2014 (10) TMI 312 - AT - Service Tax

Import or Export of services - Commission received - reverse charge mechanism - transfer of money from abroad to persons situated in India - Held that - The service recipient in the transaction is M/s. Western Union, who is situated abroad. There is also no dispute that consideration for the service rendered has been received in convertible foreign exchange. The only dispute is where the service has been rendered. At the relevant time, there were no specific rules to determine the place of provision of service in service tax law. However, with effect from 20/06/2012 a specific Rule has been prescribed called Place of Provision of Service Rules, 2012. Though these Rules are only prospective in nature, the provisions of these Rules can be gainfully used to understand the concept of place of provision. Rule 3 of the Rule says that the place of a provision of a service shall be the location of the recipient of the service. In the facts of the case before us, the service receiver is M/s. Western Union, who has paid the consideration for the service and who is situated outside India and therefore, the place of provision of service should be treated as falling outside India - Following decision of Paul Merchants ltd. (2012 (12) TMI 424 - CESTAT, DELHI (LB)) and Fine Forex Pvt. Ltd. (2014 (4) TMI 34 - CESTAT NEW DELHI) - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellants are liable to pay service tax on the commission received under reverse charge mechanism for services rendered in India?
2. Whether the services provided by the appellants to Western Union qualify as export of service under the Export of Service Rule, 2005?
3. Whether the place of provision of service should be considered as falling outside India based on the location of the recipient of the service, i.e., Western Union?

Analysis:

Issue 1:
The appellants, engaged by Western Union for money transfer services, received commission in convertible foreign exchange. The department contended that since services were rendered in India, the appellants are liable to tax under reverse charge mechanism. The appellants argued that they acted as intermediaries for Western Union, the actual service provider, and the services were used outside India. The Chartered Accountant representing the appellants relied on the Export of Service Rule, 2005, and previous tribunal decisions to support the claim that no service tax liability should accrue.

Issue 2:
The appellants maintained that the services provided to Western Union should be classified as Business Auxiliary Service (BAS) under the Export of Service Rule, 2005. They argued that the conditions for export of service were met, as the services were provided in India, used outside India by Western Union, and the consideration was received in convertible foreign exchange. The appellants cited tribunal decisions to support their position that the transaction should be treated as export of service.

Issue 3:
The judgment considered the place of provision of service, with Rule 3 of the Place of Provision of Service Rules, 2012 stating that the location of the recipient determines the place of provision. As Western Union, the service recipient, was situated abroad and paid for the services, the place of provision of service was deemed to be outside India. Citing previous tribunal decisions, the judgment concluded that the services provided by the appellants to Western Union constituted export of service, making them not taxable in India.

In conclusion, the tribunal set aside the service tax demands, ruling in favor of the appellants based on the classification of services as export of service and the location of the service recipient determining the place of provision.