CESTAT Delhi: No Service Tax on Expenditure by Overseas Project Office of Japanese Company for Indian Projects; Services Not Taxable in India

Headnote:

The CESTAT, Principal Bench, New Delhi, held that a Project Office of a Japanese company in India cannot be treated as a separate entity for levy of service tax on manpower or administrative services provided by the overseas head office. The Tribunal observed that expenditure incurred abroad for project execution in India does not amount to “Manpower Supply Service” under the Finance Act, 1994, and cannot attract service tax under the Reverse Charge Mechanism. The appeal by the Revenue for the period 1.7.2012 to 31.3.2015 was dismissed, and the impugned order dropping the demand was upheld.

Background:

The appellant, Principal Commissioner of CGST & Central Excise, Delhi East, challenged the adjudicating authority’s order that dropped service tax demand raised on M/s Oriental Consultant Company Ltd., a Project Office of Oriental Consultants, Japan. The Revenue alleged that services provided by the overseas head office, including manpower and administration support, were taxable under the Reverse Charge Mechanism. The respondent maintained that it received payments from Indian customers and incurred expenses for project execution, with overseas expenditure being recorded in the books of the head office. Prior Tribunal and High Court decisions were cited by both parties to argue whether the Project Office and the overseas company could be treated as distinct persons.

Tribunal’s Observations/Analyses:

1. The Tribunal relied on precedents such as Torrent Pharmaceuticals Ltd., SNC Lavalin Inc., Lea International Ltd., and others to clarify that a permanent establishment abroad is not a separate person for service tax purposes when services are essentially rendered to itself.
2. The Tribunal emphasized that Section 66A of the Finance Act, 1994, distinguishes permanent establishments to determine provision and consumption of services but does not impose tax on intra-company services provided to self.
3. The Tribunal found the Revenue’s reliance on Northern Operating Systems Pvt. Ltd. distinguishable, as the facts involved secondment agreements and not services rendered by the Project Office of the same company.
4. It was concluded that overseas expenditure incurred for project execution in India does not amount to a taxable service, including manpower supply or recruitment services, under the Finance Act or applicable Reverse Charge Rules.

Legal Provisions Discussed:

1. Section 66A, Finance Act, 1994 – Service provider and recipient as separate persons; Reverse Charge Mechanism.
2. Rule 3, Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 & 2012 – Place of provision of services.
3. Manpower Recruitment or Supply Agency Service, taxable under service tax provisions.

Decision:

1. The appeal by the Revenue was dismissed.
2. The Tribunal upheld the impugned order dropping service tax demand of Rs. 3,80,81,305/- for the period 1.7.2012 to 31.3.2015.
3. It was held that the respondent Project Office is not liable for service tax on expenditure incurred abroad by the head office for executing Indian projects.

Citation: Final Order No. 51524/2025

Case: Principal Commissioner of CGST & Central Excise, Delhi East v. M/s Oriental Consultant Company Ltd.

Tribunal: Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi – Court No. III

Coram: Hon’ble Ms. Binu Tamta, Member (Judicial) & Hon’ble Mr. P.V. Subba Rao, Member (Technical)

Date of Decision: 08.10.2025