2017 (12) TMI 451 - AT - Service Tax

Liability of service tax - export of service or not? - the service is received by the foreign based client and consideration is received by the appellant-assesses inconvertible foreign exchange - Held that - It is clear that though the data information and other analysis is collected and done by the appellant-assesses in India, the same is in terms of an agreement with a foreign based company. The foreign based client paid consideration inconvertible foreign exchange. The nature of service being such, the same is for consumption and benefit of the foreign client. Service tax being consumption/destination based tax, we find that the services rendered by the appellant-assesses are, in fact, to be considered as export - the appellant-assesses are not liable to service tax on this service - in favor of assessee. Liability of service tax - expenditure incurred in foreign exchange - includibility - reimbursable expenses - Held that - It is clear that there is no categorical finding as to how the expenditure incurred in foreign exchange can be considered as a payment towards specific category of taxable service and thereafter can be subjected to tax at the hands of the appellant on reverse charge basis. We find considerable force in appellant-assesse s plea with reference to presumptive nature of the demand for service tax attributable to expenditure in foreign currency - Admittedly, the reimbursable expenditure incurred by the appellant is as per pre-arrangement and reimbursed by the client on actual basis - The non-includability of reimbursable expenditure in the taxable value has been upheld in large number of decisions by this Tribunal also - in favor of assessee. Appeal allowed - decided in favor of assessee.

Issues:
1. Liability of service tax on management or business consultant services.
2. Taxability of services provided to a foreign-based client.
3. Treatment of expenses shown in foreign exchange in balance-sheet.
4. Eligibility of tax liability paid on reverse charge basis.
5. Confirmation of irregular Cenvat credit and its reversal.
6. Applicability of legal principles and decisions in determining tax liability.
7. Appeal by Revenue against dropping of demand attributable to reimbursable expenditure.

Issue 1: Liability of service tax on management or business consultant services
The appellants were engaged in providing management or business consultant services liable to tax under the Finance Act, 1994. The demand for recovery of service tax was initiated for the period 2007-08 to 2011-12. The original authority held the appellants liable to pay service tax of a specific amount while dropping a demand for another amount attributable towards reimbursable expenditure. Penalties were imposed under relevant sections of the Finance Act, 1994.

Issue 2: Taxability of services provided to a foreign-based client
The appellant-assesses contended that the services provided to a foreign-based client were for consumption and benefit of the client, thus constituting an export of service not liable to service tax. They argued that the consideration was received inconvertible foreign exchange, supporting their claim with references to legal precedents. The Tribunal agreed with the appellants, citing relevant decisions and upholding that the services rendered were indeed export of service, hence not subject to service tax.

Issue 3: Treatment of expenses shown in foreign exchange in balance-sheet
The Revenue sought to establish tax liability based on expenses shown in foreign exchange, contending that the services received in lieu of such expenditure were covered by the tax entry of management or business consultant services. However, the Tribunal found that the demand was presumptive and lacked clarity on how the expenditure could be considered payment towards taxable services. The demand for an extended period was deemed unjustified, especially considering the evolving legal position on reverse charge basis for service tax.

Issue 4: Eligibility of tax liability paid on reverse charge basis
The appellants argued that any tax liability paid on reverse charge basis should be eligible as a credit, negating any intention to evade tax. The Tribunal agreed, emphasizing that tax paid on reverse charge basis would be eligible as a credit for discharging further service tax liability, thus finding no justification for invoking the extended period for demand.

Issue 5: Confirmation of irregular Cenvat credit and its reversal
An amount confirmed towards irregular Cenvat credit was already reversed by the appellants, which was not properly recognized by the lower authority. The Tribunal noted this submission but did not delve into detailed analysis due to the reversal of the amount.

Issue 6: Applicability of legal principles and decisions in determining tax liability
The Tribunal extensively analyzed the nature of services provided by the appellants, citing relevant legal precedents and decisions to support their findings on the tax liability. They emphasized the consumption/destination-based nature of service tax and applied established legal principles to determine the taxability of the services rendered.

Issue 7: Appeal by Revenue against dropping of demand attributable to reimbursable expenditure
The Revenue contested the dropping of demand attributable to reimbursable expenditure, arguing that such expenditure should be treated as consideration for taxable services. However, the Tribunal found no sustainable material in the Revenue's appeal, upholding the original authority's decision based on the Delhi High Court's decision and established principles regarding reimbursable expenditure.

In conclusion, the Tribunal allowed the appeal of the appellant-assesses and dismissed the appeal of the Revenue, pronouncing the judgment on 08.12.2017.

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