2024 (3) TMI 922 - AT - Service Tax

Levy of service tax - Business Auxiliary service - services rendered by the foreign based agents to the appellant - commission towards sales promotion commission on export sales to their foreign agents situated located outside India - N/N. 9/2009-ST dated 03.03.2009 and N/N. 15/2009-Service Tax dated 20.05.2009 - invocation of Extended period of Limitation - HELD THAT - Since the services have been availed by the appellant from outside India within Special Economic Zone and therefore, barring brief period of two months for the majority of period the services availed by them from foreign based agent for the promotion of the sales was falling under the exempted category as the services received by them were in the Special Economic Zone unit. There are force in the argument of the learned Advocate that the substantive benefit of the service tax exemption provided under Section 26 of the Special Economic Zone Act and Rule 31 of the Special Economic Zone Rules cannot be denied only on procedure requirement under Notification No. 9/2009 dated 03.03.2009 as amended by Notification No. 15/2009 dated 20.05.2009. The services received by the appellant from their foreign based agents who were engaged in promotion of sales abroad though chargeable to Service Tax under category of Business Auxiliary Service under reverse charge mechanism basis by virtue of exemption Notification No. 9/2009-ST dated 03.03.2009 as amended by Notification No. 15 of 2009-ST dated 20.05.2009 and by general exemption for Special Economic Zone units provided under Section 26 of the Special Economic Zone Act, 2005, the services received from abroad shall remain exempted and therefore, the demand raised against the appellant is without any merit. Extended period of limitation - SCN issued by the department invoking extended time proviso under Section 73(1) of Finance Act, 1994 as the show cause notice was issued on 19.09.2014 for the period April 2009 to March 2011 - HELD THAT - All the transactions of foreign exchange payment were reflected in their books of account and the by taking necessary permission from the Reserve Bank of India. In view of this the elements for invoking extended time period such as fraud, collusion, misstatement and suppression of facts with an intent to evade duty are absent in this case and therefore the demand is time barred and same also deserved to be dropped on the grounds of limitation. The impugned order in appeal is without any merit and therefore, the same is set aside - appeal allowed.

Summary

Issues Involved:
1. Taxability of services rendered by foreign agents under Business Auxiliary Service.
2. Applicability of exemptions under SEZ Act and related notifications.
3. Justification for invoking extended time proviso under Section 73(1) of the Finance Act, 1994.

Summary:

1. Taxability of Services Rendered by Foreign Agents:
The appellant paid Rs. 1,46,35,090 as commission to foreign agents for sales promotion during 2009-2010 and 2010-2011. The department considered these services taxable under Business Auxiliary Service as per Section 65(105)(zzb) of the Finance Act, 1994, read with Section 66A and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Consequently, a show cause notice dated 19.09.2014 was issued, demanding Service Tax of Rs. 15,07,415 under Section 73(1) of the Finance Act, 1994, along with interest and penalties.

2. Applicability of Exemptions under SEZ Act and Related Notifications:
The appellant, located in Kandala Special Economic Zone (SEZ), argued that services received from foreign agents for export promotion are exempt from Service Tax under Notification No. 9/2009-ST dated 03.03.2009 and Notification No. 15/2009-ST dated 20.05.2009. The Tribunal agreed, noting that the SEZ Act provides substantive benefits of Service Tax exemption under Section 26, which overrides other laws, including the Finance Act, 1994. The Tribunal cited various decisions supporting this view, including SRF Limited vs. Commissioner Of Custom and Central Excise LTE New Delhi and Commissioner Of Central Excise Ahmedabad-II vs. Cadila Health Care Limited. The Tribunal concluded that services received by the appellant from abroad for authorized operations within the SEZ are exempt from Service Tax.

3. Justification for Invoking Extended Time Proviso under Section 73(1) of the Finance Act, 1994:
The show cause notice was issued for the period April 2009 to March 2011, invoking the extended time proviso under Section 73(1). The appellant contended that there was no misstatement, collusion, or suppression of facts with intent to evade duty, as all transactions were recorded and permissions obtained from the Reserve Bank of India. The Tribunal agreed, finding no elements justifying the extended time proviso, and held that the demand was time-barred.

Conclusion:
The Tribunal set aside the impugned order, holding that the demand for Service Tax was without merit and time-barred. The appeal was allowed, and the order was pronounced in open court on 07/03/2024.