2017 (8) TMI 554 - AT - Service Tax

Business Auxiliary Services - Export of services or not - Overriding commission and incentives - the amount payable as ORC was deducted by the appellant from the proceeds and the balance amount only was remitted to Saudia - whether the service rendered by the appellant can indeed be treated as Export of Services or otherwise? - Held that - Business Auxiliary Services being taxable in terms of Section 65 (105) (zzb) were thus governed by the conditionalities in Rule 3(3) of the said Export of Service Rules, 2005. The major requirement of a Business Auxiliary Service to be considered as export of service is that such services are provided and used in or in relation to commerce and industry and the recipientof such services are located outside India - Subsequent amendments to the Export of Service Rules also retained the requirement that payment for service provided is received by the service provider in convertible foreign exchange. There is no dispute that the services of the appellant have been contracted by its office of Saudi Arabian Airlines located in Jeddah, Saudi Arabia. It is also clear that scope of these services to be provided by the appellant included soliciting, promoting and selling passenger air transportation for Saudia, assistance in all operations likely to encourage traffic on Saudia s Airlines. Evidently, these activities performed by the appellants are contracted to have beneficial impact on air transportation traffic on Saudi Airlines. Although the appellants have been contracted as Saudias GSA for the territory of Tamil Nadu, Andhra Pradesh, Karnataka and Kerala, appellant as a GSA is authorized to make sales over the services of Saudia and any other carrier with whom Saudia has interline traffic agreements. Soliciting and promoting of passenger air transportation is permitted to be done by the appellant on all lines awarded out by Saudia - Evidently, the commercial services provided by the appellant, inter alia, soliciting, promoting and selling passenger air transportation and cargo and mail transportation for Saudia is very much a Business Auxiliary Service, ordered by Saudi Arabian Airlines, Jeddah, to benefit all such service flowing to Saudias business. Whether retention of the full amount of commission while making remittance to Saudia of all monies due for transportation sold during previous month would fall foul of the requirement in Rule (3) (3) of the Rules that payment for such service is received in convertible foreign exchange? - Held that - even by retaining the amount of overriding commission while remitting the proceeds to their foreign client, without receiving it subsequently from the client in convertible foreign exchange. The conditionalities of Rule 3 (3) of the Export of Service Rules, 2005 as amended and as was applicable during the different periods involved in these appeals will be deemed to have been satisfied by the appellant. Hence the services rendered by them to the foreign recipient will be nothing but export of Business Auxiliary Services which are exempted from liability to service tax. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Denial of Export for Overriding Commission (ORC)
2. Taxability of incentives received by the appellant
3. Compliance with Export of Services Rules, 2005

Detailed Analysis:

1. Denial of Export for Overriding Commission (ORC):
The core issue was whether the overriding commission (ORC) received by the appellant qualifies as an export of service under the Export of Services Rules, 2005. The appellant, acting as a General Sales Agent (GSA) for Saudi Arabian Airlines (Saudia), received ORC for services rendered in India. The department contended that these services were not exported since they were provided and consumed within India and the ORC was received in Indian Rupees, not in convertible foreign exchange. The appellant argued that the services benefited Saudia, a foreign company, and thus should be considered as export services. The Tribunal noted that the services were provided under an agreement with Saudia, located outside India, and the benefit of these services accrued to Saudia. The Tribunal also referenced the CBEC Circular No.111/05/2009, which clarified that the location of the service receiver is crucial, not the place of performance. Consequently, the Tribunal concluded that the services provided by the appellant to Saudia qualify as export services.

2. Taxability of Incentives Received by the Appellant:
The department issued Show Cause Notices proposing the imposition of service tax on the incentives received by the appellant, arguing that these incentives formed part of the taxable value under the category of Business Auxiliary Service (BAS). The appellant contended that these incentives were part of the export of services and hence not taxable. The Tribunal, after examining the agreement and the nature of the services provided, determined that the incentives received were indeed part of the services rendered to Saudia and thus should be treated as part of the export of services. Therefore, these incentives were not subject to service tax.

3. Compliance with Export of Services Rules, 2005:
The Tribunal examined the compliance with the Export of Services Rules, 2005, which require that the service must be delivered and used outside India and the payment for such service must be received in convertible foreign exchange. The department argued that the ORC was received in Indian Rupees, which does not meet the criteria of convertible foreign exchange. The appellant countered that initially, the ORC was deducted from the proceeds and the balance was remitted to Saudia. After the investigation, the payment mode was changed to foreign currency. The Tribunal referenced various case laws, including the Supreme Court's decision in JB Boda & Co. (P.) Ltd. and the High Court of Madras's decision in Suprasesh General Insurance Services & Brokers (P) Ltd., which supported the appellant's position that retention of commission in India, reducing the outflow of foreign exchange, is akin to receiving payment in convertible foreign exchange. Thus, the Tribunal concluded that the appellant met the conditions of the Export of Services Rules, 2005, and the services rendered qualify as export services exempt from service tax.

Conclusion:
The Tribunal set aside the impugned orders demanding service tax on the services rendered by the appellant, along with interest and penalties. All appeals were allowed with consequential relief as per law. The judgment emphasized that the services provided by the appellant to Saudia qualify as export services, meeting all conditions under the Export of Services Rules, 2005, and are thus exempt from service tax.