2018 (11) TMI 759 - AT - Service Tax

Classification of service - Export of services or not? - income from commission being received due to assisting/helping foreign company located outside India i.e. Hunkeler AG in procuring orders from India and facilitating sale of imported goods to customers in India - whether the services are export of service or in the nature of Business Support service? Held that - There is no dispute that the service recipient of the appellant is Hunkeler AG, a Switzerland Company based out of India. There is also no dispute that the charges for services so provided are received by the appellant in convertible foreign exchange - the services provided falls in the definition of export of services. This Tribunal in M/s. Paul Merchants vs. CCE, Chandigarh 2012 (12) TMI 424 - CESTAT, DELHI (LB) has held that what constitutes export of service is to be determined strictly with respect to the provisions of Export of Service Rules, 2005. It is the person who requested for the service and is liable to make the payment for the same, who has to be treated as recipient of service and not the person affected by the performance of the service. Thus, when the person on whose instruction the services in questions have been provided and is located abroad, the destination of services in question has to be treated as abroad. Thus, the services provided by the appellant to Hunkeler AG is irrespective it was performed on the customers based in India but it is the export of service. In the given circumstances, the findings of both the adjudicating authority below to this aspect are held to be wrong and therefore are set aside. Classification of service being received by the appellant from PBAP - Held that - The services received by the appellant are not merely customer oriented that is not merely for evaluation of customers/ tele- marketing/ customer relationship etc. but are in addition of management of the appellants organisation not only in the form of support, but also in the form of advisory. Even to the extent of strategising merger and acquisition, which is resorted to enhance operating efficiencies and to capture synergies in one or more functional areas as marketing, manufacturing R & D or Finance - These services are beyond the scope of business support services and thus can rightly be classified under management consultancy service. Time limitation - Held that - It is an admitted fact that the appellant had been discharging its liability as far as the services being export of service and the services being management consultant service are concerned. The ST-3 returns have regularly been filed. Hence there is no case of evasion of duty thus the allegation of mis-representation or suppression of facts as is alleged is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the service provided to Hunkeler AG amounts to Export of Service.
2. Whether the service received from PAIB is classified as Management Consultancy Service or Business Support Service for Cenvat Credit eligibility.

Issue-wise Detailed Analysis:

1. Whether the service provided to Hunkeler AG amounts to Export of Service:

The appellant, engaged in providing management maintenance or repair service along with management or business consultant service, claimed exemption for the commission received from Hunkeler AG, a foreign company, as export of service. The Revenue contended that the services provided were business support services and not eligible for exemption under Rule 6 (5) of the Cenvat Credit Rules, 2004.

The Tribunal examined the concept of export under Article 286 (1) (b) of the Constitution and the Export of Service Rules, 2005. It noted that services, unlike goods, are intangible and can be provided across borders without physical movement. The Tribunal referenced several cases, including Paul Merchants vs. CST and All India Federation of Tax Practitioners, to conclude that service tax is a destination-based consumption tax. The service recipient, Hunkeler AG, was located outside India, and the payment was received in convertible foreign exchange, satisfying the criteria for export of service.

The Tribunal held that the services provided to Hunkeler AG, despite being performed for customers in India, qualified as export of service. The findings of the lower authorities were set aside.

2. Whether the service received from PAIB is classified as Management Consultancy Service or Business Support Service for Cenvat Credit eligibility:

The appellant received various services from PAIB, including accounting support, HR support, management support, marketing assistance, legal and tax advice, order processing, business development, process improvement, mergers and acquisitions, and advisory services. The Department classified these as business support services, disallowing Cenvat Credit.

The Tribunal analyzed the definitions under Section 65 of the Finance Act, 1994. Management or business consultant services involve advice, consultancy, or technical assistance in various management areas, while business support services relate to customer-oriented activities. The Tribunal concluded that the services received by the appellant were beyond mere customer support and included management consultancy elements.

Referencing Federal Express Corporation vs. CST, the Tribunal held that the services received were management consultancy services, eligible for full Cenvat Credit under Rule 6 (5) of the CCR, 2004. The lower authorities' classification was deemed incorrect.

Extended Period of Limitation and Penalties:

The Tribunal addressed the issue of the extended period of limitation and penalties. The show cause notice was served on 20.10.2011 for the period from 2006-07 to 2010-11. The Tribunal found no evidence of suppression or misrepresentation by the appellant, as they had regularly filed ST-3 returns and discharged their liabilities. Consequently, the invocation of the extended period and imposition of penalties were deemed unsustainable.

Conclusion:

The Tribunal set aside the order under challenge, allowing the appeal and granting consequential benefits. The services provided to Hunkeler AG were confirmed as export of service, and the services received from PAIB were classified as management consultancy services, making the appellant eligible for Cenvat Credit.