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2024 (5) TMI 847 - AT - Service TaxNon-payment of service tax - certain reimbursements made to the foreign entities for the services received under Reverse Charge Mechanism - Classification of services - Royalty paid by Baxter India to Baxter Healthcare Inc., USA - classifiable under 'Franchise Services' or under 'Intellectual Property Services'? - Non-payment of service tax on networking charges and technical services. Non-payment of service tax - certain reimbursements made to the foreign entities for the services received under Reverse Charge Mechanism - HELD THAT - The appellant is rendering services to their overseas entities. Though, the services are performed in India, the beneficiary of the services is abroad and the payment for the same is coming to the appellants along with the reimbursed expenses; therefore, in view of the Circular No.111/05/2009-ST dated February 04, 2009, the services qualify to be export of services in view of the Export of Service Rules as the service is used outside India. The Tribunal has held similarly in the case of CCE ST Vs Glaxo SmithKline Pvt. Ltd. 2023 (10) TMI 998 - CESTAT CHANDIGARH and Arcelor Mittal Stainless India Pvt. Ltd. 2023 (8) TMI 107 - CESTAT MUMBAI-LB . Classification of services - Royalty paid by Baxter India to Baxter Healthcare Inc., USA - classifiable under 'Franchise Services' or under 'Intellectual Property Services'? - HELD THAT - The activity of the appellants as seen from the Agreement is not in the nature of Management Consultancy Services; though, at some places, the word Advice is used; on going through the terms of the Agreement, it will be clear that this is in the nature of giving or passing on of information rather than giving a management advice. It is found that the appellants are providing various information which is available in India to M/s Baxter, Singapore. The contentions of the appellants are correct. Moreover, as contended by the appellant, classification of service does not matter as long as they are exported. There is no such averment on the part of the Revenue that the services are not exported - It is clear from the Agreement that it is a license to use the Intellectual Property Rights but not a Franchise Agreement . There is no mention of grant of Representational Right so as to fall under the category of Franchise . Therefore, the Department has not made out any on this issue also. Non-payment of service tax on networking charges and technical services - HELD THAT - The appellant submits that service tax on the Reverse Charge Mechanism is not payable prior to 18.04.2006. It is found that the submission is acceptable as per the ratio of the judgment in Indian National Ship Owner s Association and CST Delhi v. Sojitz Corporation 2022 (11) TMI 48 - SUPREME COURT . Similarly, the appellant s plea on the non-payment of service tax on reimbursement made by the appellant for certain receipt of services is acceptable. The appellant submits that these services are performance-based services and are performed outside India; the expenditure incurred by them in holding medical conferences abroad and attended by Indian doctors is reimbursed by their overseas entities - the learned Commissioner takes a long-drawn argument that the doctors after attending the conference come back to India and products whose quality has been tested abroad by the doctors are sold in India and therefore the same should form part of the assessable value. This conclusion is not agreed upon for the reason that service tax is not on expenses but is on that portion of the expenses which are paid for the services received. The impugned order is not sustainable - appeal allowed.
Issues Involved:
1. Classification and taxability of services provided to Baxter Singapore. 2. Taxability of mark-up on transfer price income from Baxter World Trade Corporation (BWT). 3. Classification of royalty payments to Baxter USA. 4. Taxability of networking charges and technical services received from overseas entities. 5. Taxability of reimbursements for services received from overseas entities. Summary of Judgment: 1. Classification and Taxability of Services Provided to Baxter Singapore: The appellant argued that services provided to Baxter Singapore qualify as exports and should be classified under "Business Auxiliary Services" rather than "Management Consultant's Services." The Tribunal agreed, noting that the services involved passing on information rather than management advice. The classification of services does not matter as long as they are exported, and there was no dispute from the Revenue on the export status. 2. Taxability of Mark-Up on Transfer Price Income from Baxter World Trade Corporation (BWT): The appellant contended that the services provided to BWT qualify as exports under "Business Support Services." The Tribunal found that the services were indeed exported, as the beneficiary was abroad and payments were received in foreign currency. This was supported by Circular No. 111/05/2009-ST and previous Tribunal decisions. 3. Classification of Royalty Payments to Baxter USA: The appellant argued that royalty payments should be classified under "Intellectual Property Services" rather than "Franchise Services." The Tribunal agreed, noting that the agreement granted a non-exclusive license to use intellectual property without granting representational rights, which is essential for classification under "Franchise Services." This was consistent with the decision in Reckitt Benckiser (India) Ltd. 4. Taxability of Networking Charges and Technical Services Received from Overseas Entities: The appellant claimed that service tax on these services is not payable prior to April 18, 2006, as per Section 66A of the Act. The Tribunal accepted this argument, citing the Indian National Ship Owner's Association and CST Delhi v. Sojitz Corporation cases. 5. Taxability of Reimbursements for Services Received from Overseas Entities: The appellant argued that reimbursements for services performed outside India should not be taxed. The Tribunal agreed, referencing the Intercontinental Consultants & Technocrats case, which held that only the consideration for the taxable service should be valued and assessed, not additional expenses. Conclusion: The Tribunal found in favor of the appellant on all issues, setting aside the impugned orders and allowing both appeals. The demands raised and confirmed by the Adjudicating Authority were deemed unsustainable.
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