2024 (7) TMI 1075 - AT - Service Tax

Non-payment of service tax - consideration received from Nalco, USA - service rendered during the period 2007-08 to 2011-12 - Extended period of limitation - HELD THAT - For the services being rendered for the clients of USA Company in India since the service is taking place within India, the Appellant is required to pay Service Tax, which they are doing and the Department is not disputing the same. In respect of the services rendered for the clients of USA Company in foreign countries, this would amount to export of services in terms of Rule 3 of the Export of Services Rules, 2005. Rule 3 (2)(b) specifies that when the services are rendered abroad, the consideration should be received in convertible foreign currency. Admittedly, there is no dispute that the Appellant is receiving the consideration in convertible foreign exchange. Only objection of the Revenue is to the effect that such foreign exchange is being received form USA Company and not directly from the clients. There are no specific bar or condition at Rule No. 3(2)(b) that the convertible foreign exchange should be received only from the clients and not through any other person. Therefore, the Revenue's contention that the amount is not being received in convertible foreign exchange, not agreed upon. Since the Appellant has fulfilled all the requirements under Export of Service Rule, 2005, we hold that on merits the confirmed demand is required to be set aside. In respect of reimbursements given to Nalco Company USA, there are the costs initially incurred by them and the same is being reimbursed by the appellant. There is no allegation that such amounts are being paid by the appellant as consideration towards any service provided by Nalco Company USA. Therefore, the confirmed demand on this count is legally not sustainable, the same is set aside. Extended period of limitation - HELD THAT - There are considerable force in the Appellant's submission that the Department has not brought in any concrete evidence towards suppression. Admittedly, the Appellant is registered with the Service Tax Department and is making the normal Service Tax payments, filing the ST-3 Returns etc. which shows that they have been providing all the details to the Department on a timely basis. Towards their transactions within India, they are discharging the Service Tax liability. In respect of the services rendered abroad, their holding bonafide belief is found to be proper. In such a case, suppression clause cannot be sustained against the Appellant. Therefore, the confirmed demand towards extended period set aside on account of time bar also. The Appeal is thus allowed both on merits as well as on account of limitation (in respect of the extended period).

Summary

Issues:
1. Whether the Appellant is liable to pay Service Tax for services rendered to Nalco Company, USA?
2. Whether the condition of receiving payment in convertible foreign exchange directly from clients is mandatory for considering services as 'Export of Service'?
3. Whether reimbursements to Nalco Company, USA constitute consideration for services provided?
4. Whether the Department can allege suppression against the Appellant for not paying Service Tax on services rendered abroad?

Analysis:
1. The Appellant, a manufacturer and seller of water treatment chemicals, provided IT-enabled services to Nalco Company, USA, an associate enterprise, for monitoring the performance of units sold worldwide. The Department issued a Show Cause Notice for non-payment of Service Tax on consideration received from Nalco, USA. The Adjudicating Authority confirmed the demand, leading the Appellant to appeal before the Tribunal.

2. The Appellant argued that services to overseas clients of Nalco, USA constitute 'Export of Service' as per Rule 3 of Export of Service Rules, 2005. The condition of receiving payment in convertible foreign exchange directly from clients was contested, citing commercial arrangements. The Tribunal agreed, setting aside the demand as the Appellant fulfilled all requirements under the Rule.

3. Regarding reimbursements to Nalco, USA, the Appellant clarified that these were costs borne by them, not consideration for services. The Tribunal found the demand on this count legally unsustainable and set it aside.

4. The Appellant's compliance with Service Tax regulations for Indian operations and timely filing of returns were noted. The Tribunal ruled in favor of the Appellant, stating that their belief in not paying Service Tax for services abroad, where payment was in foreign exchange, was reasonable. Allegations of suppression by the Department were dismissed, and the demand for the extended period was set aside.

In conclusion, the Tribunal allowed the appeal both on merits and in terms of limitation for the extended period, providing consequential relief as per the law.