2017 (6) TMI 216 - AT - Service Tax

Business auxiliary service - commission to broker in foreign currency - liability of tax - Held that - the services alleged to have been received by appellant would need to be tested for determining the liability as alleged by tax authorities and confirmed in the impugned order - there has been no such determination of the nature of service and the coverage of the transaction between the overseas entities and the appellant within the framework of the Rules - matter remanded to the original authority for reconsideration - appeal allowed by way of remand.

Summary

Issues:
Taxability of commission paid to broker under Business Auxiliary Service, taxability of value added services under Business Support Services, violation of principles of natural justice, jurisdiction to adjudicate, non-consideration of submissions, geographical limitation on levy of tax, nonconformity with CBEC clarification, bar of limitation.

Taxability of Commission Paid to Broker:
The appellant, a diamond cutting and polishing business, imported rough diamonds as a sight holder of a trading company. The appellant paid a commission to a broker in foreign currency for services rendered. The tax authorities contended that this commission was liable to tax under section 66A of the Finance Act, 1994 as a recipient of business auxiliary service. The impugned order classified the services provided by the broker under Business Auxiliary Service without challenge from the appellant. However, the order lacked detailed examination or consideration of submissions. The Tribunal found the order cryptic and lacking a proper basis for classification. The matter was remanded for reconsideration.

Taxability of Value Added Services:
The appellant also received value added services from the trading company, including third-party verification, supply continuity, and business sustainability services. Invoices raised for these services were deemed taxable under section 66A of the Finance Act, 1994 as business support services. The impugned order upheld this classification without detailed analysis, leading to the Tribunal's finding of inadequacy. The matter was remanded for proper determination in accordance with legal principles.

Violation of Principles of Natural Justice and Jurisdiction:
The appellant raised concerns regarding the violation of natural justice, jurisdiction to adjudicate, and non-consideration of submissions. The impugned order faced criticism for lacking a thorough examination of the core issues and for summarily dismissing appellant's contentions. The Tribunal emphasized the need for a fair and comprehensive reconsideration by the original authority in line with established legal principles.

Geographical Limitation and CBEC Clarification:
The appellant contested the geographical limitation on the levy of tax and argued nonconformity with the Central Board of Excise & Customs (CBEC) clarification. The Tribunal highlighted the statutory foundation for taxing services received from outside India under section 66A of the Finance Act, 1994 and the Taxation of Services Rules, 2006. The Rules specify circumstances for taxing services rendered in India, emphasizing the recipient's liability. The impugned order's failure to adequately determine the nature of services led to its remand for proper assessment.

Bar of Limitation and Final Decision:
The impugned order imposed penalties under sections 78 and 77 of the Finance Act, 1994, totaling a significant amount. The Tribunal, noting the inadequacies in the order, set it aside and remanded the matter to the original authority for a fresh determination in accordance with legal precedents and principles. This decision aimed to ensure a fair and lawful resolution of the tax liability issues raised by the appellant.