The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that pharmaceutical products exporters are not liable to pay service tax under Reverse Charge Mechanism (RCM) on business promotion expenses.
The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the tax liability under BAS cannot be sustained as the actual expenses now sought to be taxed are only with reference to setting up, running and also expenses of that branch incurred by the appellant and not relating to any expenditure in their branches with reference to Business Auxiliary Services (BAS).
The appellant/assessee is a manufacturer-exporter of pharmaceutical products and is a 100% Export Oriented Unit. It established representative offices in many countries to promote its goods and to liaison with the local authorities in such countries.
The appellant submitted that these representative offices do not have any independent revenue or clients and the purchase orders are entered with the clients directly by the appellant and so the representative offices do not enter into any contract with the clients. The payment for goods supplied to the customers is received by the appellant and all the expenses incurred in the supply of goods are claimed as expenses in India.
The salaries of the employees working at the representative offices are also remitted by the appellant. The appellant also reimburses other expenses incurred by the representative offices for its operations. These expenses are in the nature of rent, security, electricity etc.
The department entertained a view that expenses incurred by the appellant are liable to service tax on RCM and issued various show cause notices. The appeal relates to show cause notice proposing service tax demand alleging that the appellant made payments in foreign currency to its representative officers in countries other than India and such expenses were towards overseas business promotions, marketing and consultancy activity and were taxable in India.
The tribunal held that the intent of Section 66A in taxing the activity rendered by an overseas branch to its headquarters in India is limited to the local commercial or business activities of the head office is thereby confirmed. Consequently, mere existence as a branch for the overall promotion of the objectives of the primary establishment in India which is essentially an exporter of services does not render the transfer of financial resources to the branch taxable under Section 66A.
Case Details
Case Title: M/s Kusum Healthcare Private Limited Versus Commissioner, Central Goods & Service Tax, Alwar
Case No.: Service Tax Appeal No. 51465 of 2019
Date: 21/04/2025
Counsel For Appellant: Kunal Agarwal
Counsel For Respondent: Jaya Kumari
