2017 (10) TMI 850 - AT - Service Tax

Levy of tax - commission earned by arranging charter of vessels operated by their clients overseas - non-receipt of the consideration in convertible foreign exchange - proviso to section 73(1) of Finance Act, 1994 - Export of Service Rules, 2005 - Held that - there is no dispute that the recipients of the service provided by assessee are located outside the country. However, the bar to extending the eligibility for exemption under Export of Service Rules, 2005 is the rendering of services in India and the receipt of commission in Indian currency - it cannot be held that the activity of the assessee in promoting the interests of its clients in relation to the contracts between their clients and the Indian entities has been performed within India. Whether the consideration has been received in foreign currency as claimed by the assessee? - Held that - it is only after 18th April 2006 that receipt of foreign currency was explicitly included as a condition in Export of Service Rules, 2005. Accordingly, any levy pertaining to the period prior to that would not sustain. Having exported services, the assessee is not liable to tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Tax liability on commission earned by arranging charter of vessels
- Exemption under Export of Service Rules, 2005
- Applicability of penalties

Tax liability on commission earned by arranging charter of vessels:
The case involved an appeal against an order demanding payment of unpaid tax on commission earned by arranging charter of vessels for overseas clients. The notice claimed the provider of 'business auxiliary service' under the Finance Act, 1994. The adjudicating authority rejected the assessee's argument for exemption under the Export of Service Rules, 2005, stating that the service was provided in India, but held the demand for the period before 2008-09 as time-barred. Penalties were also imposed. The appellant argued that the consideration received was part of the payment to overseas entities, reducing foreign exchange outflow. The Tribunal considered previous decisions and concluded that the service was not taxable as it was exported.

Exemption under Export of Service Rules, 2005:
The contention revolved around whether the consideration received in Indian currency disqualified the service from exemption under the Export of Service Rules, 2005. The Tribunal found that the service provided by the assessee was to recipients outside India, and the location of the provider of service and the location of the second party in the charter agreement were distinct transactions. The Tribunal disagreed with the adjudicating authority's conclusion that the service was provided within India. It held that the activity of promoting the interests of clients in contracts between clients and Indian entities was not performed in India, thus qualifying for exemption.

Applicability of penalties:
The Tribunal addressed the imposition of penalties by the adjudicating authority. It considered the arguments presented by both parties regarding the non-conformity with conditions and the demand for tax based on the non-receipt of consideration in convertible foreign currency. The Tribunal found that the demand was not sustainable and that the service was not liable to tax. Consequently, the appeal of the assessee was allowed, the appeal of Revenue was dismissed, and the cross-objection was disposed of.