CESTAT Quashes Service Tax Demand Against HSBC India in Exported Back-Office Services Case
CESTAT Quashes Service Tax Demand Against HSBC India in Exported Back-Office Services Case
In a significant ruling, the Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) set aside a service tax demand raised against HSBC Electronic Data Processing India for back-office support services rendered to a related entity.
The bench comprising Anil Choudhary, Judicial Member, and A.K. Jyotishi, Technical Member, noted a connection between foreign customer visits and the appellant's back-office support services. In the context of the sub-contracting arrangement, they determined that these expenses qualify as export turnover and are eligible for the benefit of tax-free export under Rule 3 of the Place of Provision of Service Rules, 2012 because the service is considered to be provided at the recipient's location.
HSBC Electronic Data Processing India Pvt Ltd (appellant/assessee) had entered into a sub-contracting agreement with HSBC Global Resourcing (UK) Ltd (HGRL UK) for the performance of services originally agreed upon by HGRL UK and its business partners within a master services agreement. Subsequently, the appellant established performance-level agreements with the same business partners and now directly delivers these services to their ultimate banking customers.
The show cause notice argued that accommodation and rent-a-cab services were distinct from the core back-office service and lacked any connection. However, the Commissioner disagreed, noting that the purpose of the visits was inherently tied to the original service. This was further strengthened by the agreements requiring “a certain level of contact, coordination, or liaison" between the parties concerned.
Expenses incurred in accordance with Schedule B of the sub-contract and directly related to its terms are eligible for recovery. However, HGRL UK retains the final decision-making authority regarding payment.
The appellant recovered expenses in convertible foreign exchange, as evidenced by invoice samples. Notably, these invoices, submitted to the Software Technology Parks of India (STPI) for software export declaration, are included in the appeal documents and considered part of the original contract.
The service provided cannot be considered "rent-a-cab" under Section 65(91) for the period before July 1, 2012, as the appellants did not operate a cab rental business. Similarly, for the period after July 1, 2012, Rule 11 of POPS doesn't apply to determine the place of provision as a taxable territory because the transportation services provided do not fit the definition of "continuous journey" outlined in Rule 2(d) of the Rules.
The Tribunal determined that Rule 5 of POPS governing accommodation services maintained the same wording throughout the relevant period. Consequently, referring to the Commissioner's earlier decision to cancel service tax demands for the period before July 1, 2012, due to the consistent rule wording, the Tribunal ruled that demands for the same services after July 1, 2012, should likewise be cancelled.
The CESTAT ruled in favour of the appellant, setting aside the First Order's determination to levy service tax on accommodation and rent-a-cab services.
