2017 (2) TMI 1149 - AT - Service Tax

Business auxiliary services - Appellant had accrued certain benefits under foreign trade policy under the target plus scheme during the relevant period which entitled the appellant to transfer the sale benefits to any other entity by mentioning their name on the documents like invoice and shipping bills. It is the case of Revenue that appellant having received 1% of FOB value from Adani Exports Ltd, the said amount is liable to be taxed under business auxiliary services under the category of production or processing of goods on behalf of client. Held that - Revenue wants to include the amount received by appellant under the category of production or processing of goods for or on behalf of client which we find incorrect and unsustainable, for the simple reason that there is nothing on record to show that Adani Exports Ltd., is getting the diamond jewellery manufactured by appellant; nor there is any agreement brought on record to show that Adani Exports Ltd., had in fact placed an order with the appellant for manufacturing and export of diamond jewellery. In the absence of any such evidence to indicate that Adani Exports Ltd., had availed the services of appellant for production or processing of goods, we find that the impugned order holding that appellant is producing or processing of goods on behalf of Adani Exports Ltd., is unsustainable. The appellant herein themselves cannot claim the commission for the activity undertaken by them. Appeal allowed - decided in favor of appellants.

Summary

Issues:
Interpretation of business auxiliary service under the Finance Act, 1994; Taxability of income received from transfer of export benefits under business auxiliary service; Whether appellant provided services in relation to production or processing of goods for or on behalf of the client; Application of the definition of business auxiliary service under Section 69(19) of the Finance Act, 1994; Comparison with relevant legal precedents.

Analysis:

1. Interpretation of Business Auxiliary Service:
The appeal revolved around the interpretation of business auxiliary service under the Finance Act, 1994. The Revenue contended that the income received by the appellant from transferring export benefits to another entity falls under the category of business auxiliary service. However, the Tribunal found this interpretation incorrect and unsustainable based on the facts presented.

2. Taxability of Income Received from Transfer of Export Benefits:
The core issue was whether the income received by the appellant from transferring export benefits was taxable under business auxiliary service. The Revenue argued that the appellant provided services in relation to the production or processing of goods for or on behalf of the client. In contrast, the appellant contended that they merely passed on the benefits accrued from exports and did not provide any services to the client.

3. Services Provided in Relation to Production or Processing of Goods:
The Tribunal analyzed whether the appellant provided services in relation to the production or processing of goods for or on behalf of the client, as claimed by the Revenue. It was crucial to determine if there was evidence to support the assertion that the appellant engaged in such activities for the client.

4. Application of the Definition of Business Auxiliary Service:
The Tribunal examined the definition of business auxiliary service under Section 69(19) of the Finance Act, 1994. The definition includes various activities related to the promotion, marketing, production, or processing of goods for or on behalf of the client. The Tribunal assessed whether the appellant's actions aligned with this definition to establish tax liability.

5. Comparison with Legal Precedents:
The Tribunal referred to a legal precedent involving income tax to draw parallels in the case at hand. The comparison with the case of Commr. of I.T. Thiruvananthapuram v. Baby Marine Exports highlighted the treatment of income received from transferring export benefits and its classification as commission or brokerage. This comparison supported the Tribunal's decision regarding the taxability of the appellant's income.

6. Conclusion:
After considering the submissions and evidence, the Tribunal concluded that the impugned order holding the appellant liable for business auxiliary service tax was unsustainable. The Tribunal set aside the order, allowing the appeal with consequential relief. The decision was based on the lack of evidence showing that the appellant provided services in the production or processing of goods for the client, as required under the definition of business auxiliary service.

This detailed analysis highlights the key issues addressed in the judgment, the arguments presented by both parties, the interpretation of relevant legal provisions, and the Tribunal's decision based on the evidence and legal precedents cited during the proceedings.