2015 (12) TMI 1216 - AT - Service Tax

Waiver of pre deposit - import of services - Revenues contention is that the party abroad being an agent of the appellant the service provided by that agent was compensated by way of payment from India. The compensation for service being provided that shall be taxed and liable on reverse charge mechanism. - Held that - Perusal of the MOU between the parties, prima facie, throws light there is absence of the principal and agent relationship. The shipping document also showed that there was a sale of the goods from India which was in the course of export. No such document came to our notice to appreciate the Revenues contention at this stage. - Prima facie, looking to the factual aspects and nature of the transaction and also understanding of the parties in MOU, there shall be waiver of predeposit in all the stay applications during pendency of the appeals. - Stay granted.

Summary

Issues:
1. Tax liability on expenses incurred for promotional sales reimbursed by the appellant.
2. Application of reverse charge mechanism on services provided by a party abroad.
3. Existence of principal-agent relationship between the parties.

Analysis:

1. The appellant argued that expenses incurred for promotional sales, reimbursed by them to the importer abroad, should not attract tax liability. They contended that the reimbursement was part of the fixed margin agreement and should not result in a deduction of the margin. The appellant relied on the decision of the Larger Bench of the Tribunal in a specific case, which is pending before the Apex Court, to support their position that such reimbursements are not taxable in India. The High Court of Delhi's decision was also cited to argue against the taxability of such expenses. The appellant sought relief from tax liability based on the scope of the reverse charge mechanism and the legal precedents mentioned.

2. The Revenue's contention was that the party abroad acted as an agent of the appellant, and the services provided by this agent were compensated through payments from India. Therefore, the Revenue argued that the compensation for services provided should be subject to taxation under the reverse charge mechanism. This position was in contrast to the appellant's argument regarding the nature of the relationship between the parties and the tax implications of the expenses reimbursed for promotional sales.

3. Upon hearing both sides and examining the Memorandum of Understanding (MOU) between the parties, the Tribunal found that there was no clear evidence of a principal-agent relationship. The shipping documents indicated a sale of goods from India in the course of export, which did not align with the Revenue's argument regarding the nature of the transaction. Given the factual aspects, the nature of the transaction, and the understanding reflected in the MOU, the Tribunal decided in favor of the appellant. Consequently, the Tribunal ruled for a waiver of predeposit in all stay applications during the pendency of the appeals, indicating a favorable outcome for the appellant based on the analysis of the available records and contentions presented by both parties.

In conclusion, the judgment addressed the tax liability on reimbursed expenses, the application of the reverse charge mechanism, and the existence of a principal-agent relationship, ultimately ruling in favor of the appellant based on the specific facts and legal arguments presented during the proceedings.