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2019 (5) TMI 1139 - AT - Service TaxBusiness Auxiliary Service - charges recovered by the Appellants as Commission for sale of goods of associated group of companies abroad - Export of Services - reimbursements made by the associated group companies to the appellants - reverse charge mechanism - time limitation - penalty. Whether the charges recovered by the Appellants as Commission for sale of goods of associated group of companies abroad are leviable to service Tax under category of Business Auxiliary Service provided in India or the same are in respect of Export of Services as defined from time to time and thus exempt from payment of Service Tax? - HELD THAT - The services provided by the appellants were provided for the sale of goods of the associated group companies in India and were thus used in India. According for the period prior to 27.02.2010 the benefit of export of services as claimed by the appellant in respect of commission received by them for sale of goods in India from associated group companies cannot be extended to them. From 27.02.2010, the condition of use outside India has been removed by way of omission of clause a of sub-rule (2) of Rule 3 of Export Of Service Rules, 2005. When the said condition has been omitted the only conditions to be satisfied for considering the service to qualify as export of service are in respect of the location of service recipient and the receipt of consideration in convertible foreign exchange . Admittedly in the present case the service recipient is located outside India and the payments toward considerations for providing the service are received in convertible foreign exchange. In our view the benefit of export of services cannot be denied to the Appellant from 27.02.2010 onwards till 30.06.2012 - From 01.07.2012 onwards the Place of Provision of Service Rules, 2012 were introduced. Rule 2 (f) of the said Rules define intermediary . Commissioner has in his order held that appellant was providing the intermediary services in relation to sale of goods by the associated group companies and hence by application of the rule 9 ibid, the place of provision of service is the location of service provider. While it is true that intermediary includes intermediary in respect of sale of goods, but legislature has while framing these rules deemed it fit to exclude the intermediaries in respect of sale of goods from the definition of intermediary. Hence we cannot sustain the view expressed by the Commissioner, contrary to the express definition of intermediary provided by the Place of Provision of Service Rules, 2012 - Hence, the services provided by the appellant in respect of the sale of goods of associated group companies cannot be said to be services provided by intermediary as defined by said Rules ibid. Since Rule 9 is applicable to specified services and the services provided in this case being not the intermediary services, this Rule will not be applicable for determination of place of provision of service. Since in respect of the services provided by the appellant for sale of goods of the associated group companies satisfy the all the conditions as laid down by the said Rule 6A to treat it as export of service are satisfied we are bound to hold that the commission received towards sale of goods of associated group companies abroad are in relation to export of services. Whether Service Tax is leviable in respect of reimbursements made by the associated group companies to the appellants towards expenses actually incurred by them? - HELD THAT - Rule 5 is ultra vires the Section 67 of The Finance Act, 1994 during the material period and noting that Commissioner has not given any other reason for including these charges in value of taxable service, these charges cannot be added to the value of taxable services provided by the appellants. However we make it clear that since these charges cannot be added to value of taxable services provided, appellants could not have claimed any CENVAT Credit in respect of the input services received for providing these reimbursable services to their associate group companies. Subject to verification of the fact of non availment of CENVAT Credit in respect of these input services we agree with the contentions of the appellants in this respect. Whether in respect of Foreign Exchange remittances made by the appellants to their associated group companies abroad for reimbursement of various expenses incurred by them could be levied to service tax on reverse charge basis treating the services provided as import of services? - HELD THAT - The payments made in the Foreign Currency are for provision of various services to the appellant or its employees by the overseas group associate companies. These charges are not reimbursement but payments towards the specific service provided by the overseas group associate company and are not reimbursements - Admittedly in present case the service provider the associated group companies are not having any office or presence in India. Thus the recipient of service has to pay the service tax on reverse charge basis. Whether the demand is hit by limitation as extended period of limitation as per Section 73 of The Finance Act, 1994 is not invokable in the present case? - HELD THAT - The facts about the commission being received by the appellants from their overseas associate group companies for sale of their goods in India was never brought to the knowledge of department. Neither the commission received were reflected in the ST-3 return filed by the appellants. Though appellant had taken registration for providing business auxiliary services, and they do not dispute the fact that the services provided by them to the overseas associated group companies are appropriately classifiable under the said category they should have reflected the commission received from the overseas associated group companies in the ST-3 return. Having not done so they have clearly suppressed the relevant information with the intention to evade payment of service tax - the charges of suppression with intent to evade payment of duty for invoking extended period of limitation as provided by Section 73 of Finance Act, 1994 is upheld. Whether demand for interest under Section 75 and penalties imposed under Section 77 and Section of Finance Act, 1994 can be sustained? - HELD THAT - Since the demand of tax has been upheld the demand for interest will follow. It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted. Since we have held that extended period of limitation has been rightly invoked in the present case, the provisions of section 78 will get attracted automatically - imposition of penalty under Section 78 is upheld, however the same needs to be re-quantified as indicated earlier in the order - Penalties under Section 77, is for the reason of contraventions of various provisions and acts of omission to perform the task as required to be performed under the provisions of the act. Such penalties are in nature of Civil Liabilities and do not require any contumacious conduct on the behalf of the defaulter - the penalties imposed under the provisions of Section 77 of the Finance Act, 1994 is upheld. Since the demand of tax has been upheld the demand for interest will follow. It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted. Matter remanded back to adjudicating authority for re-computation of demand, interest and penalties - appeal allowed by way of remand.
Issues Involved:
1. Levy of Service Tax on commission received for sale of goods in India. 2. Levy of Service Tax on reimbursements received from associated group companies. 3. Levy of Service Tax on foreign exchange remittances made for reimbursement of expenses. 4. Invocation of extended period of limitation. 5. Imposition of interest and penalties under Sections 75, 77, and 78 of the Finance Act, 1994. Detailed Analysis: I. Levy of Service Tax on Commission for Sale of Goods in India: - The core issue is whether the commission received for promoting the sale of goods in India by associated group companies abroad qualifies as an export of service and is thus exempt from Service Tax. - For the period 2008-09 to 27.02.2010, under the Export of Services Rules, 2005, services were considered exported if used outside India and paid for in convertible foreign exchange. The tribunal found that the services were used in India to promote sales, thus not qualifying as export. - From 27.02.2010 to 30.06.2012, the condition of "use outside India" was removed. Since the service recipient was abroad and payments were in convertible foreign exchange, the services qualified as export. - Post 01.07.2012, under the Place of Provision of Services Rules, 2012, the services were incorrectly classified as intermediary services. The tribunal clarified that intermediary services did not include commission agents for the sale of goods, thus the place of provision was the location of the service recipient, qualifying as export of service. II. Levy of Service Tax on Reimbursements from Associated Group Companies: - The tribunal examined reimbursements for various expenses (e.g., travel, training, AMC charges) received from associated group companies. - Citing the Supreme Court's decision in Intercontinental Consultants & Technocrats (P) Ltd, Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which included reimbursements in the taxable value, was held ultra vires. - The tribunal concluded that such reimbursements could not be added to the taxable value, provided no CENVAT credit was availed for the input services related to these reimbursements. III. Levy of Service Tax on Foreign Exchange Remittances: - The tribunal rejected the appellant's claim that foreign exchange remittances made for various services received from overseas associates were mere reimbursements. - It was determined that these payments were for specific services provided by overseas associates, making them liable for Service Tax under the reverse charge mechanism. IV. Invocation of Extended Period of Limitation: - The tribunal upheld the invocation of the extended period of limitation due to suppression of facts with intent to evade tax. The commission received was not disclosed in the ST-3 returns, constituting suppression. - The tribunal referenced several cases supporting the invocation of the extended period under similar circumstances. V. Imposition of Interest and Penalties: - The tribunal upheld the imposition of penalties under Section 78, as the extended period of limitation was rightly invoked, indicating deliberate suppression to evade tax. - Penalties under Section 77 were also upheld as they are civil liabilities not requiring contumacious conduct. - Interest under Section 75 was upheld as it compensates for the delay in tax payment. Conclusion: - The appeal was disposed of by setting aside the impugned order and remanding the matter back to the adjudicating authority for re-computation of demand, interest, and penalties as per the tribunal's findings. The demand for the period post-27.02.2010 was considered export of services and thus exempt from Service Tax. The tribunal directed verification of non-availment of CENVAT credit for reimbursements and re-computation of demand for foreign exchange remittances.
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