2017 (10) TMI 903 - AT - Service Tax

Import of services - manpower recruitment supply agency service - Levy of service tax on salaries and perquisites of the employees and expats - Held that - the employees have been deputed by BMW, AG and they are under direct control and supervision of BMW India. The employees are paying income-tax in India and making EF contribution in India. Also, the employees remained on the payroll of BMW India and there is employment agreement between individual employee and BMW India - similar issue came up before the Hon ble Allahabad High in the case of Computer Science India Pvt.Ltd. 2014 (11) TMI 125 - ALLAHABAD HIGH COURT , where it was held that Unless the critical requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise - taking into account that BMW AG is not a manpower supplier, the demand on the issue is not sustainable and is liable to be set aside. Non-payment of service tax - commission received on account of services rendered in relation to sale of cars in India by BMW AG, Germany - Held that - the Noticee speaks of evaluation of prospective customers. If it is so, then sub-clause (vii) of clause (19) of Section 65 of the Act comes into play, which defines business auxiliary service to mean any service in relation to evaluation or development of prospective customer . Thus, in this manner, Business Auxiliary Service under sub-clause (vii) of clause (19) of Section 65 of the Act would be applicable instead of Support Services of Business or Commerce - the SCN was issued on the basis of an order passed by the Principal Bench of CESTAT on a stay application in Microsoft Corporation (I) Pvt. Ltd. Vs. CST, New Delhi 2009 (7) TMI 105 - CESTAT, NEW DELHI . However, in the same appeal, the matter relating to the provision of business auxiliary service as export of service has finally been settled by above quoted judgment in Microsoft Corporation (I) Pvt. Ltd. Vs. CST, Delhi 2014 (10) TMI 200 - CESTAT NEW DELHI (LB) in favor of assessee and is thus no longer res integra. Hence, the demand on this ground is liable to be set aside. Non-payment of service tax - charges received from BMW,AG Germany on account of services rendered in relation to international purchasing office in India - Held that - the appellants are engaged in providing details of local vendors which meet requirements laid down by BMW, AG. The quantum of consideration is not dependent on any action subsequent to the said use of information by BMW, AG. We find that the above issue is no longer res integra and is covered by the judgment of this Tribunal in the case of Paul Merchants Limited 2012 (12) TMI 424 - CESTAT, DELHI (LB) , where it was held that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Non-payment of service tax on salaries and perquisites of expats under Manpower Recruitment or Supply Agency Service.
2. Non-payment of service tax on commission received for services related to the sale of cars in India by BMW AG, Germany.
3. Non-payment of service tax on charges received from BMW AG, Germany for services related to the International Purchasing Office in India.

Issue-wise Detailed Analysis:

Issue No.(i): Non-payment of service tax on salaries and perquisites of expats under Manpower Recruitment or Supply Agency Service:

The appellant, BMW India Pvt. Ltd., argued that under the International Assignment Agreement, employees from BMW AG, Germany were under the direct control and supervision of BMW India and were paying income tax and provident fund in India. The Tribunal examined the terms of the agreement and found that the employees were indeed under BMW India's control, remained on its payroll, and had employment agreements with BMW India. The Tribunal referred to several judgments, including Computer Science India Pvt. Ltd. vs CST, Noida, which clarified that for a service to be taxable under Section 65(105)(k), it must be provided by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower. The Tribunal concluded that BMW AG was not a manpower supplier and that the demand for service tax on this issue was unsustainable and should be set aside.

Issue No.(ii): Non-payment of service tax on commission received for services related to the sale of cars in India by BMW AG, Germany:

The appellant contended that the services provided to BMW AG were support services for business or commerce, not Business Auxiliary Services (BAS). Even if considered BAS, the services were exported to BMW AG in Germany and thus exempt from service tax under the Export of Service Rules, 2005. The Tribunal agreed with the appellant, noting that the services promoted the sale of goods belonging to BMW AG, and referred to the Commissioner’s analysis which confirmed that the services fell under BAS. The Tribunal cited the Microsoft Corporation India Pvt. Ltd. case, which held that marketing operations done in India for a foreign principal are considered export of services. Consequently, the demand for service tax on this ground was also set aside.

Issue No.(iii): Non-payment of service tax on charges received from BMW AG, Germany for services related to the International Purchasing Office in India:

The Tribunal examined whether the services rendered to BMW AG for the International Purchasing Office in India constituted an export of services. The appellant argued that the services provided, such as identifying local vendors, were used by BMW AG outside India. The Tribunal referred to judgments in cases like Paul Merchants Limited and GAP International Sourcing India Pvt. Ltd., which held that services provided in India for a foreign principal, where the benefit is accrued outside India, are considered export of services. The Tribunal found that the services provided by BMW India to BMW AG met the criteria for export of services and thus were exempt from service tax. Therefore, the demand on this ground was also set aside.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal filed by BMW India Pvt. Ltd., concluding that the demands for service tax on all three issues were unsustainable. The order was pronounced in court on 17.10.2017.