2019 (12) TMI 232 - AT - Service Tax

Export of services - place of provisions of services - Intermediary services or not - Nature of amount credited in the books of account - reimbursement in respect of the losses incurred by them - Appellants have claimed that these amounts were received by them is respect of operating expenses incurred by them in order to manage the existing sales of the products imported and not for provision of service. - Revenue has in appeal sought to compare the un-comparables i.e. goods with services or tangibles with intangibles HELD THAT - From 27.02.2010, the condition in respect of provision of service in India and usage outside India was omitted from the Export of Service Rules, 2005 in respect of category III services. Thus for determining whether a service provided which falls in Category III is Export of Service or not the relevant conditions to be satisfied were that- (a) The services should be provided in relation to business or commerce to a recipient located outside India; and (b) Payment for such services should be received by the service provider in convertible foreign exchange. Commissioner has in impugned order found that both these conditions were satisfied in respect of the transactions under question and has accordingly held that the services provided by the appellant are export of services. Revenue has not disputed by stating that the conditions specified by the Export of Service Rules, 2005 were not satisfied, they have sought to state that the Commissioner should have decided the matter independently without referring to these rules, in terms of general definition of exports ort by referring to Article 286 of Constitution. Intermediary services - HELD THAT - The term intermediary has been defined by the Rule 2(f) ibid and the phrase intermediary services used in Rule 9(c) will have to be interpreted accordingly. Revenue has not shown as to how the Appellant has acted as intermediary between the two persons namely service provider and service receiver of the main service - Since the nothing has been brought on record to show that appellants were providing the intermediary services to the recipient in manner as defined by Rule 2(f) we do not find any merits in the submissions of the revenue that place of provision of services in the present case will be location of service provider as per Rule 9 - commissioner has correctly determined the place of provision of service by application of Rule 3 as the location of the service recipient. There are no merits in the appeal filed by the revenue - appeal dismissed - decided against Revenue.

Issues Involved:
1. Classification of services provided by the respondent.
2. Determination of whether the services qualify as export of services.
3. Applicability of service tax on the services provided.
4. Invocation of extended period for demand under Section 73 of the Finance Act, 1994.
5. Imposition of interest and penalties under various sections of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Respondent:
The respondent was registered under multiple service categories, including Business Auxiliary Service (BAS). The revenue observed that the respondent received reimbursements from a foreign subsidiary, ALOG, for operating expenses incurred in India. The revenue argued that these reimbursements were for services provided under BAS, aimed at expanding ALOG’s market in India. The Commissioner, after examining the agreements and documents, concluded that the respondent provided services to ALOG that fall under BAS as per Section 65(19) of the Finance Act, 1994.

2. Determination of Whether the Services Qualify as Export of Services:
The Commissioner analyzed the services under the Export of Services Rules, 2005, and the Place of Provision of Services Rules, 2012. For the period prior to 27.02.2010, the services were considered exported since the recipient was located outside India, and the benefit accrued outside India. For the period from 27.02.2010 to 30.06.2012, the Commissioner found that the services met the conditions for export under the amended rules. Post 01.07.2012, the Commissioner determined that the services were not intermediary services but were provided directly to ALOG, making the place of provision the location of the recipient.

3. Applicability of Service Tax on the Services Provided:
The Commissioner held that the services provided to ALOG were indeed taxable under BAS but qualified as export of services, thus not subject to service tax. The revenue's appeal argued that the services should be taxed as they were consumed in India. However, the tribunal upheld the Commissioner’s view, emphasizing that the location of the service recipient is the determining factor for export of services.

4. Invocation of Extended Period for Demand under Section 73 of the Finance Act, 1994:
The revenue invoked the extended period for demand, alleging suppression of facts by the respondent. The Commissioner, however, found no suppression or misstatement by the respondent. The tribunal supported this view, citing the respondent’s compliance with transfer pricing regulations and the transparent nature of the transactions.

5. Imposition of Interest and Penalties under Various Sections of the Finance Act, 1994:
The show cause notice issued to the respondent proposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, for failure to pay service tax and obtain registration. The Commissioner dropped these penalties, and the tribunal upheld this decision, finding no intentional evasion of tax by the respondent.

Conclusion:
The tribunal dismissed the revenue’s appeal, confirming that the services provided by the respondent to ALOG qualified as export of services and were not subject to service tax. The tribunal also upheld the Commissioner’s decision to drop the penalties and interest, finding no suppression or misstatement by the respondent. The cross objections filed by the respondent were disposed of accordingly.

← Previous Next →