2010 (9) TMI 545 - AT - Service Tax

Waiver of pre-deposit - Export of services - Appellant was working as an agent, during the period of dispute, for an overseas company - Their job was to gather purchase orders from their principal, to place the same on Indian exporters, and ensure that the sale proceeds were received by the Indian sellers - Received their commission from the overseas principal -This commission used to be received in foreign currency through banking channels at the appellant s bank and, as advised by the appellant, the bank used to remit the amount in equivalent Indian currency in their account - The case of the Revenue as made out in the relevant show-cause notices and the impugned order is that what was received by the appellant by way of commission for the aforesaid service was in Indian currency and therefore they would not be entitled to the benefit of exemption from payment of service tax under the relevant condition under Rule 3(2)(b) of the Export of Service Rules, 2005. Held that the appellant has shown prima facie case against the impugned demand of service tax and connected penalties - The modus operandi of the appellant appears to have been disclosed honestly to the Department in that letter - Prima facie, it was not open to the Department to invoke the extended period of limitation on the ground of alleged suppression of facts by them - Hence , there will be waiver of pre-deposit and stay of recovery

Summary

Issues:
1. Prima facie case against the demand of service tax and penalty.
2. Exemption from payment of service tax under Export of Service Rules, 2005.
3. Limitation against the demand of service tax.
4. Waiver of pre-deposit and stay of recovery.

Analysis:

Issue 1: Prima facie case against the demand of service tax and penalty
The Tribunal examined whether the appellant had a prima facie case against the demand of service tax amounting to Rs. 36,51,268/- and an equal amount of penalty. The appellant worked as an agent for an overseas company, gathering purchase orders and ensuring sale proceeds were received by Indian sellers. The appellant received commission in foreign currency, which was then remitted in equivalent Indian currency. The appellant argued that since they exported a service and received commission in foreign currency in India, the service should be exempt from service tax. The Revenue contended that the commission received by the appellant was in Indian currency, thus not qualifying for the exemption under the Export of Service Rules, 2005. The Tribunal found that the appellant had a prima facie case against the demand of service tax and penalties.

Issue 2: Exemption from payment of service tax under Export of Service Rules, 2005
The Tribunal considered Rule 3(2)(b) of the Export of Service Rules, 2005, which states that for a taxable service to be treated as an export of service, the payment should be received in convertible foreign exchange. It was acknowledged that the service was provided in India but used outside India, meeting the main condition for exemption from service tax on export of services. The appellant's argument that they exported a service and received commission in foreign currency in India was crucial in determining the applicability of the exemption.

Issue 3: Limitation against the demand of service tax
Regarding the demand raised in the first show cause notice covering a specific period, the Tribunal noted that the appellant disclosed material facts to the Department almost three years before the notice was issued. The Tribunal found that the appellant's modus operandi had been honestly disclosed to the Department, indicating that the Department could not invoke the extended period of limitation based on alleged suppression of facts. Therefore, the Tribunal considered the limitation aspect in favor of the appellant.

Issue 4: Waiver of pre-deposit and stay of recovery
In conclusion, the Tribunal ruled in favor of the appellant, granting a waiver of pre-deposit and stay of recovery concerning the amount of service tax and penalties. This decision was based on the Tribunal's findings regarding the prima facie case against the demand of service tax, the exemption under the Export of Service Rules, and the limitation aspect favoring the appellant.