2011 (9) TMI 102 - AT - Service Tax

Money Changers - Money Transfer services from persons located in one country to persons located in any country - PML argues that it is providing services to Western Union situated abroad with whom PML is having a contract for providing services and PML gets its remuneration from Western Union. Further the ultimate beneficiary of the service is the person situated abroad who approaches the office of Western Union abroad and who pays for the services. So this is a case of Export of Services as laid down in Export of Services Rules, 2005. - The Revenue contests that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. The receiver of its service is the person receiving the remittance in India. The Revenue argues that no part of the service done by PML is exported. Two member bench of the CESTAT have different opinions and gave detailed and elaborated reasons to justify their stand regarding classification, export of services and applicability of expended period of limitation. Difference of opinion - Matter referred to larger bench.

Issues Involved:
1. Classification of services provided by PML.
2. Whether the services provided by PML were exported.
3. Liability of PML to pay service tax on the commission received.
4. Time-bar of the demand.
5. Taxability of reimbursements received for promotional activities.
6. Applicability of small service provider exemption.
7. Deduction of amounts paid to sub-representatives.
8. Inclusion of gains from foreign exchange fluctuations in taxable value.
9. Penalties imposed on PML.

Detailed Analysis:

1. Classification of Services Provided by PML:
The primary issue was whether the services provided by PML fell under 'Business Auxiliary Service' (BAS) or 'Banking and Financial Service' (BFS). PML argued that their services were akin to BFS and taxable only from 01-05-2006. However, the Revenue contended that PML was performing services on behalf of Western Union, which included promotional activities and money transfer services, classifiable under BAS as per section 65(105)(zzb) of the Finance Act, 1994. The Tribunal concluded that PML's activities were covered under BAS before 01-05-2006 and BFS thereafter.

2. Whether the Services Provided by PML Were Exported:
PML argued that the services were exported as they were provided to Western Union located abroad. The Revenue argued that the services were provided in India to recipients in India, hence not exported. The Tribunal examined the Export of Services Rules, 2005, and concluded that the services rendered by PML were indeed exported as per Rule 3(1)(iii), which considers the location of the service recipient (Western Union) and the fact that the payment was received in foreign exchange.

3. Liability of PML to Pay Service Tax on the Commission Received:
The Tribunal held that PML was liable to pay service tax on the commission received from Western Union for the period from 01-07-2003 to 30-06-2007. The demand was confirmed based on the classification of services under BAS and BFS.

4. Time-Bar of the Demand:
PML contended that the demand was time-barred as there was no suppression of facts. The Tribunal, however, found that PML had not disclosed the taxable receipts and had not registered under the Finance Act, 1994, which justified the invocation of the extended period of limitation.

5. Taxability of Reimbursements Received for Promotional Activities:
The Tribunal concluded that the reimbursements received by PML for promotional activities were taxable under BAS. PML had already paid service tax on advertisements through the advertising agency, but the Tribunal held that the reimbursements were part of the taxable service provided to Western Union.

6. Applicability of Small Service Provider Exemption:
The Tribunal rejected the argument for small service provider exemption under Notification 13/2005-ST, as the services were provided using the brand name of Western Union, which disqualified PML from availing the exemption.

7. Deduction of Amounts Paid to Sub-Representatives:
The Tribunal held that the amounts paid to sub-representatives could not be deducted from the taxable value received by PML. However, sub-representatives could claim Cenvat credit for the tax paid by PML if eligible.

8. Inclusion of Gains from Foreign Exchange Fluctuations in Taxable Value:
The Tribunal ruled that gains from foreign exchange fluctuations should not form part of the taxable value as they were not a consideration for the service rendered but a result of the exchange rate variations.

9. Penalties Imposed on PML:
The Tribunal upheld the penalties imposed under sections 76, 77, and 78 of the Finance Act, 1994, due to PML's failure to disclose taxable receipts and register under the Act.

Separate Judgments:
One judge disagreed with the majority opinion, arguing that the services provided by PML were not exported and should be taxed in India. This judge also emphasized that the reimbursement for promotional activities and gains from foreign exchange fluctuations should be included in the taxable value.

Conclusion:
The Tribunal allowed PML's appeal on the grounds of export of services and time-barred demand but upheld the classification of services under BAS and BFS, the liability to pay service tax on commissions and reimbursements, and the penalties imposed. Appeals filed by sub-agents were similarly decided, with cases remanded for further examination based on the principles laid down in the PML case.

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