2018 (12) TMI 947 - AT - Service Tax

Import of services - Clearing and Forwarding Services (C&F services) - services performed outside India - Rule 3(ii) of the Taxation of Services (provide from outside India and received in India) Rules 2006 - Reverse charge mechanism - Held that - There is no dispute that the service is provided outside the territory of India but the Revenue wants to tax the assessee since it collects sale proceeds in India. But the legislature in its wisdom has framed Rule 3(ii) to encourage exports and in turn foreign exchange remittances - the activity of the appellant being wholly performed outside India is excluded from service tax liability as per Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules 2006. On an identical set of facts this very Bench of the Tribunal in the case of M/s. Bnazrum Agro Export Pvt. Ltd. 2018 (4) TMI 1239 - CESTAT CHENNAI has held that such activity would not be exigible to service tax by virtue of Rule 3(ii) of the Rules. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Whether the appellant is liable to pay service tax on Clearing and Forwarding Services provided from outside India and received in India.
2. Interpretation of Rule 3(ii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006 in relation to the liability of service tax.
3. Application of Section 66A of the Finance Act, 1994 in conjunction with Rule 3(ii) of the Rules.

Detailed Analysis:
Issue 1: The appellant, engaged in manufacturing rubber products, had been paying service tax on Clearing and Forwarding Services (C&F services) provided by a U.S.-based company until June 2008. However, they ceased payment from July 2008, claiming the service was classifiable under Sub-clause (j) of Clause 105 of Section 65 of the Finance Act. A Show Cause Notice was issued proposing to demand service tax, interest, and penalty. The Original Authority confirmed the demand, which was upheld by the first appellate authority. The appellant appealed, arguing that the service was performed wholly outside India and thus not taxable under Section 66A of the Act.

Issue 2: During the hearing, the appellant's advocate contended that Rule 3(ii) of the Taxation of Services Rules excludes tax liability when services are performed entirely outside India. The advocate argued that Section 66A must be read in conjunction with the Rules, emphasizing that the appellant, having conducted the activity outside India, was not liable for service tax. Reference was made to a previous CESTAT judgment supporting this interpretation, which favored the appellants in a similar case.

Issue 3: The Tribunal considered the arguments and noted that the service was provided outside India, but the Revenue sought to tax the appellant due to the collection of sale proceeds in India. However, Rule 3(ii) was framed to promote exports and foreign exchange remittances. Citing the earlier CESTAT judgment, the Tribunal agreed with the appellant's position that the activity performed entirely outside India was excluded from service tax liability under Rule 3(ii). The Tribunal held that the impugned Order was unsustainable, following the precedent set in the previous case, and allowed the appeal with consequential benefits as per law.