscal matters in relation to such designated area. </li></ul>
  26. 26. Installations and Structures <ul><li>Installations and Structure ( offshore )- Not defined </li></ul><ul><li>Can be defined as: </li></ul><ul><ul><li>Work space below or over the sea Surface </li></ul></ul><ul><ul><li>Classified according to the functions of the Components </li></ul></ul><ul><ul><li>Supporting components for transmitting the Goods </li></ul></ul><ul><ul><li>Functional equipment </li></ul></ul><ul><ul><li>Foundation structures- mooring equipments </li></ul></ul><ul><ul><li>Examples: Drilling equipment, processing plant, personal quarters etc. </li></ul></ul>
  27. 27. Vessels Back Case <ul><li>Defined under Section 2(z) of The Major Port Trust Act, 1963. </li></ul><ul><ul><li>2(z) &quot;vessel&quot; includes anything made for the conveyance, mainly by water, of human beings or of goods and a caisson. </li></ul></ul><ul><li>Caisson- Tight Chamber used for Construction under water. </li></ul><ul><li>Foreign going vessel defined under Section 2(21) The Customs Act, 1962 </li></ul><ul><ul><li>“ foreign-going vessel or aircraft” means any vessel or aircraft for the time being engaged in the carriage of goods or passengers between any port or airport in India and any port or airport outside India, whether touching any intermediate port or airport in India or not, and includes </li></ul></ul><ul><ul><li>(i)       any naval vessel of a foreign Government taking part in any naval exercises; </li></ul></ul><ul><ul><li>(ii)     any vessel engaged in fishing or any other operations outside the territorial waters of India; </li></ul></ul><ul><ul><li>(iii)    any vessel or aircraft proceeding to a place outside India for any purpose whatsoever; </li></ul></ul>
  28. 28. Constitution of India Back <ul><li>Article 1- </li></ul><ul><ul><li>1. Name and territory of the Union. - </li></ul></ul><ul><ul><ul><li>(1) India, that is Bharat, shall be a Union of States. </li></ul></ul></ul><ul><ul><ul><li>(2) The States and the territories thereof shall be as specified in the First Schedule. </li></ul></ul></ul><ul><ul><ul><li>(3) The territory of India shall comprise— </li></ul></ul></ul><ul><ul><ul><li>(a) the territories of the States; </li></ul></ul></ul><ul><ul><ul><li>(b) the Union territories specified in the First Schedule; and </li></ul></ul></ul><ul><ul><ul><li>(c) such other territories as may be acquired. </li></ul></ul></ul><ul><li>Article 297- </li></ul><ul><ul><li>297. Things of Value within territorial waters </li></ul></ul><ul><ul><ul><li>or continental shelf and resources of the </li></ul></ul></ul><ul><ul><ul><li>exclusive economic zone to vest in the Union </li></ul></ul></ul>
  29. 29. Powers of Central Government under the Territorial Waters, Continental Shelf, Exclusive Economic Zones and other Maritime Zones Act, 1976 Back <ul><li>Section 6(5) The Central Government may, by notification in the Official Gazette : (a) declare any area of the continental shelf and its superjacent waters to be a designated area… </li></ul><ul><li>6(6)- (6) The Central Government may, by notification in the Official Gazette : (a) extend with such restrictions and modifications as it thinks fit, any enactment for the time being in force in India or any part thereof </li></ul><ul><li>to the continental shelf or any part (including any designated area </li></ul><ul><li>under sub-section (5)) thereof… </li></ul><ul><li>7(6) The Central Government may, by notification in the </li></ul><ul><li>Official Gazette: (a) declare any area of the exclusive </li></ul><ul><li>economic zone to be a designated area; and… </li></ul>
  30. 30. United Nations Conventions on the Law of the Sea Back <ul><li>Part V deals with EEZ </li></ul><ul><li>talks about the Jurisdiction, rights and duties of the of the Coastal states. </li></ul><ul><li>Also deals with the provisions regarding the installations, artificial islands and structures </li></ul><ul><li>Part VI deals with the Continental Shelf </li></ul><ul><li>It defines the Continental shelf </li></ul><ul><li>Rights and duties of the Coastal states and the freedom given to the Other states </li></ul><ul><li>Also deals with the provisions regarding the installations, artificial islands and structures and also drilling in the Continental Shelf </li></ul><ul><li>Part VII deals with High Seas </li></ul>
  31. 31. Notifications Back <ul><li>F.No.450/76/93-Cus.IV - Subject: Extension of the jurisdiction of the Customs Act, 1962 and the Customs Tariff Act, 1975 to whole of the EEZ and Continental Shelf under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976-reg. </li></ul><ul><li>No. GSR 304(E), dated 31 st March 1983 -Subject: Extension of Income Tax Act to the Continental Shelf of India </li></ul><ul><li>No. 25/2009- ST dated 19 th August 2009- Amending Export of service Rules 2005: Explanation- for the purpose of defining India, India now includes: the installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India. </li></ul><ul><li>No. 22/2009 dated 07th July 2009- Subject: Taxation of Services (Provided from outside India and Received in India) Rules, 2006: Explanation- “India” includes the installations, structures and vessels in the continental shelf of India and the exclusive economic zone of India;’. </li></ul>
  32. 32. Facts of the case Coen Company (non resident), California, USA M/S JPOCL’s Air Seperation Plant Contract letter dated 11-7-1997 For design, detailed engineering and preparation of specifications Not registered under Service Tax “ Consulting Engineer”- § 65
  33. 33. Coen Company v. Commissioner of Central Excise (Appeals), Mangalore, 2006 (2) S.T.R. 488 (Tri- Bang.). Back <ul><li>Question raised on- Interpreting the meaning of ‘Consulting Engineer’ and whether a service by non resident of India is to be charged with Service Tax when the service is provided outside India. </li></ul><ul><li>The Company did not fall under the Meaning of ‘Consulting Engineer’ since they have only supplied the designs and not rendered any direct service pertaining to consulting engineering services under the Finance Act- para 7. </li></ul><ul><li>The recipient of the Technical Know how from a foreign company, not authorized to represent the other company in India, could not be fastened with Service Tax- para 7. </li></ul>
  34. 34. Facts of the case Indian Land Territory Mc Dermott Int. Inc. (non- resident) EEZ and Continental Shelf Territorial waters Contract works for Bombay High offshore oil rigs Section 5(2) and Section 44BB of the Income Tax Act Activities and the Services in connection to Activities
  35. 35. Mc Dermott International Inc . v. Deputy CIT [1994] 49 ITD 590 (Delhi- Trib) Back <ul><li>Issue raised- Non applicability of the Notification on Activities. </li></ul><ul><li>Observed that the CBDT notification No. 5147 [SO 304(E) dated 31-3-1983] </li></ul><ul><li>Restricted to the income derived by every person from all or any of the activities carried on within the Continental Shelf and Exclusive Economic Zone of India. </li></ul><ul><li>The three activities namely prospecting, extraction and production of mineral oil or natural gas in high seas required the following– </li></ul><ul><ul><li>digging of deep sea wells and their construction, </li></ul></ul><ul><ul><li>laying of pipelines for drawing of mineral oil or natural gas, </li></ul></ul><ul><ul><li>other engineering construction like platform </li></ul></ul><ul><li>Basic structure for carrying out work and directly linked to activities. </li></ul><ul><li>In this connection, it required the services, equipment, etc., of persons who are familiar with these activities and had invited them. </li></ul><ul><li>Section 5(2) had defined the scope of the total income of non-residents, but did not include in its fold the various activities in the Bombay High and the income derived there from. </li></ul>
  36. 36. Facts of the case Oil rig Exclusive Economic Zone of India Pride Pensylvania- Drilling Machine Pride Foramer- Registered office in France; Branch office in Mumbai Contractor to ONGC Importing Goods required for the use of oil rig not directly 1 st Mumbai port, then transshipped Section 87- without the payment of duty {Payable § 12, Exempted § 53 § 54- Imports for transshipment ? Foreign Going vessel
  37. 37. Pride Foramer v. Union of India and Ors. AIR 2001 Bom 332. Back <ul><li>Before the amended Notification </li></ul><ul><li>The issue was whether ‘Oil rig’ operating in the designated area is a foreign going ship or not? </li></ul><ul><li>Emphasis laid on the interpretation of 2(21) of the Customs Act. </li></ul><ul><li>Customs Act to be read with the Maritime Zones Act; if read separate then, oil rigs located in the designated areas of the EEZ according to the Customs Act will be treated as ‘place outside India’. </li></ul><ul><li>The very purpose of Section 5,6,7 of the Maritime Zones Act- protection, exploitation and exploration in the area; resources belonging to India. </li></ul><ul><li>Area, where oil rigs are stationed are the part of India. </li></ul><ul><li>Municipal Law to be interpreted with respect to the International Conventions- Vishaka v. State of Rajasthan , AIR 1997 SC 3011. </li></ul><ul><li>Amerhsip Management (P) Ltd. and ors . v. Union of India & ors ., 1996(86)ELT15(Bom) Discussed and Aban Loyd Chiles Offshore Ltd. v. Union of India, 2008 (154) ECR 0213 (SC)- later case almost with the similar issues and facts. </li></ul>
  38. 38. Facts of the case M/s Intas Pharmaceuticals Ltd. Manufacture of Pharmaceutical Products claimed refund of Rs. 55, 702 Not liable to pay service tax on technical testing and analysis services Services fully performed outside India
  39. 39. M/S Intas Pharmaceuticals Ltd . v. CST, Ahmedabad STO 2009 CESTAT 914 Back <ul><li>When services performed partly in India and partly outside India, then it is treated to be fully performed in India </li></ul><ul><li>In this case the services are performed fully in India </li></ul><ul><li>Technical and testing analysis service- Reverse Charge Mechanism applicable </li></ul><ul><li>Interpretation of Rule 3 (ii) of the Taxation of Services provided from outside India and received I India Rules 2006.- Covering ‘Technical and testing analysis service’ </li></ul><ul><li>The provision is not applicable with respect to performance of the service completely outside India </li></ul>
  40. 40. Aban Loyd Chiles Offshore Ltd. v. Union of India, 2008 (154) ECR 0213 (SC) Back <ul><li>Facts same as the Pride Foramer Case. </li></ul><ul><li>The vessels of the petitioner engaged in the transportation of goods to the Oil rigs- few were owned and the remaining were taken on time charter. </li></ul><ul><li>Main issue was whether the petitioner was required to pay customs? </li></ul><ul><li>Whether Oil rig came under the definition of a vessel? </li></ul><ul><li>Would the petitioner get the benefit under section 86(2) of transferring of Stores to the oil rigs and under section 54? </li></ul><ul><li>Facts same as the Pride Foramer Case. </li></ul><ul><li>Engaged in drilling operations and related activities under contracts of ONGC </li></ul><ul><li>Oil rigs situated outside the territorial waters of India </li></ul><ul><li>Should customs duty be paid on transship stores irrespective of designated and non designated areas? </li></ul><ul><li>Distinction between the Territory of India and deeming provisions regarding the extension of the enactment to areas deemed to be the territory of India for the extension of Law. </li></ul>Amerhsip Management (P) Ltd. and ors . v. Union of India & ors ., 1996 (86) ELT 15 (Bom)
  41. 41. A Snap Shot Exports and Imports with Service Tax Back Territorial Boundary Services provided from India Services provided from outside India Used in India Received in India Import of Services Not Taxable Taxable Used in Outside India Used outside India Export of Services India Outside India

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