2024 (10) TMI 565 - AT - Service Tax

Classification of service - whether the services provided by the appellant can be classified as Business Auxiliary Service and would, therefore, amount to export of services under the Export of Service Rules, 2005 and hence are exempt from payment of service tax? - penalty - interest - extended period of limitation. HELD THAT - From the assertion made by the appellant, there is no dispute that the goods manufactured by M/s FOSS are being supplied directly to the buyers by issuing the invoices directly. The appellant has not bought any of the goods from M/s FOSS. From the terms and conditions of the contract, it is found that the appellant had not provided any marketing services rather the characteristics of the services required to be rendered by the appellant related to Maintenance and Repair services. They had nothing to do with the marketing or sales promotion of the products of FOSS which they were directly indulging in. The commission received by the appellant in advance was for providing complete service support on the products in India and not in connection with the marketing or sales so as to fall under definition of Commission Agent under Business Auxiliary Service as defined under Section65(19) of the Act. Accordingly, the services provided by the appellant are covered under commissioning and installation, repairing and maintenance service, commercial training, and coaching, testing and certification, IT software and Internet telecommunication services. Since the services have been provided in India and are used in India, as the products are in India, they are not covered under the export of service and hence are not entitled to exemption from the levy of service tax. The submission of the learned Counsel for the appellant that the services provided by them are activities which are incidental or ancillary to the activity of sale of goods and hence are entitled to the shelter under the export of service rules has no merit as it is concluded that the appellant is not engaged in rendering marketing or sales promotion services. Once the main activity is out of net, the incidental or ancillary services would automatically fail. The reliance placed by the appellant on the Circular No. 111/5/2009-ST dated 24.02.2009 is misplaced for the simple reason that the issue whether the benefit of export of services can be denied on the ground that these activities do not satisfy the condition used outside India was with reference to marketing . Time Limitation - HELD THAT - The show cause notice was issued pursuant to the audit conducted by the Department, where it was revealed that the amount of commission received by the appellant has been taxed wrongly availing the exemption under the export of service rules. The suppression of the correct valuation of tax liability was detected by the Audit team and, therefore, the extended period of limitation has been rightly invoked under Section 73(1) of the Act. Penaty - Interest - HELD THAT - The penalty imposed on the appellant under Section 78 is upheld. Since on merits, it is held that the services rendered by the appellant cannot be treated as export services, they are liable to pay interest amount on the delayed payment of the service tax as ascertained by the Adjudicating Authority. There is no merit in the submission that services rendered by the appellant under the contract are covered under the definition of Commission Agent under the BAS as per Section 65(19). Consequently, the services do not fall under the category of export of service under the Rules. The services provided by the appellant are not used outside India and, therefore, the appellant is not entitle to any exemption on account of export of services. There are no reason to interfere with the impugned order and the same is affirmed - The appeal is dismissed.

Issues Involved:

1. Classification of services provided by the appellant.
2. Applicability of the Export of Service Rules, 2005.
3. Invocation of the extended period of limitation.
4. Imposition of penalties under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:

The primary issue was whether the services rendered by the appellant could be classified under "Business Auxiliary Service" (BAS) and thus qualify as export services exempt from service tax. The appellant argued that their activities, including training, repair, maintenance, and installation of products supplied by a foreign company, were incidental to the sale of goods and fell under the definition of a "Commission Agent" within BAS. However, the Tribunal found that the appellant's services were more accurately classified under "Commissioning and Installation," "Repair and Maintenance," and related services as per the statutory definitions in Section 65 of the Finance Act, 1994. The services were provided entirely within India, and thus did not meet the criteria for export services.

2. Applicability of the Export of Service Rules, 2005:

The appellant claimed that their services were exempt under Rule 3(2) of the Export of Service Rules, 2005, arguing that the recipient of the services was located outside India. However, the Tribunal determined that the services were utilized within India, as the products serviced were located in India. The Tribunal concluded that the services did not qualify as export services since they were not used outside India, and the benefit of the services did not accrue outside India. Consequently, the appellant was not entitled to any exemption from service tax under the Export of Service Rules.

3. Invocation of the Extended Period of Limitation:

The appellant contended that the show cause notice was barred by limitation and that the extended period of limitation was unjustified. They argued that there was no suppression of facts since the figures were reflected in their balance sheet. However, the Tribunal upheld the invocation of the extended period under Section 73(1) of the Finance Act, 1994, noting that the appellant had misled the Department by incorrectly claiming exemptions. The suppression of the correct tax liability was only discovered during an audit, justifying the extended period.

4. Imposition of Penalties under the Finance Act, 1994:

The Tribunal upheld the penalties imposed under Section 78 of the Finance Act, 1994, due to the appellant's failure to correctly classify their services and their attempt to evade service tax liability. The appellant's argument that they were under a bona fide belief of non-liability was rejected, as the Tribunal found that the appellant was aware of the nature of the services provided and the terms of the contract. The Tribunal also affirmed the liability for interest on the delayed payment of service tax.

Conclusion:

The Tribunal concluded that the services rendered by the appellant were not covered under the definition of "Commission Agent" within BAS and did not qualify as export services under the Export of Service Rules. The services were provided and used within India, and thus, the appellant was liable to pay service tax along with interest and penalties as determined by the authorities. The appeal was dismissed, and the impugned order was affirmed.

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