2013 (4) TMI 147 - AT - Service Tax

Valuation - pure agent - inclusion of reimbursement of expenditure in the gross value - Expenditure towards fees and statutory levies paid to the agent in abroad for selling & registering goods exported - Revenue s contention is that the appellant should have paid service tax on the expenditure incurred by their agents on their behalf and exemption under Notification No.18/09, claimed by the appellants cannot be extended to them. - Held that - we are not convinced that payments made to the agents abroad who incurred expenditure as pure agents of the appellants, can form part of the value of the service of the agent. Prima-facie there cannot be any service tax demand on that count. - We are also prima-facie not in agreement with the contention of the Revenue that the sovereign authority in other countries are rendering service to the appellant. - stay granted.

Summary

Issues:
1. Liability of service tax on expenditure for statutory compliance in countries where goods are exported.
2. Denial of exemption under Notification No. 18/09 for services rendered by commission agents abroad.

Analysis:
1. The appellant, a manufacturer of medicaments, exports products and incurs expenses for getting products registered and complying with legal requirements in foreign countries. The Revenue contends that service tax should be paid on the expenditure for statutory compliance in countries where goods are exported, incurred by agents on behalf of the appellant. The appellant relies on Circular No. 89/7/2006-ST, stating that fees paid for statutory compliance cannot be considered as the value of service. The Tribunal observes that payments made to agents abroad, acting as pure agents of the appellants, cannot form part of the value of the service, thereby rejecting the service tax demand on that count.

2. Another component of demand pertains to the denial of exemption under Notification No. 18/09 for services rendered by commission agents abroad. The exemption is denied as the appellants did not file separate half-yearly returns as required by the notification. The appellant argues that they have filed regular statutory returns, and the failure to file separate returns should not justify the confirmation of demand. The Tribunal finds the issue to be procedural in nature and grants a waiver of pre-deposit of dues arising from the impugned order for admission of appeal and stays its collection during the pendency of the appeal.

3. The Revenue contends that the circular relied upon by the appellant for claiming exemption on fees paid for statutory compliance is applicable only for compliance in India, not for compliance outside India. Additionally, the Revenue argues that the sovereign authority in other countries providing services to the appellant should be liable for service tax. However, the Tribunal is not convinced, stating that the enforcement of law by a sovereign authority in another country cannot be considered as a service to the appellant, thereby rejecting the Revenue's contentions.

In conclusion, the Tribunal rules in favor of the appellant, rejecting the service tax demands on the expenditure for statutory compliance and denying the exemption under Notification No. 18/09. The waiver of pre-deposit is granted for the appeal, and the collection of dues is stayed during the appeal process.