2007 (5) TMI 11 - AT - Service Tax

Export of Services Revenue contended that appellant did not pay service tax on international consignment Commissioner declared that services rendered by the appellant should be deemed to have performed outside country and that s why not liable to pay service tax

Summary

Issues:
1. Applicability of Service Tax on international consignments under the category of Courier Agency Services.
2. Interpretation of Export of Services Rules, 2005.
3. Imposition of penalties under various sections of the Finance Act, 1994.

Analysis:
1. The appeal challenged the Order-in-Original passed by the Commissioner of Service Tax, Bangalore, alleging non-payment of Service Tax on international consignments by the appellants providing Courier Agency Services. The Commissioner contended that the services were not exempted under Rule 4 of Export of Services Rules, 2005, as both the service provider and the service receiver were in India. A substantial demand for Service Tax, interest, and penalties was imposed, leading to the appeal.

2. The Tribunal examined Rule 3 of the Export of Services Rules, 2005, to determine the export of taxable services. It was highlighted that under Rule 3(2), if a taxable service is partly performed outside India, it shall be deemed to have been performed outside India. As Courier Agency Services fall under this category, the delivery of consignments abroad qualifies as service performed outside India, exempting it from Service Tax liability as per Rule 4. The Tribunal emphasized that the Ministry's clarification disregarded Rule 3(2) and incorrectly focused on irrelevant factors like the location of the service provider and recipient.

3. Notably, the Tribunal found the penalty of Rs. 4.5 crores imposed by the Adjudicating Authority excessive, considering the appellant's genuine misunderstanding of the law. Furthermore, a subsequent amendment to Rule 3(2) highlighted that for services to be treated as export, payment must be received in convertible foreign exchange. Given this amendment and the interpretation of Rule 3(2), the Tribunal concluded that the appellant was not liable for Service Tax during the relevant period. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

In conclusion, the judgment clarified the application of Service Tax on international consignments under Courier Agency Services, interpreted the Export of Services Rules, 2005, and addressed the imposition of penalties under the Finance Act, 1994, providing a detailed analysis and ruling in favor of the appellant based on the legal provisions and amendments.