2017 (9) TMI 895 - AT - Service Tax

Classification of services - services rendered by the appellant with respect to foreign based clients - Business Auxiliary Service or otherwise? - Held that - The Tribunal in the case of Fifth Avenue 2009 (3) TMI 133 - CESTAT, CHENNAI examining the identical set of facts and held that these services cannot be considered as BAS and should be treated as BSS, brought under tax liability only with effect from 01.05.2006 - The services are availed and consumed by the foreign based client and the consideration has been paid by the said client in convertible foreign exchange. The inference of the original authority is that the LC margin retained by the appellant should be considered in respect of local vendors also, is not supported by facts or law. Services rendered to the local vendors - Held that - It is not a simple commission agent work of promotion of the product of the vendor. Though they were registering with the department under BAS and paid service tax under such category with effect from 01.05.2006, tax liability paid after 01.05.2006 is rightly to be appropriated under BSS. This is not being contested. However, for the period prior to 01.05.2006 no tax liability will arise and same is not paid by them. The services rendered by the appellants are for tax liability under the category of BSS with effect from 01.05.2006. In so far as these services rendered for foreign based clients and consideration was received in convertible foreign exchange no tax liability will not arise considering the same as export. For import of services tax liability is confirmed for the period post 18.04.2006. Penalties are set aside. Appeal allowed - decided partly in favor of appellants.

Summary

Issues:
Classification of services rendered by the appellant with respect to foreign-based clients; Tax liability for services rendered to local vendors; Tax liability on commission paid to foreign-based agents; Imposition of penalties.

Classification of services rendered by the appellant with respect to foreign-based clients:
The appeal challenged an order demanding service tax not paid during a specific period under Business Auxiliary Service (BAS). The appellant argued that their services should be classified under Business Support Services (BSS) based on a Tribunal decision involving a group company. They contended that services to foreign clients were export-oriented, fulfilled conditions for export, and were paid in convertible foreign exchange. The Tribunal found that these services should be considered as BSS, not BAS, and were taxable from 01.05.2006. The Tribunal rejected the original authority's inference that local vendors' services should also be taxed similarly, as the LC margin retained by the appellant was distinct.

Tax liability for services rendered to local vendors:
The appellant maintained that services to local vendors were akin to those provided to foreign clients and should be categorized as BSS. While they paid tax under BAS from 01.05.2006, they argued that prior to this date, no tax liability existed. The Tribunal agreed that services post-01.05.2006 should be taxed under BSS, but no liability arose before that date.

Tax liability on commission paid to foreign-based agents:
Regarding commission paid to foreign agents, the appellant admitted liability from 18.04.2006, aligning with a Bombay High Court decision. The Tribunal confirmed tax liability only from this date for reverse charge services.

Imposition of penalties:
The Tribunal found no justification for penalties, setting them aside due to the appellant's arguments and the tax liabilities determined for different service categories. The appeal was partly allowed based on the above conclusions.