2016 (10) TMI 957 - AT - Service Tax

Levy of service tax - imposition of interest and penalties - technical and marketing support services - is the amount paid by the appellant to foreign supplier for providing technical and marketing support services for their products in foreign countries is liable to be taxed? - Reverse Charge Mechanism - Held that - service tax liability arises under the provisions of Section 66A of the Finance Act, 1994 under Reverse Charge mechanism. Accordingly, we uphold the tax liability and interest thereof and also the penalties imposed on this point and reject the appeal of the appellant to that extent. Commission for the procurement of orders on behalf of the German company - Held that - mere procurement of order on behalf of overseas manufacturer is not taxable in India in the hands of the person who procures the orders and receives a commission - reliance placed in the decision of M/s. Microsoft Corporation (I) (P) Ltd. Versus CST. New Delhi 2014 (10) TMI 200 - CESTAT NEW DELHI (LB) - appeal allowed. Appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
1. Service tax liability on amounts paid to distributor for marketing support services in foreign countries.
2. Service tax liability on commission received for procuring orders for a German company.

Analysis:
Issue 1: The Tribunal upheld the service tax liability on amounts paid by the appellant to a distributor in foreign countries for marketing support services. The liability arose under Section 66A of the Finance Act, 1994, through the Reverse Charge mechanism. The Tribunal confirmed the tax liability, interest, and penalties, rejecting the appellant's appeal on this point.

Issue 2: Regarding the commission received for procuring orders for a German company, the Tribunal found that the service tax liability was unsustainable. The lower authorities had based their decision on Rule 3(2) of the Export of Services Rules, 2005, claiming that the services were provided in India but used outside India. However, the Tribunal referred to the precedent set by the majority decision in Microsoft Corporation (I) P. Ltd. 2014 (36) STR 766, which held that mere procurement of orders on behalf of an overseas manufacturer is not taxable in India. This view was supported by other decisions, including ATE Enterprises Pvt. Ltd. 2015 (39) STR 81. Therefore, the Tribunal allowed the appeal on this point, stating that the service tax liability on the commission received for order procurement was unsustainable.

In conclusion, the Tribunal partly allowed and partly rejected the appeal, upholding the service tax liability on amounts paid to the distributor for marketing support services in foreign countries but ruling out the liability on the commission received for procuring orders for the German company.