2012 (8) TMI 607 - AT - Service Tax

Export of services - Demand of Service Tax on Business Auxiliary Services - denial of benefit of exemption Notification No.13/2003 dated 20/06/2003 and under the Export of Service Rules,2005 - assessee contested against invoking extended period of limitation - period in question is from 01/07/2003 to 19/11/2003 and from 18/03/2005 to 05/12/2007 - Held that - Notification No.6/99-ST dated 28/02/1999 exempted services provided to any person in respect of which payment is received in Indian in convertible foreign exchange was rescinded and subsequently re-issued vide Notification No. 21/2003-ST dated 20/11/2003 which remained in force till 14/03/2005. During the intervening period i.e. from 01/03/2003 to 19/11/2003, the Board clarified vide Circular dated 25/04/2003 that Service tax is a destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No.6/99, dated 09/04/1999. In the light of this clarification issued by the Board, the assessee has a prima facie, case for waiver of pre-deposit of dues adjudged for the period 01/07/2003 to 19/11/2003. From the period from 15/03/2005 onwards as per Export of Service Rules, 2005 that a taxable service shall be treated as export of service only if such service so ordered is delivered outside India and used in business outside India & in the instant case, the service of promotion of marketing of goods manufactured by the supplier has taken place in India and the said service is for the purpose promoting the business of the foreign manufacturer in India, thus the activity does not come within the scope of export of service during the period from 15/03/2005 to 18/04/2006. From the period from 19/04/2006 to 28/03/2007 though the condition of receipt of payment in convertible foreign exchange is satisfied, the conditions relating to delivery of service outside India and the use of the service outside India are not satisfied because the promotional activity undertaken by the service provider is in India and it can be used only in promoting the business in India. Therefore, the use of service is not outside India. The same position will prevail during the period up to 30/05/2007. Even for the period from 01/06/2007 onwards, the condition relating to service be provided from India and used outside India is not satisfied. Therefore, the demand of service tax for the period 18/03/2005 to 05/12/2007 appears to be prima facie correct in law - as activities are rendered in India and their effective use and enjoyment are in India and therefore, the benefit of the services rendered also accrue in India and hence leviable to service tax. The appellant failed to obtain service tax registration under business auxiliary service, failed to pay service tax and also failed to file statutory returns for the said services. They did not disclose to the department about the existence of the agreement with VIASYS and receipt of consideration towards the service rendered. These acts of the appellant clearly constitute suppression of facts on their part, thereby attracting the invocation of extended period of time for demand of service tax - not made out a case for complete waiver of the pre-deposit of the dues adjudged - direct the appellant to make a pre-deposit of Rs. 25 lakhs - partly in favour of assessee.

Issues Involved:
1. Classification of services under "Business Auxiliary Services."
2. Determination of whether the services rendered qualify as "export of service."
3. Applicability of service tax exemptions and Export of Service Rules.
4. Invocation of the extended period for demand of service tax.
5. Financial hardship and balance of convenience for granting stay.

Detailed Analysis:

1. Classification of Services under "Business Auxiliary Services":
The Tribunal noted that there is no dispute regarding the classification of the services provided by the appellant under "Business Auxiliary Services" as per the provisions of Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994.

2. Determination of Whether Services Rendered Qualify as "Export of Service":
The primary issue was whether the services rendered by the appellant to the foreign service recipient qualify as "export of service" during the periods from 01/07/2003 to 19/11/2003 and 18/03/2005 to 05/12/2007.

- For the period 01/07/2003 to 19/11/2003: The Tribunal considered the Board's Circular No. 56/5/2003 dated 25/04/2003, which clarified that "Service tax is a destination-based consumption tax and it is not applicable on export of services." Accordingly, the appellant had a prima facie case for waiver of pre-deposit of dues adjudged for this period.

- For the period from 15/03/2005 onwards: The Tribunal examined the Export of Service Rules, 2005, which stipulated that a service shall be treated as "export of service" if it is delivered outside India and used in business outside India. The Tribunal found that the promotional and marketing activities undertaken by the appellant were conducted in India and used for promoting the business of the foreign manufacturer in India. Hence, these services did not qualify as "export of service" as the effective use and enjoyment of the services were within India.

3. Applicability of Service Tax Exemptions and Export of Service Rules:
The Tribunal analyzed various notifications and rules governing service tax exemptions:

- Notification No. 6/99-ST and Notification No. 21/2003-ST: These provided exemptions for services where payment was received in convertible foreign exchange. However, these notifications were rescinded, and the Export of Service Rules, 2005, came into effect.

- Export of Service Rules, 2005: For the period under consideration, the rules required that the service be delivered and used outside India. The Tribunal concluded that the services rendered by the appellant did not meet these criteria as they were used within India.

4. Invocation of the Extended Period for Demand of Service Tax:
The appellant contended that the demand was barred by the limitation of time. However, the Tribunal found that the appellant failed to disclose the agreement with VIASYS and the receipt of consideration for services rendered. This constituted suppression of facts, justifying the invocation of the extended period for demand under Section 73 of the Finance Act, 1994.

5. Financial Hardship and Balance of Convenience for Granting Stay:
The Tribunal noted that the appellant did not provide evidence of financial hardship. The balance of convenience favored the revenue, and the Tribunal directed the appellant to make a pre-deposit of Rs. 25 lakhs within eight weeks. Upon compliance, the pre-deposit of the balance amount would be waived, and recovery stayed during the pendency of the appeal.

Conclusion:
The Tribunal concluded that the appellant's services did not qualify as "export of service" for the periods from 18/03/2005 to 05/12/2007. The demand for service tax was upheld, and the appellant was directed to make a partial pre-deposit. The Tribunal granted a waiver for the period 01/07/2003 to 19/11/2003 based on the Board's circular, acknowledging the appellant's prima facie case for this period.

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