Service Tax | No Reverse Charge Liability On Software Maintenance Consumed Abroad; Hotel Expenses Not 'Sponsorship Services': CESTAT Bangalore

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore has held that no Service Tax liability can be applied under the reverse charge mechanism on an Indian branch where the software maintenance services were contracted, received and consumed entirely outside India. The Tribunal further held that payments made towards hotel expenses of guests cannot be treated as taxable “Sponsorship Services”. A Division Bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) allowed the appeal filed by the assessee, M/s Silk Air (Singapore) Pvt. Ltd. and set aside the Service Tax demand along with penalties confirmed under Section 73(2) of the Finance Act, 1994. Section 73(2) of the Finance Act, 1994 deals with recovery of Service Tax not levied or not paid, or short paid, or erroneously refunded after issuance of a Show Cause Notice. The dispute arose from the order passed by the Commissioner (Appeals), Cochin, which had upheld the demand of Service Tax on two counts first, on alleged receipt of “Maintenance Services” in respect of imported SAP software for the period 2010–11 to 2013–14, and second, on “Sponsorship Services” relating to event-related expenditure incurred during 2012–13. Per Section 65(64) read with Section 65(105)(zzg) of the Finance Act, 1994, “Maintenance or Repair Service” means any service provided by any person in relation to maintenance or repair of goods, equipment, software, plant, machinery or structures, whether or not supplied by the service provider. Per Section 65(105)(zzzn) read with Section 65(99a) of the Finance Act, 1994, “Sponsorship Service” means any service provided to a body corporate or firm, by any person, in relation to sponsorship of events, excluding sponsorship of sports events. The Revenue argued that the Indian branch had received maintenance services from abroad, and was therefore liable to pay Service Tax under reverse charge. The assessee argued that it had no contract whatsoever with SAP Singapore, that no payments were made by the Indian branch, and that the software licences were procured by Singapore Airlines from SAP Asia Systems, with services being consumed entirely outside India. The Tribunal noted that it was undisputed that there was no agreement between the assessee and the alleged service provider. Relying on the decision in British Airways v. CCE [2015 (64) TAXMANN 421], the Bench observed that Service Tax, being a destination and consumption-based levy, cannot be imposed where both the service provider and service recipient are located outside India and the services are not consumed by the Indian branch. Accordingly, the demand on maintenance services was held to be unsustainable. With respect to the demand under “Sponsorship Services”, the Bench observed that the Revenue had not disputed the fact that the assessee had already discharged Service Tax on the event-related expenses. It was further noted that the additional amounts sought to be taxed primarily related to payments made to hotels for accommodation of guests and could not be classified as sponsorship of events. The Bench observed that the Commissioner (Appeals) had failed to record any clear findings establishing how these activities constituted sponsorship services. In view of the above, the Bench allowed the appeal preferred by the assessee holding that both demands were legally untenable, and therefore, set aside the impugned order in its entirety. Case Title: Silk Air (Singapore) Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Cochin Case No.: Service Tax Appeal No. 20886 of 2017 Date of Decision: 04.12.2025 Appearance for Appellant: Ms. Susan Mathew, Chartered Accountant Appearance for Respondent: Shri M.A. Jithendra, Assistant Commissioner (AR) Click Here To Read/Download Order

Service Tax | No Reverse Charge Liability On Software Maintenance Consumed Abroad; Hotel Expenses Not 'Sponsorship Services': CESTAT Bangalore

Rajnandini Dutta

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