2017 (3) TMI 1366 - AT - Service Tax

Business Auxiliary Services - liability of tax - export of service - Held that - when the services were provided as per the instruction of a person located abroad, the destination of service has to be treated abroad. The destination has to be decided on the basis of place of consumption and not place of performance - the services have been provided to foreign entities as per the agreement entered into and the beneficiary is such foreign entities. The amount as consideration for such services was also paid by the said foreign entities in convertible foreign exchange. Therefore, the services rendered by the appellants are squarely covered by the Export of Service Rules and there is no service tax liability on them. Reversal of CENVAT credit - Rule 6(3A) of CCR - Held that - the value of exempted service was arrived at by the Original Authority as difference between sale price and cost of goods sold or 10% of the cost of goods sold whichever is more - in the absence of any other statutory formula to arrive at the quantum of Cenvat credit to be reversed on common input services, we find no impropriatory in the decision of the Original Authority in this regard - Regarding the contention of the Revenue that the appellant/assessee should not be allowed to utilize more than 20% of the total duty liability we note that there is no legal backing for such assertion. Appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Service tax liability under Business Auxiliary Service (BAS) on commission received from foreign entities.
2. Service tax liability under BAS for service fee received from foreign entities.
3. Reversal of credit on input services used in trading activities.

Analysis:

Issue 1: Service tax liability under BAS on commission received from foreign entities:
The appellant contended that the services provided to overseas entities for importation of goods into India qualified as export under the Export of Service Rules, 2005. They argued that the services were consumed abroad by foreign entities, and hence, no service tax liability should apply. Citing legal provisions and precedents like Paul Merchants Ltd., they emphasized that the destination of service should be based on the place of consumption, not performance. The Tribunal agreed, stating that the services provided by the appellant to promote the market for foreign entities in India constituted export of service, relieving them of the service tax liability.

Issue 2: Service tax liability under BAS for service fee received from foreign entities:
Similar to the first issue, the appellant argued that the services provided to foreign entities were consumed abroad, making them eligible for exemption from service tax under the Export of Service Rules, 2005. The Tribunal, referring to established legal principles and previous cases like Airbus Group India Pvt. Ltd., concurred that the recipient of service should be the foreign entities requesting and paying for the services, not the Indian entities affected by the performance. Consequently, the Tribunal found no merit in confirming the demand against the appellant under BAS.

Issue 3: Reversal of credit on input services used in trading activities:
Regarding the quantification of the amount to be reversed from Cenvat credit, the Original Authority applied a formula not explicitly provided in the Cenvat Credit Rules during the relevant period. However, the Tribunal found the application of the formula justified, as the insertion regarding trading as "exempted service" under Rule 2(e) was for clarification and removal of doubts. The Tribunal dismissed the Revenue's contention to restrict credit utilization to 20% of total duty liability, noting the lack of legal basis. Ultimately, the Tribunal upheld the Original Authority's decision on the quantification of Cenvat credit reversal, finding it fair and justified based on the reasons provided.

In conclusion, the Tribunal allowed the appeal filed by the appellant/assessee and dismissed the appeal by the Revenue, emphasizing the legal compliance and justifiability of the decisions made in each issue.