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2019 (8) TMI 1030 - AT - Service TaxFranchise Services/ royalty payments - Consulting Engineer Services - Technical Testing and Analysis Services - Business Auxiliary Service (Commission Received) - export of services - reverse charge mechanism - Whether the amounts paid by the appellant under the taxable category of Intellectual Property Right Service can be adjusted against the service tax demand made under the category of Franchise Services ? - Whether the services under the category of Business Auxiliary Services to OC HK and OC A, can be given the benefit of Export of Services as it was available from time to time? HELD THAT - Undisputed fact is that appellants were engaged in selling the goods manufactured by their foreign counterparts namely OC HK and OC A in India. For undertaking the sale of such goods appellants were receiving certain commissions from those foreign companies. Undisputedly the said commission was received in convertible foreign exchange. Appellants have contended that though the services rendered by them as commission agent to the foreign counterparts fall within the taxable category of Business Auxiliary Services the same should be treated as export of service and hence should not be subjected to any service tax As per the appellants during the period prior to introduction of Export of Service Rules, 2005, i.e. 14.03.2005, the benefit of exemption under Notification No 21/2003 dated 20.11.2003 should have been extended by the Commissioner to them. However Commissioner has denied the benefit under the said notification stating that appellants have not substantiated their claim under the said notification - the above notification exempts all the payments received by a person in connection to taxable service rendered in convertible foreign exchange. Commissioner has in his order not denied the admissibility of the benefit of said exemption notification but has only stated that appellants have failed to substantiate their claim under the said notification. It is for the appellants to satisfy that they fall strictly with the parameters as specified by the exemption notification - the end of justice will be me if appellants are allowed one more opportunity to produce the requisite documents and records before the adjudicating authority for establishing their claim to benefit of the exemption notification No 21/2003-ST dated 20.11.2003. Thus matter for the period 09.07.2004 to 14.03.2005 is remanded back to the adjudicating authority, before whom the appellants should produce all records and documents to establish their claim for exemption under Notification No 21/2003-ST. Export of services or not - place of consumption of services - Held that - The test, which has been laid down for determination is not the place where the income has accrued but the place where the activity resulting into such business income has taken place. Though the beneficiary of such sale of goods where the foreign counterparts of the appellants but the actual activity of the sale of the said goods have been undertaken by the appellants in India as selling agent/ commission agent. Hence the services of commission agent provided by the appellants to their foreign counterparts have been provided by the appellants for the sale of goods in India, is nothing but service provided/ used by the recipient of service in India. In our view the findings recorded by the Commissioner, in this respect cannot thus be faulted with. In the present case the facts are completely opposite, here the customers of foreign entity i.e. OC HK and OC A are located in India and Appellants are receiving the commission in respect of the goods of these foreign entities sold by them in India. Thus services provided by the appellant facilitate the conduct of business of the Foreign Entities in India. Extended period of limitation - HELD THAT - There are no merits in the submissions of the appellant that they were under a bonafide belief that service tax was not leviable on the Commission received by them from their foreign counterparts - It is settled law that it is for the appellant tom establish that such a bonafide belief existed - there are no reason to differ from the findings recorded by the Commissioner in his order for invoking the extended period of limitation. Penalties - HELD THAT - The penalties are leviable on the appellants for the various acts of commission under Section 76, 77 and 78 of the Finance Act, 1994. However since the appellants had paid the service taxes due even prior to issuance of show cause notice in respect of Consulting Engineer Services and Technical Testing and Analysis Services, we are inclined to give the benefit of Section 80 of the Finance Act, 1994 in respect of demands made in respect of these services - also appellants have paid the Service Tax demanded under the category of Franchisee Services, albeit by treating the tax to be payable under the category of Intellectual Property Right Service , we are inclined to extend the benefit of Section 80 in respect of this demand. Effectively the demand which is determined against the appellants is only in respect of Business Auxiliary Services . Since appellants have not provided the details of the said services in their ST-3 return and have not paid the service tax in respect of these service we uphold the penalties levied in respect of the services under the section 76, 77 and 78. However the quantum of penalty need to be redetermined after re-determining the demand in respect of these services. Appeal allowed in part.
Issues Involved:
1. Demand on services received by the appellant from overseas service providers under Consulting Engineer Services. 2. Demand on services received by the appellant from overseas service providers under Technical Testing and Analysis Services. 3. Demand on services received by the appellant from overseas service providers under Franchise Services. 4. Demand of service tax under the category of Business Auxiliary Services. Issue-wise Detailed Analysis: 1. Demand on services received by the appellant from overseas service providers under Consulting Engineer Services: The appellants accepted the demand and paid the service tax under this category. They also took CENVAT credit for the tax paid, which was not objected by the department. Since the demand is not disputed on merit, the tribunal upheld the demand and set aside the penalties by extending the benefit of Section 80 of the Finance Act, 1994. 2. Demand on services received by the appellant from overseas service providers under Technical Testing and Analysis Services: Similar to the Consulting Engineer Services, the appellants paid the service tax demanded and took CENVAT credit. The tribunal upheld the demand and set aside the penalties by extending the benefit of Section 80 of the Finance Act, 1994. 3. Demand on services received by the appellant from overseas service providers under Franchise Services: The appellants paid service tax under the category of "Intellectual Property Right Services" instead of "Franchise Services." The tribunal referred to the CBEC Circular No. 58/2003-ST dated 20.05.2003 and the decision in the case of Air Charter Services P Ltd, which allowed adjustment of tax paid under a wrong category against the correct category. The tribunal remanded the matter back to the Commissioner for re-computation of the demand after considering the tax paid under the "Intellectual Property Right Services" category. Penalties were set aside by extending the benefit of Section 80. 4. Demand of service tax under the category of Business Auxiliary Services: The appellants did not dispute the classification but contended that the services should be treated as export of services and thus not taxable. The tribunal analyzed the provisions of the Export of Service Rules, 2005, and determined that the services were consumed in India, making them taxable. The tribunal upheld the demands and penalties for the period from 15.03.2005 to 31.03.2008. For the period from 09.07.2004 to 14.03.2005, the tribunal remanded the matter back to the adjudicating authority to allow the appellants to produce documents to establish their claim for exemption under Notification No. 21/2003-ST dated 20.11.2003. Summary of Findings: 1. Consulting Engineer Services: Demand upheld, penalties set aside. 2. Technical Testing and Analysis Services: Demand upheld, penalties set aside. 3. Franchise Services: Matter remanded for verification of payments under "Intellectual Property Right Services," penalties set aside. 4. Business Auxiliary Services: Matter for the period 09.07.2004 to 14.03.2005 remanded, demands and penalties upheld for the period 15.03.2005 to 31.03.2008. Conclusion: The appeal was partially allowed, with the tribunal remanding certain matters for further verification and setting aside penalties for specific periods while upholding the demands and penalties for others. The order was pronounced in the open court on 21.08.2019.
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