2011 (11) TMI 60 - AT - Service Tax

(i). Whether the impugned Business Auxiliary Service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 amounts to export of service considering Article 286 (1) (b) of the Constitution of India and the provisions of Export Service Rules, 2005 as well as Circular No. 141/10/2011 - TRU dated 13.05.2011 issued by CBE&C. (ii). Whether the impugned Business Auxiliary Service of promotion of market in India for foreign principal made in terms of Article 2 and 3 of the Agreement dated 01/07/2005 was delivered outside India and used thereat and is immune from levy of service tax as export of service in terms of the provisions of Export Service Rules, 2005 read with circulars issued by CBE&C excluding Circular No.141/10/2011 - TRU dated 13.05.2011. (iii). Whether the impugned Business Auxiliary Service provided in terms of Agreement dated 01/07/2005 is governed by the principles of equivalence and destination based consumption tax. Difference of opinion matter referred to larger bench

Issues Involved:
1. Whether the Business Auxiliary Service provided by the appellant amounts to export of service.
2. Taxability of repair and maintenance of software prior to 07.10.2005.
3. Whether the adjudication was time-barred.
4. Entitlement to Cum-tax benefit and Cenvat Credit.
5. Liability to penalty.

Issue-wise Analysis:

1. Business Auxiliary Service as Export of Service:
The appellant argued that the services provided under the Market Development Agreement dated 01.07.2005 to the foreign principal in Singapore were export services and thus not taxable under section 65(105)(zzb) of the Finance Act, 1994. The adjudicating authority found that the services provided in India did not qualify as export under Rule 3(1)(iii) of the Export of Services Rules, 2005. The appellant's plea was rejected on the basis that the services were consumed in India, and the benefit accrued within India, making them taxable. The Tribunal, however, had differing views. One member held that the services were delivered and used outside India, thus qualifying as export, while the other member disagreed, emphasizing the principle of equivalence and destination-based consumption tax.

2. Taxability of Repair and Maintenance of Software:
The appellant contended that the repair and maintenance of software were not taxable prior to 07.10.2005, based on CBEC circulars. The adjudicating authority disagreed, but the Tribunal found merit in the appellant's argument, holding that the appellant was not liable for service tax on software maintenance for the period before 07.10.2005.

3. Adjudication Time-Barred:
The appellant argued that the show cause notice issued on 24.04.2008 was time-barred as the department was aware of the facts since the filing of the registration application on 17.10.2005. The Tribunal found that the extended period of limitation could not be invoked as there was no willful suppression of facts by the appellant. Thus, the demand for the extended period was not sustainable.

4. Entitlement to Cum-tax Benefit and Cenvat Credit:
The Tribunal held that the appellant was entitled to cum-tax benefit and Cenvat credit as per law. The adjudicating authority was directed to recompute the tax liability considering these benefits.

5. Liability to Penalty:
The Tribunal concluded that no penalty was imposable as there was no intention to evade tax by the appellant. The conduct of the appellant did not demonstrate willful suppression or misstatement of facts.

Separate Judgments:
The members of the Tribunal had differing views on the issue of whether the Business Auxiliary Service constituted export of service. One member held that the services were exported and thus not taxable, while the other member disagreed, emphasizing the principles of equivalence and destination-based consumption tax. This difference in opinion led to the formulation of points of difference to be decided by a third member.

Conclusion:
The appeal was partly allowed, and the matter was remanded to the adjudicating authority to recompute the tax liability for the normal period, granting cum-tax benefit and Cenvat credit. The issue of whether the Business Auxiliary Service constituted export of service was left to be decided by a third member due to differing views.

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