2009 (8) TMI 236 - AT - Service Tax

BAS - Money transfer service - Appellants appointed as a sub-agent for undertaking money transfer demand of Service Tax under the category of business auxiliary service. The allegation in the show cause notice was that the said activity is nothing but promoting the business of agent (WFL) - sub-representation agreement entered between the appellant and WFL Agreement clearly indicating principal (Western Union) abroad as ultimate beneficiary - It is undisputed in this case, that a person approaches Western Union situated outside India for transfer of fund to a beneficiary in India - . It is undisputed that the appellant herein does not charge any amount as commission or fee from the recipients of the amount. - The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India. Benefits of service accrue to person outside India - We find strong forces in the contentions raised by the ld. Counsel that the issue is now squarely covered in favour of the assessee by the decision of this Bench in the case of Nipuna Services Ltd. V. CCE&ST, Hyderabad 2009 - TMI - 33480 - CESTAT BANGLORE . - Accordingly, we are of the considered view that services rendered appellant cannot be taxed under the category of business auxiliary services

Issues Involved:
1. Classification of services provided by the appellant under 'Business Auxiliary Services'.
2. Taxability of money transfer services prior to 1-5-2006.
3. Whether the services qualify as export of services.
4. Applicability of service tax to sub-contractors.
5. Invocation of extended period of limitation.
6. Imposition of penalties and interest.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant under 'Business Auxiliary Services':
The appellants, a non-banking financial company, entered into an agreement with Weizmann Forex Ltd. (WFL) to provide money transfer services on behalf of Western Union. The adjudicating authority classified these services under 'Business Auxiliary Services' (BAS), alleging that the appellant was promoting WFL's business. The appellant argued that they were sub-agents representing Western Union, not WFL, and thus their services should not be classified under BAS. The tribunal found that the services rendered by the appellant were directly to Western Union, whose beneficiaries are outside India, and thus did not fall under BAS.

2. Taxability of Money Transfer Services Prior to 1-5-2006:
The appellant contended that money transfer services were brought under the service tax net only from 1-5-2006 under 'Banking and Other Financial Services'. They argued that their services should not be taxed under BAS for the period before this date. The tribunal agreed, noting that money transfer services were explicitly included in the taxable category only from 1-5-2006, and thus the appellant's services prior to this date should not be taxed under BAS.

3. Whether the Services Qualify as Export of Services:
The appellant argued that their services qualify as export of services under Rule 3(1)(iii) of the Export of Service Rules, 2005, as the services were provided to Western Union, a recipient located outside India. The tribunal found that the services rendered by the appellant accrued benefits to Western Union, situated outside India, and thus qualified as export of services. The tribunal referenced the CBEC circular dated 24-2-2009, which clarified that services could be considered export even if performed in India, as long as the benefits accrued outside India.

4. Applicability of Service Tax to Sub-Contractors:
The appellant argued that as sub-agents of WFL, they should not be liable to pay service tax, referencing a Trade Notice dated 11-6-1997, which clarified that subcontractors need not pay service tax if the principal contractor has paid it. The tribunal did not specifically address this argument, as the appeals were disposed of on other grounds.

5. Invocation of Extended Period of Limitation:
The appellant contended that the extended period of limitation should not be invoked as the issue involved interpretation of legal provisions, not intentional avoidance of tax. The tribunal did not specifically address this argument, as the appeals were disposed of on other grounds.

6. Imposition of Penalties and Interest:
The appellant argued that penalties and interest should not be imposed as the service tax itself was not liable. The tribunal did not specifically address this argument, as the appeals were disposed of on other grounds.

Conclusion:
The tribunal held that the services rendered by the appellant could not be taxed under 'Business Auxiliary Services'. The impugned orders were set aside, and the appeals were allowed with consequential relief. The tribunal's decision was based on the finding that the services qualified as export of services, and money transfer services were not taxable under BAS prior to 1-5-2006. The tribunal did not record findings on other submissions made by both sides, as the appeals were disposed of on merits.

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