2014 (11) TMI 248 - AT - Service Tax

Classification of service - On-Line Information and Database Access and/or Retrieval Services or Business support service - Held that - In consideration for the services rendered, the foreign entity, Reuters Ltd., U.K., is required to pay a fee to the appellant in an amount equal to 108% of the costs and expenses incurred by the appellant in providing those services. Thus, as per the agreement, the services rendered is one of collecting, collating, verifying data and transmission of the same to the foreign-sister concern of the appellant. The information has to be transmitted either electronically or otherwise and the consideration is paid on cost plus basis. Thus, the services rendered by the appellant does not seem to be of the nature of any management or repair services as alleged in the show cause notices and as concluded in the impugned order. The data furnished by the appellant is used by the foreign entity for inclusion in their products for dissemination to the customers situated worldwide. In other words, the activity of the appellant supports the business undertaken by the foreign entity abroad. Thus, we find there is merit in the argument of the appellant that the activities undertaken by them, merits classification under Business Support Services . Appellant has rendered the services from India and the appellant has received the consideration in convertible foreign exchange. In view of the above factual position, the services rendered by the appellant would merit classification as export of services from India. On export of services, service tax liability is not attracted. appellant had not declared any dividend whatsoever. Thus, factually also the impugned order is incorrect inasmuch as no dividends have been declared by the appellant during the impugned period and therefore the question of repatriation would not arise at all. Thus, the impugned orders lack merits. - Decided in favour of assessee.

Summary

Issues:
Classification of services under 'Maintenance or Repair Services' and 'Business Auxiliary Services'; Service tax demand for edit and data fees and marketing fees; Eligibility for export of services benefit; Repatriation of export proceeds through dividend declaration.

Classification of services under 'Maintenance or Repair Services' and 'Business Auxiliary Services':
The appellant, a part of a global group, provided services to its sister-concern in the UK. The department classified the services as 'Maintenance or Repair Services' and 'Business Auxiliary Services' under the Finance Act, 1994. The appellant contested this classification, arguing that the services fell under 'Business Support Services' as per the agreement with the sister-concern. The Tribunal analyzed the agreement and concluded that the services involved collecting, collating, and transmitting data to support the foreign entity's business. Therefore, the services were rightly classified as 'Business Support Services' and not as maintenance or repair services.

Service tax demand for edit and data fees and marketing fees:
The department issued show cause notices demanding service tax for edit and data fees and marketing fees received by the appellant. The total demand amounted to 43,88,75,968/-. The Commissioner confirmed a demand of 43,09,23,218/- along with interest and penalties. The appellant challenged this demand, arguing that the services qualified as exports due to receiving consideration in convertible foreign exchange. The Tribunal agreed, citing the Export of Service Rules and previous case law, and held that service tax liability did not apply to exported services.

Eligibility for export of services benefit:
The appellant contended that the services provided to the foreign entity qualified as exports due to receiving consideration in convertible foreign exchange. The Tribunal agreed, emphasizing that the services were rendered from India and met the criteria for export of services under Rule 3(i)(iii) of the Export of Service Rules. The argument that repatriation of export proceeds occurred through dividend declaration was dismissed, as dividends were unrelated to export proceeds. The Tribunal noted that the appellant had not declared any dividends during the relevant period, further supporting the eligibility for export benefits.

Repatriation of export proceeds through dividend declaration:
The department argued that the appellant repatriated export proceeds by declaring dividends. However, the Tribunal found this argument unsustainable, clarifying that dividend declaration did not equate to repatriation of export proceeds. The Tribunal highlighted a previous case ruling to support this stance. Additionally, the Tribunal examined the appellant's balance sheets and confirmed that no dividends were declared during the relevant period, reinforcing the dismissal of the repatriation claim.

In conclusion, the Tribunal set aside the impugned orders, allowing the appeals with consequential relief, if any.