2018 (12) TMI 1753 - AT - Service Tax

Business auxiliary service - export of services - It was the contention of the respondent herein that, the commission, having been received from outside India and in convertible foreign exchange, was for rendering service to entities outside the country the exemption in Export of Service Rules, 2005 would apply - HELD THAT - It is common ground that the activity of the respondent herein is within the ambit of business auxiliary service taxable under section 65(105)(zb) of Finance Act, 1994; the dispute merely pertains to whether the said transactions are exempted as exports. Intuitively, there can be no doubt that an activity for which consideration is received by an entity from outside India in convertible foreign exchange is nothing but export and, hence, not liable to tax. However, it is the contention of Revenue that after the grouping of the various taxable services according to location of the immovable property, location of performance and location of recipient, rule 3(2) of Export of Service Rules, 2005 thereof mandates not only receipts of consideration in foreign exchange but also a two-fold condition of the service having been provided from India and used outside India. Interpretation of rule 3(2) of Export of Service Rules, 2005 - HELD THAT - The issue stands settled by the decision of the Hon ble High Court of Bombay in COMMISSIONER OF SERVICE TAX, MUMBAI-III VERSUS M/S. SGS INDIA PVT. LTD. 2014 (5) TMI 105 - BOMBAY HIGH COURT and an identical view taken by the majority in the dispute of M/S. MICROSOFT CORPORATION (I) (P) LTD. VERSUS CST. NEW DELHI. 2014 (10) TMI 200 - CESTAT NEW DELHI (LB) where it was held that The Export of Service Rules, 2005, being destination based consumption tax are in accordance with the declaration of law by the Hon ble Supreme Court. Having held that services involved were export of services, the same are not liable to be sustained against the appellants. This matter was listed for clarification after conclusion of hearing on 2nd May 2018 on which day the decision on this appeal was pronounced for the limited purpose of ascertaining whether the amount demanded pertains to the period prior to amendment of rule 3(2) of Export of Service Rules, 2005 and difference on the appeal filed by Revenue - While the former was affirmed, we are constrained to take note that the appeal of Revenue has been filed without including the decisions that were pivotal for the reviewing authority to come to a conclusion that the impugned order must be challenged, while forbearing to elaborate on this lapse, departmental authorities are advised to be more cautious in future. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether the commission received by the appellant for rendering business auxiliary services is chargeable to tax under section 65(105)(zb) of the Finance Act, 1994?
2. Whether the conditions laid down in rule 3(2) of the Export of Service Rules, 2005 were fulfilled by the appellant to claim exemption for the commission received?
3. Whether the first appellate authority's decision was correct in allowing the appeal on merit and limitation?
4. Whether the decisions cited by the Revenue authority support the tax liability of the appellant for the disputed period?

Analysis:

1. The appeal concerns the tax liability of the appellant for receiving a commission in foreign exchange for rendering business auxiliary services. The dispute revolves around whether the commission qualifies as an export of service exempt from tax under the Finance Act, 1994. The original authority upheld the tax demand, while the first appellate authority ruled in favor of the appellant, prompting the current appeal.

2. The key contention revolves around the interpretation of rule 3(2) of the Export of Service Rules, 2005. The appellant argues that the conditions for exemption were met, citing relevant case law. The Revenue authority relies on specific conditions regarding the location of service provision and usage to support their stance. However, the appellant presents a strong case, supported by precedents, indicating that the service provided was indeed an export and not liable to tax.

3. The first appellate authority's decision to allow the appeal on both merit and limitation is challenged in the current appeal. While the absence of a challenge to the limitation finding renders the merit aspect moot, the appellate tribunal is obligated to consider the arguments put forth by the Revenue authority.

4. The dispute also delves into the applicability of various decisions cited by the Revenue authority to support the tax liability of the appellant. The appellate tribunal scrutinizes these decisions and finds that the majority of them favor non-taxability, undermining the Revenue's stance. The tribunal highlights the lack of a binding precedent in the decisions cited by the Revenue, further weakening their position.

5. Ultimately, the appellate tribunal dismisses the Revenue's appeal, concluding that the tax liability of the appellant for the disputed period is not justified. The tribunal emphasizes the importance of cautiousness on the part of departmental authorities in future appeals, hinting at procedural lapses in the current case.

This comprehensive analysis of the judgment highlights the nuanced legal arguments and precedents considered by the appellate tribunal in arriving at its decision to dismiss the Revenue's appeal.