The CESTAT, New Delhi in the case of M/S. NOKIA INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, NEW DELHI - 2024 (12) TMI 349 - CESTAT NEW DELHI sets aside demand of service tax under ‘Business Auxiliary Services’ (“BAS”) rendered by an Assessee to overseas counterpart on finding that benefit of ‘export of service’ is ‘wrongly’ denied. The Bench cited Rule 3(3) of Export of Service Rules, 2005, and held that, BAS qualify as export of services as even though the services were rendered in India as the benefits of such services accrued outside India, being utilized by the foreign counter part and the phrase 'used outside India' is to be interpreted to mean that the benefit of service should accrue outside India. Therefore, in this category 'export of service' may take place even when all the relevant activities take place in India so long as the benefit of these services accrues outside India. Hence, the Department had raised demand basis presumptions and without appreciating the contract entered into and the invoices raised for rendering various services.
Facts:
M/s Nokia India Pvt. Ltd. (“the Appellant”) are registered with the service tax department being engaged in providing “Installation and Commissioning Implementation Services”, “maintenance or Repair Services” and BAS.
During the audit of the Appellant’s record for the period 2003–04 to 2006–07 (till September 06), the audit team observed a few short payments. In the light of the observations service tax accounting to Rs.35,07,88,074/- (including education Cess) for the period October 2003 to September 2006 was proposed to be recovered from the Appellants vide Show Cause Notice No. 07/ 3804 dated March 31, 2009 along with proportionate interest and the appropriate penalties. Wrongly availed CENVAT credit of Rs. 26,20,000/- was also proposed to be reversed along with the interest.
Resultantly, the original adjudicating authority has confirmed the service tax demand of Rs.12,47,56,621/- instead of proposed demand of Rs. 35,07,88,074/- alongwith interest and the penalties. Still being aggrieved, the Appellant is before the CESTAT.
Issue:
Whether BAS qualify as ‘export of services’ as even though the services were rendered in India as the benefits of such services accrued outside India, being utilized by the foreign counter part?
Held:
The CESTAT, New Delhi in the case of M/S. NOKIA INDIA PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX, NEW DELHI - 2024 (12) TMI 349 - CESTAT NEW DELHI held as under:
- Opined that, the Appellant had provided BAS to Nokia Corporation, Finland i.e. the recipient is outside the territory of India, the taxable territory. The Appellant has entered into an agreement with Nokia Corporation, Finland for marketing support. The agreement was effective from January 1, 2005. It was held that services rendered by the Appellants i.e. BAS qualify as export of services as even though the services were rendered in India as the benefits of such services accrued outside India, being utilized by Nokia Corporation, Finland. This situation is clarified by the Circular dated February 24, 2009 issued by CBEC deals with applicability of the provisions of the Export Rules, 2005 in certain situations, including that provided under Rule 3(1)(iii) and Rule 3(2). It notices that in cases where Indian agents undertake marketing in India of goods of a foreign seller, the Indian agent undertakes all the activities within India and receives commission for his services from the foreign seller in convertible foreign exchange. The CBEC Circular clarifies that for the services to fall under Rule 3(1)(iii) of the Export Rules, the relevant factor is the location of the service receiver and not the place of performance and the phrase 'used outside India' should be interpreted to mean that the benefit of the service should accrue outside India. Thus, in this category 'export of service' may take place even when all the relevant activities take place in India so long as the benefit of these services accrues outside India. Hence, the services provided to Nokia Corporation, Finland are wrongly denied to be export of service.
- Noted that, while alleging the short payment of service tax the Department has formed an opinion that the service tax is to be paid at the rate prevailing at the time of making the payment. This has been done in view of the revision in rates of service tax w.e.f. April 18, 2006. Apparently and admittedly the Appellant had provided services to Nokia Corporation, Finland prior the said date of revision. However, the service tax was paid post revision. The original adjudicating authority had accepted the said proposal relying upon the TRU Circular/Instruction dated April 28, 2008. However, the said instruction is already held contrary to the law and thus, being invalid by Hon’ble Supreme Court. Hon’ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, BOLPUR VERSUS M/S RATAN MELTING & WIRE INDUSTRIES - 2008 (10) TMI 5 - SUPREME COURT held that Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declared the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. The rate of payment of service tax was enhanced to 12.24% after the services were rendered but prior the date of payment. Since rendition of service is the point of taxation, except for TRU clarification dated April 28, 2008 which has been set aside. Hence, the service tax @ 10.12% has rightly been paid. The short-paid Service tax demand confirmed is therefore, held liable to be set aside. The issue stands decided in favour of the Appellant and against the Department.
- Observed that, the Department has alleged that the Appellant since has not included the value of goods to the gross-value of construction services, no abatement can be allowed to the appellant in terms of Notification No.1/2006 which talks about the effective rate of service tax for specified services – percentage of abatements and thereby exempts the service of erection, commissioning or installation under a contract for supplying a plant, machinery or equipment and erection commissioning/installation of such plant, machinery or equipment from paying 67% of the service tax provided that the gross amount charged from the customer shall include the value of plant, machinery equipment etc. sold by the service provider. In such case, only 30% of such gross value has to be paid by the Appellant. In the present case, as apparent from Clause – 1 of the contract between the Appellant and its customer Idea Cellular that the Appellant has entered into a turn-key project for supplying the equipment and the installation/commissioning thereof. Clause 11 of the said agreement discusses the payment terms. It clarifies that the contract is both for supply of goods and provision of services. The Appellant has charged for the equipment’s required for respective civil and electrical work for turn-key project. The perusal of these documents is sufficient to falsify the allegation that the value of goods has not been included by the Appellant, to the gross value of the turn key projects, though there are few invoices, wherein only installation and commissioning services have been charged. But it is clear that on such invoices no abatement has been availed by the appellant. The abatement has been availed only on the contracts of Civil Construction Services and not on the Services of Management Maintenance and Repair. Otherwise also there is no denial of the Department that the services provided by the Appellants were in the nature of works contract being turn-key projects. The Hon’ble Apex Court in the case of Larsen and Toubro has been held that the Finance Act lays down no charge or machinery to levy and assess service tax on indivisible composite works contracts, such argument must fail. This is also for the simple reason that there is no subterfuge in entering into composite works contracts containing elements both of transfer of property in goods as well as labour and services. Several exemption notifications have been granted qua service tax "levied" by the Finance Act. Since the levy itself of service tax has been found to be non-existent, no question of any exemption would arise.
- Relied on the case of ANAND NISHIKAWA CO. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT - 2005 (9) TMI 331 - SUPREME COURT, wherein the Supreme Court held that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression.
- Held that, the present Show Cause Notice dated March 31, 2009, the allegedly short-paid service tax for the period October, 2003 to September, 2006 is proposed to be recovered. Clearly the department has invoked the extended period of limitation while issuing the said Show Cause Notice, alleging that the Appellant has not assessed/disclosed the correct service tax which came to the notice of the department only through the audit. The audit the documents of the Appellant only have been considered while raising the demand. In such circumstances, the Noticee willfully suppressed the material facts with intent to evade payment of service tax is not sufficient. The notice must contain particulars of facts and circumstances in support of such allegation, even if, such particulars are not included in the notice the department should be in a position to justify and /or substantiate its allegations of suppression of material facts on the part of the noticee. Hence, it is clear that department has raised demand based on presumptions and without appreciating the contract entered into by the Appellant with its service recipient and the invoices raised for rendering the services. The Appellant had diligently provided all the documents. The department has failed to substantiate the allegations of suppression.
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