2017 (3) TMI 793 - AT - Service Tax

Liability of tax - Commission Income - commission received from affiliates in foreign country - whether covered under Business Auxiliary Services or not? - Held that - the services rendered by the respondent were in relation to procuring orders and promoting products, of foreign suppliers. Admittedly, the said services fall under the category of BAS . However, it is a well settled legal position that the nature of service rendered by the respondent is consumed by the foreign supplier of goods. The benefit is directly accruing to such foreign entities - there is no tax liability on the respondent in respect of services, which are rendered to the suppliers of the goods from foreign countries - The activities of export of service is not to be taxed. Reversal of CENVAT credit - credit availed on common input services, attributable to their trading activities - Rule 6(3) of Cenvat Credit Rules, 2004 - Held that - input service credit available is only when output service is taxable. If there is no output service, no credit can be taken - Since trading, during the material time, is not even considered as an exempted service , it necessarily follows that no credit on input services used for trading activities can be availed at all. If there are common input services, it necessarily follows that, in the absence of separate accounts, the services attributable to taxable output service can only be held eligible to the respondent - the respondent is liable to reverse the credit attributable to the trading activities. Appeal disposed off - decided partly in favor of Revenue.

Summary

Issues:
1. Liability of the respondent to pay service tax on "Commission Income" received from affiliates in a foreign country.
2. Reversal of proportionate cenvat credit availed on common input services attributable to trading activities.

Analysis:

Issue 1:
The dispute in this case revolves around the liability of the respondent to pay service tax on the "Commission Income" received from foreign affiliates. The Revenue contended that the respondent should pay service tax under the category of "Business Auxiliary Service" (BAS) as per the Finance Act, 1994. However, the Tribunal clarified that the services provided by the respondent were consumed by the foreign supplier of goods, and the benefit directly accrued to the foreign entities. Therefore, the Tribunal held that no tax liability exists on the respondent for services rendered to foreign suppliers, considering the nature of export of service. Various case laws were cited to support this interpretation, emphasizing that the tax is not related to products sold in India.

Issue 2:
Regarding the second issue of reversal of cenvat credit, the Revenue argued that the respondent is not eligible to avail cenvat credit on input services used in trading activities. The Tribunal noted that trading was not categorized as a service during the relevant period and that no credit was available on input services attributable to trading. The Tribunal referenced a legal position established in previous cases, stating that the respondent, being a trader and output service provider, cannot claim full credit on common input services without maintaining separate accounts. It was determined that the respondent is only eligible to take credit on input services attributable to taxable output services, necessitating the reversal of credit linked to trading activities. The demand for reversal was deemed legally sustainable, and the appeal was allowed in part for the reversal of cenvat credit for the normal period along with applicable interest.

In conclusion, the Tribunal ruled in favor of the Revenue's appeal to the extent of reversing cenvat credit for the normal period, emphasizing the legal interpretation surrounding the eligibility of credit on input services and the necessity of maintaining separate accounts for trading activities.