2014 (9) TMI 305 - AT - Service Tax

Waiver of pre-deposit - Business Auxiliary Services - export of servcies - distributorship and agency agreement with foreign entity - when acting as a distributor, the appellant will sell in its own name and at on its own account the product of the foreign supplier, and that while acting as an agent, the appellant will solicit customers and promote the sale and services of the products manufactured by the foreign entities and the appellant will also assist in the preparation of any product sale contract between the foreign entity and the Indian buyer and also in the collection of sale proceeds. - Held that - the service has been provided from India and used outside India. In these circumstances, in terms of the Export of Service Rules, as they stood at the relevant time, the activity of the appellant amounts to export of service. - Decided in favor of assessee. Information Technology Software service received by the appellant through internet - import of services - Held that - , it is not in dispute that since 01/05/2008 the classification made by the appellant under Information Technology Services has been accepted by the department. If that be so, we do not understand why the same service would merit classification under On-line Information and Database Access and/or Retrieval Service for the period prior to May 2008 inasmuch as Information Technology Service has not been carved out of On-line Information and Database Access and/or Retrieval Service . Appellant has made out a strong prima facie case for grant of stay. - stay granted.

Summary

Issues Involved:
1. Service Tax Demand on Business Auxiliary Services.
2. Service Tax Demand on On-line Information and Database Access and/or Retrieval Services.
3. Exemption and Export of Services.
4. Classification and Time-barred Demands.

Issue-wise Detailed Analysis:

1. Service Tax Demand on Business Auxiliary Services:
The adjudicating authority confirmed a service tax demand of Rs. 12,06,39,710/- for the period 01/07/2003 to 31/03/2008 under 'Business Auxiliary Services'. The appellant entered into agreements with foreign group entities to act as a distributor and agent, receiving commissions in convertible foreign currency. The department viewed these activities as taxable under 'Business Auxiliary Services' and issued a show cause notice on 20/08/2008. The appellant contended that these services qualify as export of services, exempt from service tax as per various notifications and Export of Service Rules, 2005. The Tribunal agreed, noting that the services were rendered to foreign entities, payments were received in convertible foreign exchange, and thus, the services amounted to export under the relevant rules and notifications.

2. Service Tax Demand on On-line Information and Database Access and/or Retrieval Services:
A demand of Rs. 1,16,84,140/- was confirmed for the period 18/04/2006 to 31/03/2008 under 'On-line Information and Database Access and/or Retrieval Services'. The appellant argued that the received services were 'Information Technology Software Services', taxable only from 16/05/2008. The Tribunal noted that since the department accepted the classification under 'Information Technology Services' from 01/05/2008, the same service could not be classified differently for the prior period. It emphasized that new service levies apply prospectively, thus, the demand under 'On-line Information and Database Access and/or Retrieval Services' was not sustainable.

3. Exemption and Export of Services:
For the period 01/07/2003 to 14/03/2005, the Tribunal noted that services rendered were exempt under Notification 21/2003-ST and the Board's Circular No. 56/5/2003-ST. For the period from 15/03/2005 to 31/03/2008, the services met the conditions of export under Rule 3(1)(iii) of the Export of Service Rules, as the services were provided from India, used outside India, and the consideration was received in convertible foreign exchange. The Tribunal relied on precedents where similar services were treated as exports and exempt from service tax.

4. Classification and Time-barred Demands:
The appellant argued that the bulk of the demands were time-barred, with only Rs. 3.42 crore under 'Business Auxiliary Service' and Rs. 45 lakhs under 'On-line Information and Database Access and/or Retrieval Service' falling within the normal limitation period. The Tribunal did not explicitly address the time-barred issue in its decision but focused on the classification and export status of the services.

Conclusion:
The Tribunal granted an unconditional waiver from pre-deposit of dues and stayed recovery during the appeal's pendency, recognizing the strong prima facie case made by the appellant. The decision emphasized the classification of services, the applicability of export rules, and the prospective application of new service levies.