2022 (11) TMI 1093 - AT - Service Tax

Levy of service tax - services provided by the foreign based consignment agent/ distributor appellant - reverse charge mechanism - Section 66A of the Finance Act, 1994 - HELD THAT - Appellant are engaged in exporting of fruits and foreign based consignment agent/ distributer perform various function for Appellant in foreign countries. The general scheme of levy of service tax is that service tax is leviable on the value of taxable services from the service providers within the territory of India. Section 66A of the Act embodies an exception to this general scheme. It is an independent charging provision which provides for levy of service tax in India on services provided or to be provided by a person located outside India and received by a person located in India. Section 66A lays down that such services (specified in clause (105) of Section 65 of the Act) shall be treated as having been provided in India by the recipient. This deeming provision of Section 66A makes the Indian recipient liable to pay service tax on the services provided by the foreign service provider. This exception to the general scheme of levy of service tax is also called reverse charge mechanism . In the instant case, it has also been contended by the assessee that the services provided by Foreign Agents do not fall within the scope of definition of C F Agent Service and classified under Business Auxiliary Service and services of a commission agent in relation to agricultural produce were exempt under Notification No. 13/2003-ST dated 20.06.2003. But what appears from the impugned order is that this aspect was also not properly examined by the learned Commissioner. This is another reason for de novo adjudication of the case. This matter needs to be remanded for denovo adjudication on all the issues - Appeal allowed by way of remand.

Summary

Issues Involved:
1. Taxability of Foreign Selling Expense and Foreign Sea Freight under Section 66A of the Finance Act, 1994.
2. Applicability of reverse charge mechanism for services received from foreign consignment agents.
3. Classification of services provided by foreign agents.
4. Inclusion of reimbursable expenses in the taxable value.

Issue-wise Detailed Analysis:

1. Taxability of Foreign Selling Expense and Foreign Sea Freight:
The department observed that the appellant showed Foreign Selling Expense and Foreign Sea Freight in their books, which appeared taxable under Section 66A. The appellant argued that these expenses were incurred for services rendered outside India after the goods were sold or deemed to have been sold in India. Therefore, such services should not be taxable as they were performed beyond Indian territory. The Tribunal noted that Rule 3 of the Taxation of Service Rules, 2006, does not intend to tax services rendered in connection with business or commerce outside India.

2. Applicability of Reverse Charge Mechanism:
The core issue was whether the appellant was liable to discharge service tax under the reverse charge mechanism for services provided by foreign consignment agents. The Tribunal referred to Section 66A, which deems services received by a person in India from a foreign service provider as provided in India, thereby attracting service tax. However, the Tribunal highlighted the need to determine if the services were indeed received in India, as the appellant claimed they were received and consumed abroad. The Tribunal emphasized the necessity of de novo proceedings to ascertain this fact.

3. Classification of Services Provided by Foreign Agents:
The appellant contended that the services provided by foreign agents should not be classified under Clearing and Forwarding Agent Service but as Business Auxiliary Service. Moreover, they argued that services of a commission agent in relation to agricultural produce were exempt under Notification No. 13/2003-ST. The Tribunal found that this aspect was not properly examined by the Commissioner and required further investigation.

4. Inclusion of Reimbursable Expenses in the Taxable Value:
The appellant argued that reimbursable expenses such as storage, warehousing, quality assurance, road freight, packing, and distribution charges should not be included in the taxable value. They relied on various judicial decisions asserting that reimbursable expenses cannot be part of the gross value for service tax purposes. The Tribunal recognized this argument and noted that the Commissioner did not adequately address it in the original order.

Conclusion:
The Tribunal concluded that the matter required a de novo adjudication on all issues, including the fundamental question of whether services provided by foreign agents should be received in India to attract service tax under Section 66A. The Tribunal set aside the impugned order and remanded the case to the Adjudicating Authority for fresh consideration, ensuring the appellant is given a reasonable opportunity to present their case. The appeal was allowed by way of remand, and the Miscellaneous Application (MA) was disposed of accordingly.

(Pronounced in the open court on 23/11/2022)