2023 (10) TMI 882 - AT - Service Tax

Classification of services - Business Auxiliary Service or not - commission received in convertible foreign currency - export of services - exemption from service tax or not - Board Circular No. 111/5/2009-ST dated 24.02.2009 - penalties - HELD THAT - Business Auxiliary Service rendered by the Appellant falls under category of Rule 3(1)(iii) mentioned above. As per the clarification cited, the services rendered by the Appellant would be considered as export of service, if they are provided in relation to business or commerce to a recipient outside India and the consideration is received in foreign exchange. The Circular further clarifies that in respect of the services falling under Rule 3(1)(iii), ie, for services such as BAS, the relevant factor to determine whether it is export or not is the location of the service receiver and not the place of performance - In the present case, the Appellant as an agent of Wacker, Germany procured orders and passed it on to the principal in Germany. Thus, the benefit accrued to the principal in Germany. Thus, as per the clarification cited, the services rendered by the Appellant would be 'Export of Service' and hence not liable to service tax. The demand of service tax along with interest is not sustainable in this case - there is no suppression involved in this case and penalty imposed in the impugned order set aside - The department is fully aware of the fact of the Appellant receiving Commission from Wacker, Germany as is evident from the Spot Memo dated 15.09.2009 and also from the 'Agency Agreement'. thus, no penalty imposable in this case. Appeal allowed.

Summary

Issues involved:
The issues involved in this case are whether the services rendered by the Appellant fall within the ambit of 'Business Auxiliary Service' and are liable to service tax, or if they qualify as 'Export of services' and are exempt from service tax.

Comprehensive Details:

1. Background and Contention:
The Appellant, a Joint Venture Company engaged in manufacturing and supply of Silicone products, received a Show Cause Notice for not paying service tax on commission received for procuring orders for their counterpart in Germany. The department contended that the service rendered falls under 'Business Auxiliary Service' and is taxable.

2. Appellant's Argument for Export of Service:
The Appellant argued that the service provided from India and used outside India qualifies as 'Export of Service' as per Circular No.111/5/2009-St, and hence not liable to service tax. They cited the Circular to support their claim.

3. Claim of No Suppression of Information:
The Appellant contended that they acted in good faith and revealed all data in their accounts. They believed they were not liable to pay service tax on the commission received as it falls under 'Export of Service.' They also argued that most of the demand was time-barred.

4. Precedent and Legal Clarifications:
The Appellant cited the Delhi High Court's decision and CESTAT Larger Bench's ruling to support their argument that the benefit of services must accrue outside India for it to be considered 'used outside India' and qualify as 'Export of Service.'

5. Department's Argument:
The Authorized Representative argued that the service cannot be considered as 'export of service' since both service provider and receiver are in India, supporting the findings of the impugned order.

6. Decision and Rationale:
The Tribunal analyzed the Circular clarifying 'Export of Services Rule, 2005' and held that the services rendered by the Appellant qualify as 'Export of Service' under Category (iii) as the benefit accrued to the principal in Germany. They set aside the demand of service tax, interest, and penalty, noting no suppression of information by the Appellant.

7. Conclusion:
The Tribunal allowed the appeal filed by the Appellant, emphasizing that the services provided by them fall under 'Export of Service' and are not liable to service tax, based on legal clarifications and precedents cited.