2019 (6) TMI 793 - AT - Service Tax

Jurisdiction - It is the case of the Department that the respondent had rendered Intellectual Property Rights Services on which they had not discharged the Service Tax - scope of SCN - HELD THAT - The Adjudicating Authority, in the impugned order, observed that the assessee produced a Chartered Accountant s certificate certifying that the amount has been received in foreign currency. Thereafter, the Department referred the matter to Director (Cost) who confirmed the receipt of foreign exchange, but was unable to link it to the exports item wise. The assessee clarified that this was because the income for the services which were rendered were received during the next financial year in some cases. The demand raised in the Show Cause Notice alleging that the remuneration for the IPR Services were not received in foreign currency unsustainable and unsubstantiated. Appeal dismissed - decided against Revenue.

Issues: Jurisdiction of the Commissioner of Central Excise, Service Tax liability on R&D activities, Export of Services

Jurisdiction Issue:
The appeal involves a dispute regarding the jurisdiction of the Commissioner of Central Excise, Chennai-III Commissionerate over the services provided by the respondent-assessee. The Revenue contended that the services were provided from a unit under the jurisdiction of Chennai-IV Commissionerate, rendering the Order-in-Original and Show Cause Notice issued by Chennai-III Commissionerate without authority. Both parties agreed that the orders were issued without jurisdiction, leading to a detailed analysis of the jurisdictional aspect by the Tribunal.

The Tribunal emphasized that officers of Central Excise and Service Tax must act within their conferred powers and jurisdiction. It was established that the services in question were provided from a unit under the Chennai-IV Commissionerate, not Chennai-III Commissionerate. As both the Show Cause Notice and Order-in-Original were issued by the latter, lacking jurisdiction, the Tribunal concluded that the orders were unsustainable and liable to be set aside due to the absence of authority in the issuance of the notices and orders.

Service Tax Liability on R&D Activities Issue:
The core issue revolved around the Service Tax liability on the Research and Development (R&D) activities undertaken by the respondent-assessee. The Revenue alleged non-payment of Service Tax on R&D services, specifically Intellectual Property Rights Services. However, the respondent claimed that these services were provided to clients outside India, qualifying as an export of services exempt from taxation. The Revenue challenged this assertion, stating that the remuneration for the services was not received in foreign currency, a crucial requirement for the exemption.

The Adjudicating Authority examined the evidence presented by the respondent, including a Chartered Accountant's certificate and confirmation from the Director (Cost) regarding foreign exchange receipts. Despite the Revenue's contention that the remuneration was not linked to exports item-wise, the Tribunal found the Authority's decision to drop the demand in the Show Cause Notice well-reasoned. The Tribunal concluded that the allegation of non-receipt of remuneration in foreign currency lacked substantiation, rendering the demand unsustainable.

Export of Services Issue:
In addition to the jurisdictional and Service Tax liability issues, the Tribunal also analyzed the aspect of the services qualifying as an export. The respondent argued that the R&D services were provided to clients outside India, falling under the category of Export of Services exempt from taxation. The Revenue disputed this claim, emphasizing the requirement of receiving payment in convertible foreign currency to qualify for the exemption.

The Tribunal considered the evidence provided by the respondent, including the Chartered Accountant's certificate and the clarification regarding the timing of income receipts. After thorough examination, the Tribunal concurred with the Adjudicating Authority's decision to drop the demand raised in the Show Cause Notice. The Tribunal found the main allegation of non-receipt of remuneration in foreign currency unsubstantiated, further supporting the conclusion that the services qualified as an export exempt from taxation.

In conclusion, the Tribunal dismissed the appeal, highlighting the lack of jurisdiction in the issuance of the Show Cause Notice and Order-in-Original, as well as the insubstantiality of the allegations regarding non-receipt of remuneration in foreign currency for the R&D services provided by the respondent.

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