2019 (1) TMI 1243 - AT - Service Tax

Export of services or not - Business Auxiliary services - appellants are a General Sales Agency (GSA) for a number of foreign airlines for passenger and / or cargo and received Overriding Commission (ORC) in Indian currency - export of services or not - Held that - The issue in dispute is fully covered by the ratio of the decision of this very Bench in Arafaath Travels Pvt. Ltd. 2017 (8) TMI 554 - CESTAT CHENNAI , where it was held that ORC amounts received from foreign airlines even if it be Indian currency will have to be treated as Export of Service and therefore would not be exigible to service tax liability - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability of Overriding Commission (ORC) to service tax under 'Business Auxiliary Service' (BAS).
2. Applicability of the Export of Services Rules, 2005.
3. Requirement of payment in convertible foreign exchange for export of services.

Detailed Analysis:

1. Liability of Overriding Commission (ORC) to Service Tax under 'Business Auxiliary Service' (BAS):

The Department contended that the ORC amounts received by the appellant in Indian currency were liable to service tax under the category of 'Business Auxiliary Service' (BAS) as per Section 65(19) of the Finance Act, 1994. The original authority, however, held that the appellants were not consciously aware of their service tax liability from 1.3.2003 to 09.09.2004, thus the extended period could not be invoked due to the absence of suppression, fraud, or intention to evade tax. Consequently, the proposals in the SCN were dropped. The Commissioner (Appeals) upheld the original authority's decision to drop the SCN on limitation but held that the appellant was liable to discharge service tax on the ORC amounts received from foreign airlines in Indian currency under BAS w.e.f. 1.7.2003.

2. Applicability of the Export of Services Rules, 2005:

The appellant argued that the issue was settled by several Tribunal decisions, which consistently held that ORC amounts received from foreign airlines, even in Indian currency, should be treated as Export of Service and thus not subject to service tax. The Tribunal decision in Arafaath Travels Pvt. Ltd. v. CST Chennai was particularly cited, where it was held that services contracted by the appellant with Saudi Arabian Airlines in Jeddah, Saudi Arabia, had a beneficial impact on air transportation traffic on Saudi Airlines, constituting an export of service as per the Export of Services Rules, 2005.

3. Requirement of Payment in Convertible Foreign Exchange for Export of Services:

The Tribunal found merit in the appellant's assertion that the issue was covered by the decision in Arafaath Travels Pvt. Ltd., which relied on the Madras High Court decision in Suprasesh General Insurance Services & Brokers P. Ltd. v. C.S.T., Chennai. The High Court held that services provided to a foreign company located outside India amounted to export of service, and there was no requirement to receive consideration in foreign exchange. The Tribunal noted that the retention of the full amount of commission while making remittance to Saudia of all monies due for transportation sold during the previous month satisfied the requirement of Rule 3(3) of the Export of Services Rules, 2005, as it was akin to receiving payment in convertible foreign exchange.

Conclusion:

The Tribunal concluded that the services rendered by the appellant to the foreign recipient were indeed export of Business Auxiliary Services and were exempt from liability to service tax. The impugned order was set aside, and the appeal was allowed with consequential benefits as per law. The Tribunal emphasized that the decisions of the jurisdictional High Court of Madras, particularly in Suprasesh General Insurance Services, were binding and applicable to the present appeal, despite the pending appeal to the Supreme Court.

← Previous Next →