2018 (11) TMI 1151 - AT - Service Tax

Reverse charge mechanism - appellants were engaged in providing clearing & forwarding services and they provided services to M/s. Project Management Inc. USA for the goods manufactured and exported by them for the period June 2008 - Held that - The appellants have provided clearing and forwarding services to the service recipient who is situated outside India. The Tribunal in the case of Bnazrum Agro Export Pvt. Ltd. 2018 (4) TMI 1239 - CESTAT CHENNAI , had occasion to analyse the very same issue and it was held that the said activities having been performed outside India will not be exigible to service tax. Demand cannot sustain - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Liability to pay service tax under reverse charge mechanism.
2. Applicability of Section 66A of the Finance Act, 1994.
3. Taxation of services provided from outside India.
4. Interpretation of Rule 3(ii) of Taxation of Services Rules, 2006.
5. Analysis of precedent in Bnazrum Agro Export Pvt. Ltd. case.

Issue 1: Liability to pay service tax under reverse charge mechanism.
The appellants provided clearing and forwarding services to a company outside India, triggering a dispute regarding their liability to pay service tax under the reverse charge mechanism as per Section 66A of the Finance Act, 1994. The department issued a show cause notice demanding service tax, interest, and penalties for a specified period.

Issue 2: Applicability of Section 66A of the Finance Act, 1994.
The primary contention was whether the insertion of Section 66A affected the liability of the appellants to pay service tax for the services rendered. The appellant argued that as the services were performed outside India, they should not be subject to service tax under the reverse charge mechanism.

Issue 3: Taxation of services provided from outside India.
The appellant's counsel relied on Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, to support their position that services performed outside India should not attract service tax liability. The Tribunal analyzed the nature of the services provided and their geographical location to determine the taxability.

Issue 4: Interpretation of Rule 3(ii) of Taxation of Services Rules, 2006.
The Tribunal considered the provisions of Rule 3(ii) and the specific nature of clearing and forwarding services to ascertain whether they fell within the scope of services exempted from taxation under the mentioned rule. The appellant's argument was based on the interpretation of this rule to support their case.

Issue 5: Analysis of precedent in Bnazrum Agro Export Pvt. Ltd. case.
The Tribunal referred to a previous decision in the case of Bnazrum Agro Export Pvt. Ltd., where a similar issue was addressed, and it was held that activities performed outside India were not subject to service tax. Relying on this precedent and other relevant decisions, the Tribunal concluded that the demand for service tax could not be sustained in the present case.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellants. The decision was based on the finding that the clearing and forwarding services provided outside India were not liable to service tax under the reverse charge mechanism, in line with the interpretation of relevant rules and precedents.