2018 (1) TMI 557 - AT - Service Tax

Business Auxiliary Service - services rendered by the foreign based vendors - onsite services performed outside India - service rendered to one of their clients in USA - reverse charge mechanism - Held that - the appellant s services to the main client, which is not being taxed being exported service is facilitated and supported by various vendors. The same is covered under the tax entry Business Auxiliary Service - It is clear that the destination has to be decided on the basis of the place of consumption, not the place of performance of service - As such, the appellants are liable to pay service tax on the services, which they received from various vendors located outside India. Extended period of limitation - Held that - there is no sustainable reason to uphold the demand for extended period in absence of ingredients like fraud, suppression or willful statement with intention to evade tax. Such elements are missing in the present case - demand only for normal period upheld. Appeal allowed in part.

Summary

Issues:
1. Service tax liability under "Business Auxiliary Service" category for services rendered to a client in the USA.
2. Interpretation of reverse charge mechanism for service tax liability.
3. Application of extended period for tax liability determination.

Analysis:
1. The appeal challenged an order by the Commissioner (Appeals) of Central Excise, Jaipur-I regarding service tax liability under the "Business Auxiliary Service" category for services provided to a client in the USA. The dispute arose from the appellant engaging vendors in the USA to facilitate software services for their client. The Revenue contended that the appellant received services under the "Business Auxiliary Service" category and was liable for service tax on a reverse charge basis. The Original Authority confirmed a service tax liability of ?2,24,71,199/- and imposed penalties under Sections 76 and 78 of the Finance Act, 1994.

2. The appellant argued that the services provided outside India to their client were facilitated by vendors also located outside India, thus not subject to tax on a reverse charge basis. The appellant contended that all services were related to onsite activities outside India and should not be taxed in India. The appellant also raised the issue of limitation, citing legal clarity on the reverse charge concept post-decision by the Hon'ble Bombay High Court and CBEC circular no.275/7/2010-CX.8A, asserting no intent to evade tax.

3. The Revenue countered that the dispute concerned services provided by foreign vendors enabling the appellant to offer services onsite, which should be taxed under the reverse charge mechanism. The Revenue supported the Original Authority's findings on the extended period, emphasizing the appellant's obligation to pay tax when substantial consideration was paid to foreign service providers. After hearing both parties, the Tribunal held that the appellant benefited from services rendered by foreign vendors and was correctly taxed on a reverse charge basis under Section 66A of the Act.

4. The Tribunal acknowledged that the appellant consumed services provided by foreign vendors, aiding in delivering services to clients abroad. While upholding the tax liability on merit, the Tribunal found no sustainable reason to uphold the extended period demand, as elements like fraud or suppression were absent. Consequently, the liability was restricted to the normal period, and the imposed penalties were set aside, partially allowing the appeal.