2023 (11) TMI 898 - AT - Service Tax

Classification of services - intermediary services or not - export of service or not - place of provision of services - extended period of limitation - penalties - HELD THAT - It is an admitted fact that remuneration for the services rendered to the foreign client is computed on the basis of FOB value of the garments exported and that itself would not make the appellant an intermediary. All these services were rendered to the foreign client on principal-to-principal basis. Selection of vendors or making of the garments by these vendors are incidental services for procurement goods and as per the direction of the foreign client, who is the recipient of the services provided by the appellant. Thus, the appellant is the service provider and the overseas buyer is the service recipient and there is no oral or written agreement between the appellant and the vendors/exporters of garments. Also, the appellant had not received any consideration for the services provided in relation to export of goods from the vendors in India. The appellant does not satisfy the conditions to be an intermediary for his services and as such, the impugned order 08.07.2019 cannot sustain and is required to be set aside. Extended period of limitation - penalties - HELD THAT - Since the services of the appellant are not to be categorized as intermediary services, it is opined that there is no need to discuss regarding the invocation of extended period or imposition of penalties. Appeal allowed.

Summary

Issues Involved:

1. Classification of Services as 'Intermediary'
2. Determination of 'Export of Service'
3. Invocation of Extended Period of Limitation
4. Imposition of Penalty

Summary:

1. Classification of Services as 'Intermediary':

The appellant, M/s. SNQS International Socks Pvt. Ltd., provided services including design and development of products, evaluation and development of vendors, quality assurance, and logistical support to foreign clients. The Department classified these services as 'intermediary' under Rule 2(f) of the Place of Provision of Services Rules, 2012, as amended. The appellant contended that their services were 'support services of business or commerce' and not intermediary services. The Tribunal, referencing its previous decision in the appellant's own case, held that the services provided were not intermediary services but support services of business or commerce, thus not liable to Service Tax as intermediary services.

2. Determination of 'Export of Service':

The Tribunal examined whether the services rendered by the appellant could be categorized as 'export of service' under Rule 6A of the Service Tax Rules, 1994. It was determined that all conditions for export of service were met, including the location of the service recipient being outside India and payment received in convertible foreign exchange. Consequently, the services were classified as export of services, making them eligible for the benefits applicable to export services.

3. Invocation of Extended Period of Limitation:

The Department issued a Show Cause Notice invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994, alleging suppression of facts by the appellant. The appellant argued that they had disclosed their activities and filed for a refund of Service Tax paid erroneously, demonstrating a bona fide interpretation of the law. The Tribunal, aligning with its decision that the services were not intermediary, found no grounds for invoking the extended period.

4. Imposition of Penalty:

The adjudicating authority had imposed a penalty under Section 78(1) of the Finance Act, 1994, read with Section 174 of the CGST Act, 2017, but reduced it to fifty percent for part of the period in question. The Department contended that the penalty should have been equal to the Service Tax determined. However, since the Tribunal concluded that the services were not intermediary and were export services, the question of penalty imposition became moot.

Conclusion:

The Tribunal set aside the Order-in-Original No. 08/2019-COMMR. dated 08.07.2019, allowing the appeal with consequential relief as per the law and disposing of the Department's cross-objection accordingly. The services provided by the appellant were classified as 'support services of business or commerce' and treated as export of services, exempting them from Service Tax under the intermediary category.