2020 (12) TMI 533 - AT - Service Tax

Demand of Service Tax - services rendered to foreign companies - export of services or not - appellant did not discharge service tax on the commission received in convertible foreign currency as it believed that the services rendered by it to foreign companies amounted to export of service under the Export of Service Rules, 2005 - case of Revenue is that the services rendered by the appellant may not tantamount to export of service under the 2005 Rules for the reason that though the services were rendered to foreign companies, but the same were provided and used in India - Circulars dated February 24, 2009 and May 13, 2011 - HELD THAT - The appellant has stated that it procured orders on behalf of such foreign companies in India and whenever any Indian company issued a tender, the appellant sent it to the foreign companies and also bid on behalf of the foreign companies under their instructions. If the bid is accepted, the appellant procures orders from the Indian company on behalf of the foreign companies. The purchase orders are raised in the name of foreign companies. The foreign companies thereafter export the goods to the customers in India and the invoices are raised directly on the customers. The appellant thereafter raises an invoice for its commission on the foreign companies and receives the commission amount in convertible foreign currency. It is, therefore, clear that the appellant supports such foreign companies to procure orders in India. Such service is provided from India and used outside India. The service rendered by the appellant would, therefore, satisfy the twin conditions set out in rule 3(2) of the 2005 Rules as has also been clarified by the Circular dated February 24, 2009. In M/S GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD. VERSUS CST, DELHI 2014 (3) TMI 696 - CESTAT NEW DELHI , the service provided by the appellant therein was in relation to procurement of goods from India and for this purpose, the appellant conducted survey of the manufacturers of various products required by GAP, USA and recommended vendors who could supply the goods. The appellant also conducted inspection of the export consignments and issued the inspection certificates. It was, therefore, not in dispute that the services provided by the appellant were BAS. The dispute, however, was whether the services qualified as export in terms of the 2005 Rules and, therefore, not taxable in India. It is in this context that the Tribunal held that the services provided by the appellant were obviously meant for and were used by GAP, USA for their business and, therefore, these services would be treated as exported out of India. The contention of the Department that the condition of used outside India were not satisfied was not accepted by the Tribunal - The Circular dated February 27, 2010 was found to be contrary to the provisions of rule 3(1) of the 2005 Rules. The only requirement after the amendment in rule 3 (2) of the 2005 Rules is that the service recipient should be situated outside India and consideration should be received in foreign currency. Both the conditions stand satisfied. Even otherwise, for the period prior to February 27, 2010, it has been held that no service tax could be levied. Thus, it was immaterial as to whether the appellant was able to substantiate the quantum of services provided after February 27, 2010 and the consideration received thereon. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Demand of service tax on services rendered to foreign companies.
2. Classification of services as "business auxiliary service" (BAS).
3. Applicability of Export of Service Rules, 2005.
4. Interpretation of the term "used outside India."
5. Validity of the Commissioner's order dated October 3, 2012.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Services Rendered to Foreign Companies:
The primary issue in this appeal is the demand of service tax amounting to ?1,67,47,188/- on services rendered by the appellant to foreign companies for the period 2006-07 to 2010-11. The appellant contended that these services amounted to export of service under the Export of Service Rules, 2005 (2005 Rules) and were not liable to service tax.

2. Classification of Services as "Business Auxiliary Service" (BAS):
The appellant is engaged in rendering "business auxiliary service" (BAS) and represents various foreign companies in India, receiving commission in convertible foreign currency. The services include procurement of orders, assistance in tenders, negotiation with customers, collection of payments, and liaising activities. The Commissioner classified these services under BAS and confirmed the demand for service tax.

3. Applicability of Export of Service Rules, 2005:
The appellant argued that the services rendered to foreign companies should be considered as export of service under the 2005 Rules and thus not liable to service tax. The Commissioner, however, did not accept this explanation, stating that the services were provided and used in India, and thus did not qualify as export of service under Rule 3(2)(a) of the 2005 Rules.

4. Interpretation of the Term "Used Outside India":
The Commissioner interpreted Rule 3(2)(a) to mean that for a service to qualify as export, it must be delivered and used outside India. The appellant argued that since the foreign clients were located outside India and did not have any office in India, the services should be deemed to have been delivered and used outside India. The Commissioner rejected this argument, stating that the services were provided in India and the benefits accrued to foreign clients did not imply that the services were used outside India.

5. Validity of the Commissioner's Order Dated October 3, 2012:
The Commissioner relied on two Circulars dated February 24, 2009, and May 13, 2011, to support the view that the services provided by the appellant did not qualify as export of service. The appellant, however, cited various judicial decisions to argue that the promotion and marketing of goods of foreign companies in India would qualify as export of service. The Tribunal examined these decisions and found that the services provided by the appellant were meant for and used by foreign clients, thus satisfying the conditions for export of service under the 2005 Rules.

Conclusion:
The Tribunal concluded that the services rendered by the appellant to foreign companies qualify as export of service under the 2005 Rules, both prior to and after the amendment on February 27, 2010. The demand for service tax was not sustainable, and the Commissioner's order dated October 3, 2012, was set aside. The appeal was allowed, and no service tax was payable by the appellant on the commission received from foreign companies.

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