2024 (6) TMI 848 - AT - Service Tax

Classification of service - Business Auxiliary Service (BAS) - income received in USD as selling commission from an entity in Japan - HELD THAT - The role of the appellant is to render service to the Japan based service receiver, in delivering the product manufactured outside India, to the ultimate consumer in India namely Whirlpool Ltd. Delhi Bench of the Tribunal in the case of M/S INVOLUTE ENGINEERING PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX 2020 (12) TMI 533 - CESTAT NEW DELHI wherein the coordinate Delhi Bench has considered a more or less similar issue and held that 'the only requirement after the amendment to Rule 3(2) of the 2005 rules is that the service recipient should be situated outside. India and consideration should be received in foreign currency. Both the conditions stand satisfied. Even otherwise, for the period prior to February 27, 2010, it has been held that no service tax could be levied. Thus, it was material as to whether the appellant was able to substantiate the quantum of services provided after February 27, 2010, and the consideration received thereon'. The interpretation of Rule 3(2) has to be drawn by the authorities below is contrary to law and the consequent demand, therefore, cannot sustain - the impugned order is set aside - appeal allowed.

Summary

Issues involved:
The main issue in this case is whether the Appellant rendered the service under Business Auxiliary Service (BAS) as affirmed in the Order-in-Appeal and if the demand against it is correct in law.

Summary:
The Appellant, M/s. Manali Petrochemicals Ltd., received 'other income' in USD as selling commission from an entity in Japan, which the Revenue claimed fell under the category of BAS. A Show Cause Notice was issued, and the Additional Commissioner confirmed the demands. The Appellant appealed, but the first appellate authority upheld the demands. The central issue was whether the Appellant provided the service under BAS.

The first appellate authority cited a decision of the Delhi Bench of the Tribunal in the case of Microsoft Corporation, which stated that there was no export of services if the efforts in India generated service recipients in India only. However, in this case, the service was between the Appellant and the service recipient abroad, not with the consumer in India.

The Show Cause Notice highlighted that the Appellant's role was to render service to the Japan-based service receiver for delivering a product to the ultimate consumer in India. The Appellant referred to a Delhi Bench order in the case of Involute Engineering Private Limited, which emphasized that the service recipient should be situated outside India and consideration should be received in foreign currency.

Considering the settled position of law, the Tribunal concluded that the interpretation of Rule 3(2) by the authorities below was contrary to law. Therefore, the demand was set aside, and the appeal was allowed with consequential benefits, if any, as per law.

This judgment highlights the importance of the location of service recipients and the currency of consideration in determining the applicability of exemptions under Rule 3(2) of the Export of Services Rules, 2005.