2024 (6) TMI 624 - AT - Service Tax

Levy of service tax - payment made to foreign banks by the Appellant is already settled under VCES as recorded in the impugned order - appellant has received payment processing services from AFL engaged by M/s. C A, the foreign buyer to process payments to the appellant - reverse charge mechanism - extended period of limitation - levy of penalties. HELD THAT - There is no service provider-recipient relationship between the appellant and M/s. Amsco and if there is any contract, the same is between M/s. C A (buyer) and M/s. Amsco, both of whom are out of India and the appellant does not have any contract with M/s. Amsco whatsoever - the deduction of 3% from the invoice price was already indicated in the Purchase Order for the goods issued by M/s. C A and therefore it was nothing but a trade discount for the appellant. The deduction from the invoice is also allowed for in terms of the master circular on exports of goods and services issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999. Further, the appellant does not have any legal recourse or any binding contract with M/s. Amsco to enforce any of its rights. Further, the email from M/s. Amsco is only an information and does not bind M/s. Amsco to any contract with the appellant. Extended period of limitation - levy of penalties - HELD THAT - In the present case, there was no intent to evade tax as the appellant had no contractual relation with AFL; and all the transactions such as payment, transmission of funds are the liability of M/s C A and it is up to them to decide the mode of the transfer and payment; and the appellant had no role in this regard. Further, the deduction in respect of AFL was clearly shown in the shipping bills for export; drawback was also claimed only on the net amount; and further, being an exporter the service tax payable, if any, would anyway be allowable as a rebate to the appellant; and the entire situation would have been revenue neutral. Therefore, there is no question of lack of bonafides on the part of the appellant in the present case. The issues involved in this appeal are identical that have been decided in the case of EASTMAN EXPORTS GLOBAL CLOTHING P LTD VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, COIMBATORE 2024 (5) TMI 417 - CESTAT CHENNAI where it was held that 'the deduction in respect of M/s Amsco was clearly shown in the shipping bills for export; drawback was also claimed only on the net amount; and further, being an exporter the service tax payable, if any, would anyway be allowable as a rebate to the appellant; and the entire situation would have been revenue neutral. Therefore, there is no question of lack of bonafides on the part of the appellant in the present case.' The impugned order is not sustainable in law and so ordered to be set aside - Appeal allowed.

Summary

Issues Involved:
1. Whether the appellant has received payment processing services from AFL engaged by M/s. C&A, the foreign buyer to process payments to the appellant.
2. Whether the demand of Service Tax under Reverse Charge Mechanism is sustainable.
3. Whether the invocation of extended period of limitation and levy of penalties is justified.

Summary of the Judgment:

Issue 1: Payment Processing Services from AFL
The Tribunal found that there is no service provider-recipient relationship between the appellant and AFL. The contract, if any, exists between M/s. C&A (buyer) and AFL, both located outside India. The appellant is only a recipient of funds for goods sold to M/s. C&A, and the amount received is net of the invoice value. The deduction of 3% from the invoice price was indicated in the Purchase Order and is considered a trade discount. The email from AFL is merely informational and does not constitute a binding contract with the appellant. Therefore, the appellant did not receive any payment processing services from AFL.

Issue 2: Demand of Service Tax under Reverse Charge Mechanism
The Tribunal held that the appellant is not liable to pay Service Tax under the reverse charge mechanism for services rendered by AFL. The payment mechanism detailed that the overseas customer pays the invoice value minus discounts through a Finance Agent (FA), and the appellant does not hold an account in the overseas bank. The Tribunal referenced previous decisions, including M/s. Eastman Exports Global Clothing P Ltd. [2024 (5) TMI 417-CESTAT CHENNAI], which held that no service tax was liable to be paid by the exporter under similar circumstances. The Tribunal concluded that the demand for Service Tax under the reverse charge mechanism is not sustainable.

Issue 3: Invocation of Extended Period of Limitation and Levy of Penalties
The Tribunal found no intent to evade tax by the appellant, as there was no contractual relation with AFL, and all transactions were the liability of M/s. C&A. The deductions were clearly shown in the shipping bills, and the appellant had no role in the payment transfer process. The Tribunal referenced several decisions, including Modern Petrofils Vs. Commissioner of Central Excise, Vadodara [2010 (20) STR 627 (Tri.-Ahmd.)], and concluded that there was no suppression of facts with a malafide intention. Therefore, the invocation of the extended period of limitation and the levy of penalties are not justified.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief as per law, and held that the appellant is not liable for Service Tax under the reverse charge mechanism for services rendered by AFL. The Tribunal also found no justification for the invocation of the extended period of limitation and the levy of penalties.