2016 (1) TMI 1065 - AAR - Service Tax

Nature of agreement - sales agreement or service agreement - activity proposed IDEAS Oman will be selling educational books and printed manuals for onward sale to organizations in India via Creative Problem Solving India, Mumbai - applicant stresses on the wording of the proposed activity which is purely a selling activity - Held that - The clause is more than clear that the Distributor would have to bear apart from the price of the books, the shipping, handling, rush, and other charges. We do not see as to how this amounts to any service particularly by IDEAS to the Distributor applicant. It is clear that the Distributor applicant has not asked any question about whether there is any service provided by IDEAS to the Distributor. The question is very simple and clear as to whether the sale of the books to the Indian entities involves any service and would attract the service tax liability. The answer is clearly in negative. - Demand set aside - Decided in favor of assessee.

Summary

Issues: Determination of service tax liability on the activity of selling educational books and printed manuals by the applicant, considering the terms of the Memorandum of Understanding (MoU) with a foreign firm IDEAS Management Consultants, Oman.

Analysis:
1. Activity Description: The applicant entered into an MoU with IDEAS Management Consultants, Oman, to become a distributor of books in India. The main query was whether the sale of books to Indian entities attracts service tax liability.

2. Interpretation of MoU Terms: The applicant emphasized that the proposed activity was solely a selling activity, as indicated in the application. The applicant would purchase books from IDEAS and sell them in India. The Authority noted that the concerned Commissioner had misunderstood the application, supporting the applicant's interpretation.

3. Additional Activities in MoU: The MoU also mentioned payment for workbooks and quality control. The Departmental Representative argued that such activities constituted a service, highlighting a clause about correcting errors in books. However, the Authority disagreed, viewing it as a simple transaction between the distributor and IDEAS for error correction and reimbursement of extra expenses.

4. Purchase of Products Clause: The MoU clause required the distributor to pay the authorized price along with additional charges. The Authority clarified that this did not amount to a service provided by IDEAS to the distributor, as the distributor did not inquire about any service provided by IDEAS. The focus was on whether the sale of books involved a service attracting service tax liability.

5. Ruling: The Authority concluded that the sale of books by the applicant to Indian entities did not entail any service that would attract service tax liability. Therefore, the application was disposed of, ruling in favor of the applicant and determining no service tax liability for the described activity.