2023 (6) TMI 591 - AT - Service Tax

Levy of service tax - Clearing and Forwarding Agency service - reverse charge mechanism - services were provided as well as consumed outside India - HELD THAT - The clearing and forwarding agency service that falls under sec. 65(105)(zj) is covered under sub-rule (ii) of the above Rule 3. It is clear that these category of services specified under sub-rule (ii) shall be totally excluded when the services are wholly provided / performed outside India. The adjudicating authority has held that the said Rule would not be applicable to the appellant on the ground that the same would be applicable only when part of the services are performed in India. On reading of the Rule, it is clear that if the services which are mentioned therein are performed outside India, there is no liability to pay service tax. In the case of the appellant in M/S. SUNDARAM INDUSTRIES LTD. VERSUS THE COMMISSIONER OF G.S.T. CENTRAL EXCISE, MADURAI COMMISSIONERATE 2018 (12) TMI 947 - CESTAT CHENNAI , for a different period, the Tribunal has held since services have been wholly performed outside India, the activity will not be exigible to service tax by virtue of Rule 3 (ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The learned AR has relied on the decision in the case of M/S. PARAMOUNT COMMUNICATIONS LTD. VERSUS CCE, DELHI 2018 (9) TMI 503 - CESTAT NEW DELHI . On going through the said decision, it is seen that the demand has been upheld by the Tribunal observing that part of the services were provided within India. The said decision being distinguishable on facts, it is not applicable. Thus, the demand cannot sustain. The impugned order is set aside. The appeal is allowed.

Summary

Issues:
The issues involved in this case are related to the liability of the appellant to pay service tax under the category of clearing and forwarding agency service for services received from a foreign entity, and the applicability of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules 2006.

Liability to Pay Service Tax:
The appellant, engaged in manufacturing rubber products, received clearing and forwarding agency services from a foreign entity. The appellant initially paid service tax under reverse charge mechanism but later stopped, citing that the services were performed entirely outside India. Show Cause Notices were issued for various periods demanding service tax, interest, and penalty. The original authority and Commissioner (Appeals) upheld the demand. The appellant argued that as per Section 66A of the Finance Act, 1994 and Rule 3 of Taxation of Services Rules, they were not liable to pay service tax as the services were provided outside India.

Interpretation of Rules:
The Tribunal analyzed Section 66A of the Finance Act, 1994 and Rule 3 of the Taxation of Services Rules. Rule 3 specifies that certain services, including clearing and forwarding agency services, performed entirely outside India are excluded from service tax liability. The Tribunal referred to previous cases where it was held that services performed outside India are not subject to service tax. The Tribunal also noted that the legislature framed Rule 3 to encourage exports and foreign exchange remittances. The Tribunal found that the demand for service tax could not be sustained based on the interpretation of the rules and previous decisions in similar cases.

Comparison with Precedents:
The Tribunal compared the present case with previous judgments where it was held that services performed outside India are not subject to service tax. The Tribunal emphasized that the activity of the appellant, being wholly performed outside India, falls under the exemption provided by Rule 3 of the Taxation of Services Rules. The Tribunal also distinguished a decision cited by the respondent, stating that it was not applicable to the current case. Based on the facts, evidence, and previous decisions, the Tribunal concluded that the demand for service tax could not be upheld. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief, if any, as per law.

This summary provides a detailed overview of the legal judgment, focusing on the issues, arguments presented, interpretation of relevant rules, comparison with precedents, and the final decision of the Tribunal.