2010 (3) TMI 348 - AT - Service Tax

Natural Justice- whether services rendered during the year 2005-06 (prior to 19-4-2006 from which date the assessees started paying service tax) would fall within the scope of the Export of Service Rules, 2005, and whether the amounts received during the year 2005-06 in respect of services rendered prior to 15-3-2005 would be eligible for exemption under Notification No. 21/03, dated 20-11-2003 inasmuch as the amounts had been received in convertible foreign exchange. Held that- set aside the impugned order and remit the case to the jurisdictional Commissioner for fresh decision in the light of the above directions. The assessees are at liberty to raise all pleas including that of limitation. Fresh orders shall be passed after extending sufficient opportunity to the assessees of being heard in their defence. The appeal is thus allowed by way of remand.

Summary

Issues:
1. Whether services rendered during the year 2005-06 would fall within the scope of the Export of Service Rules, 2005.
2. Whether the amounts received during the year 2005-06 in respect of services rendered prior to 15-3-2005 would be eligible for exemption under Notification No. 21/03, dated 20-11-2003.

Analysis:
1. The appellants provided low cost sourcing and supply chain management services to a foreign entity, Ford Motor Co., USA. The department contended that these services fell under the category of Business Auxiliary Service and were not covered under the Export of Service Rules, 2005. The Commissioner confirmed a demand for service tax, interest, and penalties. The issue revolved around whether the services provided by the appellants qualified for exemption under the Export of Service Rules, 2005. The Tribunal found discrepancies in the Commissioner's conclusion and allowed the appellants to present evidence to establish that the foreign recipient did not have any commercial or industrial establishment in India.

2. The Export of Service Rules, 2005 were crucial in determining the tax liability of the appellants. The Rules specified conditions for a service to be treated as an export of service, including that the service should be delivered and used outside India, and payment should be received in convertible foreign exchange. The Tribunal examined the documents provided by the appellants, including agreements, purchase orders, and invoices, to ascertain if the services met the criteria for exemption. The Tribunal found merit in the appellants' argument that the order for the provision of service was made from the foreign client's office outside India, and the services were delivered and used outside India. Therefore, the case was remitted to the Commissioner for a fresh decision, allowing the appellants an opportunity to present their defense comprehensively.

3. The Tribunal emphasized the importance of natural justice in the adjudication process. It acknowledged the appellants' contention that the impugned order was passed without considering crucial aspects, such as whether the foreign recipient had an office in India. The Tribunal accepted an affidavit submitted by the India Tax Manager of the appellants, outlining the structure of their databases and transactions with the foreign client. In the interest of justice, the Tribunal set aside the previous order and directed the case to be reconsidered by the Commissioner, ensuring that the appellants have a fair chance to address all relevant issues, including the absence of a commercial establishment of the foreign recipient in India.

In conclusion, the Tribunal allowed the appeal by remanding the case for a fresh decision, emphasizing the need for a thorough examination of the facts and compliance with the Export of Service Rules, 2005 to determine the tax liability of the appellants accurately.