2019 (1) TMI 1179 - AT - Service Tax

Reverse Charge Mechanism - commission received by the appellant from the appellant s service recipients located outside India - place of provision rules - export of services in terms of 6A of the Service Tax Rules, 1994 - whether the provision of service which was exempted from service tax by virtue of being an export service could become taxable after 09.10.2014? - Held that - It is not the case of the Revenue that the appellant arranges or facilitates other services as well, in addition to the above, to its Principals nor is the case of the Revenue that the appellant had suppressed the provision of any other service. The Revenue has also nowhere disputed the above service rendered by the appellant, ie., procuring/obtaining orders for its Principals located outside the taxable territory, for which the commission is paid by its Principals as also the fact of that obtaining orders from the Indian customers is the main and the only service rendered by the appellant. Rule 3 is the general Rule whereas, Rule 9 is specific and also covers intermediary service . Therefore, if the service of the appellant herein is held to be that of intermediary services, then Rule 9 will automatically apply. If not, Rule 3 will apply - Rule 2 (f) excludes the services of intermediary if the person whose main service is arranging or facilitating a provision of service, which also stands automatically excluded from the purview of Rule 9 and thus would fall under Rule 3. The facts of the case as analysed elsewhere in this order, make it clear that obtaining/procuring order for its foreign Principals is the main service rendered by the appellant and consequently, rigors Rule 9 vis- -vis Rule 2 (f) are not applicable - Rule 3 of POPS Rules would only apply and therefore the appellant cannot be fastened with tax liability. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of Rule 2 (f) of the Places of Provisions of Services Rules, 2012 (POPS) w.e.f. 01.10.2014 regarding taxation of commission received from service recipients located outside India. Application of Rule 3 and Rule 9 of POPS Rules in determining the place of provision of services and tax liability for intermediary services.

Analysis:

Issue 1: Interpretation of Rule 2 (f) of POPS Rules
The case revolved around the amendment to Rule 2 (f) of POPS w.e.f. 01.10.2014, which expanded the definition of 'intermediary' to include a person who arranges or facilitates a provision of a service or a supply of goods between two or more persons. The appellant contended that their main service was obtaining orders from Indian customers for foreign suppliers, which did not fall under the purview of intermediary services. The appellant argued that the insertion of 'supply of goods' post-amendment did not change the nature of their service, which was facilitating the provision of service. The Tribunal noted that the appellant's service was exempted from service tax as an export service before the amendment, and the same service continued to be exempt post-amendment. The Tribunal found that the appellant's service did not qualify as intermediary services under Rule 2 (f) and was, therefore, not taxable.

Issue 2: Application of Rule 3 and Rule 9 of POPS Rules
The Tribunal analyzed Rule 3 and Rule 9 of POPS Rules to determine the place of provision of services and tax liability for intermediary services. Rule 3 states that the place of provision of a service is the location of the recipient, while Rule 9 specifies that for intermediary services, the place of provision is the location of the service provider. The Tribunal concluded that if the appellant's service was classified as intermediary services, Rule 9 would apply; otherwise, Rule 3 would apply. Since the Tribunal found that the appellant's main service of obtaining orders for foreign Principals did not fall under intermediary services, Rule 3 was deemed applicable. As a result, the Tribunal held that the appellant could not be held liable for tax under Rule 9 and set aside the demand and the impugned order, allowing the appeal with consequential benefits as per law.

In conclusion, the Tribunal ruled in favor of the appellant, holding that their service did not constitute intermediary services under Rule 2 (f) of POPS Rules and that Rule 3 applied for determining tax liability. The judgment emphasized the importance of interpreting statutory provisions accurately to determine tax liability and upheld the appellant's contention that their service was exempt from taxation as an export service.