2020 (2) TMI 964 - AT - Service Tax

Non-payment of service tax - storage and warehousing services within the FTWZ rendered to clients based abroad as well as Indian clients - period July, 2012 to March, 2015 - reimbursable expenses or not - HELD THAT - It is not disputed that the storage and warehousing unit was inside the Free Trade Zone (SEZ). It is also not disputed that the service recipient is situated abroad and also that the consideration received for these services is in convertible foreign currency. The department has proceeded to demand service tax alleging that there is no export of service since the place of provision of service is located in India. Section 26, Clause (e) provides for exemption from service tax. Section 51 states that the Act will have overriding effect notwithstanding anything inconsistent in any other law. This Act thus will override the Finance Act, 1994, as well as the Rules framed thereunder to give effect to the exemption contained in Section 26 - In such circumstances, the department cannot press into application Service Tax Rules, Place of Provision of service or other Rules to hold that the appellant has not exported any services. The meaning of service and export contained in the special legislation of SEZ Act, 2005 by which SEZ or FTWZ has been created has to be given effect. The Service Tax Rules, 1994 cannot be pressed into application so as to defeat the intention and purpose of Section 26. When the intention of creating such FTWZ within India is to give exemption from levy of all duties and taxes, the department ought to have confined to the definitions contained in Section 2 (z) and 2 (m) of the said Act. Further, the consideration is received in foreign currency as well as the service recipient is a person placed outside India. The department cannot then contend that there is no export of services. The demand of service tax on consideration received by the appellant from the foreign service recipient under Storage and Warehousing services cannot be subject to levy of service tax under reverse charge mechanism - demand set aside - the issue is found in favour of the appellant. Demand on amounts collected by appellant and confirmed under various services - HELD THAT - Learned Consultant has submitted that they have not produced necessary documentary evidence before the adjudicating authority to establish the nature of these amounts. That these are actual reimbursements - the appellant has to be given a further opportunity to furnish necessary documents in this regard - For this limited purpose of reconsideration of demand on such charges/services, the matter is remanded to the adjudicating authority. Appeal allowed in part and part matter on remand.

Summary

Issues:
Service tax liability on services provided by the appellant to foreign clients from Free Trade Warehousing Zone (FTWZ) and demand on reimbursable expenses.

Analysis:
Issue 1: Service Tax Liability on Services Provided to Foreign Clients
The appellant, engaged in logistics supply, chain management, and clearing & forwarding services in FTWZ, did not discharge service tax on services provided to foreign clients. The original authority and Commissioner (Appeals) upheld the demand, stating services to foreign clients did not qualify as export. The appellant argued that services met SEZ Act definitions and were rendered in FTWZ, exempting them from service tax. They cited SEZ Act Sections 26 and 51, arguing for exemption from duties and taxes on services exported. The Tribunal agreed, setting aside the service tax demand on storage and warehousing services for foreign clients.

Issue 2: Demand on Reimbursable Expenses
The appellant faced demands on reimbursable expenses like CFS charges and customs duty recoveries. The appellant claimed these were reimbursable expenses, citing a Supreme Court decision. However, they failed to provide necessary documents to prove this before the adjudicating authority. The Tribunal remanded this issue back to the authority for further consideration, allowing the appellant to furnish the required documents.

In conclusion, the Tribunal partially allowed the appeal, setting aside the service tax demand on storage and warehousing services for foreign clients. The demands related to other services were remanded for fresh consideration due to lack of evidence provided by the appellant. The judgment emphasized the SEZ Act's overriding effect on duties and taxes, ensuring compliance with the special legislation's definitions and exemptions.