2022 (5) TMI 985 - AT - Service Tax

Levy of service tax - scheme of levy under section 66B of Finance Act, 1994 imposed on all services , as defined in section 65B (44) of Finance Act, 1994, that were either not excluded by section 66D of Finance Act, 1994 (negative list) or not exempted by notification issued under section 93 of Finance Act, 1944 - composite engagement to deliver goods outside the country, for which consideration was received from the recipient of services located outside India - services performed outside the taxable territory - Place of Provision of Services Rules - HELD THAT - It would appear that there is no demand for the pre - negative list period and that it was only the inevitable passage of export goods through India at commencement of outward journey till loading on foreign going vessel/aircraft that was considered to be necessary and sufficient reason for invoking rule 4 of Place of Provision of Service Rules, 2012. In this implied convergence of rule 4 and rule 10 of Place of Provision of Service Rules, 2012, the transaction between M/s ATA Freightline Ltd, New York and M/s ATA Freightline (India) Pvt Ltd was split as one within India and one thereafter by appropriating the accountal segregation adopted by the appellant. Place of Provision of Service Rules, 2012 is not a provision for charging of tax; it is limited to determination of location of taxable entity as an adjunct to the charging provision in section 66 B of Finance Act, 1994. The impugned order has not evaluated the impugned activity from that perspective. In the context of identifiable recipient of service located outside the taxable territory, and concomitant absence of goods provided by recipient of service as well as the marked absence of recipient of service in the truncated segment of impugned activity and of the goods being put to use for rendering of service, rule 4 of Place of Provision of Service Rules, 2012 is not applicable. That the activity is transportation of goods is the foundation of the proceedings against the appellant, as is evident from the contrived segmentation of stages according to geography and from the unarguable existence of recipient outside India; rule 10 of Place of Provision of Service Rules, 2012 is unambiguously clear about the consequent non-taxability. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Taxability of services provided by M/s ATA Freightline (India) Pvt Ltd under the Place of Provision of Service Rules, 2012.
2. Applicability of Rule 4 vs Rule 10 of the Place of Provision of Service Rules, 2012.
3. Determination of the place of provision of service and its impact on tax liability.
4. Consideration of the Central Board of Excise & Customs circular dated 12th August 2016.

Issue-Wise Analysis:

1. Taxability of Services Provided by M/s ATA Freightline (India) Pvt Ltd:
The core dispute revolves around whether the services provided by M/s ATA Freightline (India) Pvt Ltd, specifically the portion of the service performed within India, are taxable under section 66B of the Finance Act, 1994. The tax authorities argued that the value corresponding to the leg within India was liable to tax as it was performed on Indian soil. However, the appellant contended that the service was part of a composite engagement for the export of goods, with consideration received from an entity outside India in convertible foreign exchange, thereby qualifying as an export of service under rule 6A of the Service Tax Rules, 1994.

2. Applicability of Rule 4 vs Rule 10 of the Place of Provision of Service Rules, 2012:
The appellant claimed that Rule 10 of the Place of Provision of Service Rules, 2012, which pertains to the transportation of goods, should apply, making the destination of the goods the place of provision of the service, thus outside the taxable territory. Conversely, the tax authorities invoked Rule 4, arguing that the service was provided in respect of goods located in India, thus making it taxable. The adjudicating authority's decision was based on the logistics service partnership agreement, which suggested that the service within India was distinct and taxable.

3. Determination of the Place of Provision of Service and Its Impact on Tax Liability:
The judgment emphasized that the Place of Provision of Service Rules, 2012, is a mechanism to ascertain the place where services are provided for tax purposes. The tribunal noted that Rule 3 is the default rule, with specific rules like Rule 4 and Rule 10 addressing particular circumstances. The tribunal found that the adjudicating authority's use of Rule 4 was inappropriate as it did not consider the composite nature of the service and the clear provision under Rule 10 for transportation services, which places the provision of service at the destination of the goods.

4. Consideration of the Central Board of Excise & Customs Circular Dated 12th August 2016:
The tribunal highlighted the importance of the CBEC circular, which clarified that the place of provision for transportation of goods by air/sea is the destination of the goods, thus outside the taxable territory. The adjudicating authority's reliance on the accounting treatment of consideration rather than the substantive nature of the service was criticized. The tribunal emphasized that the circular should have been considered, which would have sufficed to drop the proceedings against the appellant.

Conclusion:
The tribunal concluded that the impugned order failed to correctly apply the Place of Provision of Service Rules, 2012, particularly Rule 10, which clearly indicated that the service was not taxable as it was provided outside the taxable territory. The adjudicating authority's presumptions and the segmentation of the service were found to be without merit. The tribunal set aside the impugned order and allowed the appeal, emphasizing that the transportation of goods to a destination outside India is not liable to service tax under Rule 10 of the Place of Provision of Service Rules, 2012.