2024 (3) TMI 755 - AT - Service Tax

Levy of service tax - Export of services or not - The appellant argued that although the payment was made in Indian Rupees, the contract specified commission rates in US dollars, demonstrating that they received the amount in dollar terms. - Agency Commission Contract with the Appellant for the wagons procured by the Indian Railways - main ground taken by the Department was that the service cannot be treated as Export of Service because the amount has been received in Indian Currency and hence, Rule 3 (2)(b) of the Export of Service Rules, 2005 is not fulfilled - time limitation - HELD THAT - Admittedly, there is no dispute that the service has been provided by the Appellant in the capacity of an agent for the overseas exporter. There is nothing to suggest that they have acted as purchase agent on behalf of the Indian Railways. As per the details given at Para 4(iv) of the OIO (Page No. 8), it is seen that the Indian Railways is required to pay the net amount of US 1167/1081 to the Chinese Company. Apart from that they are required to pay US 67/US 65 to the Appellant on account of Chinese Commission wherein the rate of exchange has been taken as US 1 Rs. 39.82. Based on this rate of exchange, Indian Railways has paid the commission amount to the Appellant in Indian Rupees. A harmonious reading of the Contract would clarify that when Chinese Company says it is exclusive of Agency commission, they have made it clear that they want net payment of US 1167/1081 from Indian Railways without any deductions. Apart from that they have directed Indian Railways to pay US 67/US 65 to the Appellant towards Agency Commission. This would show that the net cost for Indian Railways would be US 1167 US 67 and US 1081 US 65 based on the type of wagon purchased by them. There is nothing to indicate that there was any contract between Indian Railways and the Appellant to make any payment as a Purchase Agent on behalf of Indian Railways. So long as the Indian Railways has not given any contract, they are not required to pay any amount to the Appellant. Obviously, in this case, they have paid the amount only on the specific instruction of the Chinese Company on their behalf. Coming to the decision of the Rajasthan High Court in COMMISSIONER OF CENTRAL EXCISE JAIPUR-1 VERSUS M/S NATIONAL ENGINEERING INDUSTRIES LTD. 2017 (10) TMI 1496 - RAJASTHAN HIGH COURT where it was held that the assessee was a party to the services which was required to be rendered for earning the foreign exchange therefore a very narrow compass put by the department is considered then no citizen in India will be benefited from the exchange of foreign currency. Thus, appeal allowed on merits. Time Limitation - HELD THAT - There are force in the Appellant s arguments that there has been no concealment on their part. All their commission receipts were reflected in their P L Account and in their Balance Sheet from where the data was collected by the Department to issue the Show Cause Notice. Therefore, SCN issued on 21/04/2012 for the period 2009- 10 is time barred. Therefore, Appeal allowed even on account of limitation. Appeal allowed.

Summary

Issues involved:
The issue involves whether the service provided by the Appellant, acting as an agent for a Chinese company in procuring orders from Indian Railways, qualifies as an export of service under Rule 3(2)(b) of the Export of Service Rules, 2005, despite the commission being received in Indian Rupees. Additionally, the issue of the limitation period for the Show Cause Notice dated 17/4/2012 for the period 2009-10 is raised.

Summary:
The Appellant procured orders for a Chinese Company from Indian Railways for the supply of different grades of Wagons. The Indian Railways pays the value of the wagons to the Chinese Company, who appointed the Appellant as the order procurement agent. The dispute arose when the Appellant received commission in Indian Rupees from Indian Railways without paying any Service Tax. The Department contended that the service cannot be treated as an export due to the amount being received in Indian Currency, not fulfilling Rule 3(2)(b) of the Export of Service Rules, 2005.

The Appellant argued that they acted as an agent for the overseas exporter, receiving the commission in dollar terms but paid in Indian Rupees as per the agreement with Indian Railways. They cited a case law supporting the view that receiving proceeds in Indian Rupees should still qualify as an export of service. They also contended that the Show Cause Notice issued for the period 2009-10 was time-barred due to no concealment of income and proper disclosure in their financial statements.

The Tribunal analyzed the contract details and found that the Appellant acted as an agent for the Chinese Company, with Indian Railways directed to pay the net amount for wagons and an additional amount as agency commission to the Appellant in Indian Rupees. The Tribunal referenced a decision of the Rajasthan High Court supporting the view that such arrangements qualify as an export of service. Consequently, the Tribunal allowed the Appeal on merits and also on the grounds of the limitation period, as there was no concealment of income by the Appellant.

In conclusion, the Tribunal ruled in favor of the Appellant, holding that the service provided qualifies as an export of service under the relevant rules, and the Show Cause Notice issued for the period 2009-10 was time-barred.