2024 (8) TMI 959 - AT - Service Tax

Levy of service tax - business auxiliary service - receiving indent commission from their overseas holding company - HELD THAT - After analysing the judgments of the Hon ble Delhi High Court in VERIZON COMMUNICATION INDIA PVT. LTD. VERSUS ASSISTANT COMMISSIONER, SERVICE TAX, DELHI III, DIVISION-XIV ANR. 2017 (9) TMI 632 - DELHI HIGH COURT which approved the view taken by the M/S PAUL MERCHANTS LIMITED OTHERS VERSUS CCE, CHANDIGARH 2012 (12) TMI 424 - CESTAT, DELHI (LB) and other judgments on the subject, the Larger Bench observed ' Arcelor India provides the necessary details of the customers in India to the foreign steel mills and, thereafter, the foreign steel mills and the Indian customers execute a contract for supply of the goods. The goods are directly supplied by the foreign steel mills to the Indian customers. Arcelor India also satisfies condition (b) of rule 3(2) as payments for such service have been received in convertible foreign exchange.' The principle laid down by the Larger Bench in the aforesaid case is squarely applicable to the facts of the present case. Hence, the services rendered by the appellant to their holding company would fall within the scope of Export of Service Rules, 2005. Consequently, the demand cannot be sustained. The impugned orders are aside - appeals are allowed.

Summary

Issues:
Whether the appellants are liable to pay service tax for receiving 'indent commission' from their overseas holding company.

Analysis:
The judgment involves two appeals filed against orders passed by the Commissioner of Central Excise(Appeals-II) Bangalore. The appellants received 'indent commission' from their overseas holding company, triggering a show-cause notice for recovery of service tax, interest, and penalty. The appellants argued that the services provided to the holding company abroad qualified as 'export of services' under Rule 3(3)(i) of Export Rules. They contended that the holding company in Germany was the recipient of the services, not the Indian clients, and the benefits accrued outside India. They relied on various judgments to support their position, emphasizing that the indent commission was disclosed in their financials, and the extended limitation period should not apply due to their bona fide belief. They also challenged the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

The Revenue reiterated the findings of the learned Commissioner(Appeals), leading to a detailed analysis by the Tribunal. The Tribunal examined the nature of the services provided by the appellants to their holding company and referred to the judgment of the Larger Bench in Arcelor Mittal Stainless (I) Pvt. Ltd. Vs. CST, Mumbai-II. The Tribunal concluded that the services rendered by the appellants to their holding company fell within the scope of Export of Service Rules, 2005, based on the principles established in the aforementioned case. Consequently, the demand for service tax, interest, and penalty was not sustainable. The impugned orders were set aside, and the appeals were allowed with any consequential relief as per law.

In conclusion, the Tribunal's decision revolved around the interpretation of whether the services provided by the appellants to their overseas holding company constituted 'export of services.' By applying the principles laid down in the Arcelor Mittal Stainless case, the Tribunal ruled in favor of the appellants, holding that the indent commission received was not liable to service tax. The judgment provided a detailed analysis of the legal arguments presented by both parties and established a clear precedent for similar cases involving the taxation of services provided to foreign entities.