CESTAT Quashes Service Tax Demand Against HSBC Electronic Data Processing India On Back Office Support Services Exported To Its Group Entity

The Hyderabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has quashed the service tax demand against HSBC Electronic Data Processing India on back office support services exported to its group entity.

The bench of Anil Choudhary (Judicial Member) and A.K. Jyotishi (Technical Member) has observed that there is a connection between the visits of foreign customers and the back-office support services provided by the appellant. In terms of the sub-contracting arrangement, these expenses should qualify as export turnover and be allowed the benefit of export without payment of taxes since the same would be covered in terms of Rule 3 of the Place of Provision of Service Rules, 2012 (POPS), which says that the place of provision of service would be the location of the recipient.

The appellant/assessee, HSBC Electronic Data Processing India Pvt Ltd, has entered into a sub-contracting agreement with a group entity, HGRL (HSBC Global Resourcing (UK) Ltd), UK. The services to be rendered by the appellant in terms of the said agreement are those that HGRL UK has agreed to provide to business partners in terms of the 'Master Services Agreement. The appellant has performance-level agreements with the business partners and provides the services directly to the ultimate customers, called banking customers of the business partners.

The show cause notice was issued stating that 'the services in question, namely accommodation and rent-a-cab, are separately discernible from the main service, i.e., back office services, and have no connection or relation with such a main service. However, the commissioner held that the purpose of the visits was connected with the original service. The Commissioner has recorded the finding that 'these agreements require a certain level of contact and coordination or liaison between the parties concerned'.

As long as there is a connection with the terms of the subcontracting agreement, these expenses are to be recovered in terms of Schedule B of the subcontracting agreement. Ultimately, it is for the HGRL, UK, to agree to payment.

These invoices have been recovered in convertible foreign exchange. It is also seen from the sample invoices shown to us for reimbursement of expenses that these have been submitted to the Software Technology Parks of India (STPI) authorities, and the Software Export Declaration is furnished in the Appeal Paper Book and has been treated as part of the same contract.

At any rate, for the service to be classified as rent-a-cab in terms of Section 65(91), up to June 30, 2012, the service is to be provided by a person engaged in the business of renting cabs, which is not the case in the context of the present appellants. Also, with respect to the period after July 1, 2012, the transportation services cannot fall under Rule 11 of POPS for determining the place of provision as taxable territory, as in the facts of the case, they do not satisfy the definition of 'continuous journey' as per Rule 2(d) of the Rules.

The tribunal held that with regard to accommodation services, which are sought to be roped in post-01.07.2012, under Rule 5 of POPS, the same is identically worded as in the case of short-term accommodation for the period prior to 01.07.2012, where the Commissioner for the previous period up to June 30, 2012 has dropped the demand. On the same basis, the demand for the subsequent period also ought to have been dropped.

The CESTAT set aside the finding on the levy of service tax in the First Order on accommodation services and rent-a-cab services.

Counsel For Appellant: S. Thirumalai

Counsel For Respondent: Wagh Chittanranjan Prakash

Case Title: HSBC Electronic Data Processing India Private Limited Versus Commissioner of Central Tax Rangareddy – GST

Case No.: Service Tax Appeal No. 30136 of 2017

Click Here To Read The Order