2022 (10) TMI 9 - AT - Service Tax

Taxability - amounts expended for meeting operational costs of overseas offices - payments received for arranging and operating of outbound tour services - period up to March 2012 - scope of the expanded definition of section 65(115) of Finance Act, 1994 - HELD THAT - The change in the statutory provision has added elements to the activity that makes for being tour operator and, in both the unamended and amended version, entirety of performance in India is the criterion for subjecting the consideration to tax. That is the only conclusion that can be arrived at from perusal of Export of Service Rules, 2005 which categorizes the scheme of export in terms of the enumeration of taxable service in section 65(105) of Finance Act, 1994. Insofar as service taxable under section 65(105)(n) of Finance Act, 1994 is concerned, it did not appear to have dawned on the adjudicating authority that Export of Service Rules, 2005 does not base the exemption on place of the customer. The assumption that payment, if any, was received in local currency from Indian tourists is also not evidenced by any details in the show cause notice or subsequent ascertainment in the impugned order which has, but for the tabular presentation of taxable value/tax and the final confirmation of demand, not referred to the service rendered or disaggregation of value of services ineligible to be considered as exports. Appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Taxability of operational costs of overseas offices.
2. Taxability of payments received for arranging and operating 'outbound tour' services.
3. Inclusion of interest under section 75 of Finance Act, 1994.

Detailed Analysis:

1. Taxability of Operational Costs of Overseas Offices:
The Tribunal examined the demand for service tax on outward remittances for operational costs of overseas offices. The adjudicating authority had confirmed the taxability under 'business auxiliary service' taxable under section 65(105)(zzb) of the Finance Act, 1994, and deemed the domestic entity as the service provider under section 66A of the Finance Act, 1994, for the period after 18th April 2006. However, the Tribunal referred to several precedents, including Kusum Healthcare Pvt Ltd vs. Commissioner of Central Excise, Jaipur-I, which clarified that remittances to overseas branches should not be taxed as they are not considered services received in India. The Tribunal concluded that the demand for the period up to March 2012 was not sustainable, as the services rendered by overseas branches were related to export activities and did not constitute taxable services under section 66A.

2. Taxability of Payments Received for Arranging and Operating 'Outbound Tour' Services:
The Tribunal addressed the demand for service tax on payments received for 'outbound tours' under 'tour operator service' taxable under section 65(105)(n) of the Finance Act, 1994. The adjudicating authority had relied on the expanded definition of 'tour operator' and clarifications from the Central Board of Excise & Customs (CBEC) to confirm the demand. The Tribunal referred to the decision in Cox & Kings India Ltd vs. Commissioner of Service Tax, Delhi, which held that services related to outbound tours were not taxable if they were performed outside India. The Tribunal emphasized that the adjudicating authority had not adequately examined the exemption under the Export of Service Rules, 2005, and had erroneously based the demand on the expanded definition of 'tour operator.' The Tribunal concluded that the services provided for outbound tours, where consideration was received in convertible foreign currency, were exempt from tax as they were substantially performed outside India.

3. Inclusion of Interest Under Section 75 of Finance Act, 1994:
The Tribunal noted that the impugned order did not specifically mention recovery of interest under section 75 of the Finance Act, 1994, despite acknowledging the automatic recovery of interest in cases of short levy under section 73. The Tribunal considered this an oversight by the adjudicating authority. However, since the primary issue of taxability was resolved in favor of the appellant-assessee, the question of interest recovery did not arise, and the appeal of the Revenue on this ground was dismissed.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal of the assessee and dismissing the appeal of the Revenue. The Tribunal concluded that the operational costs of overseas offices and payments for outbound tours were not taxable, and the demand for service tax and penalties was not sustainable. The issue of interest recovery under section 75 was rendered moot due to the resolution of the primary taxability issues in favor of the appellant-assessee.