2024 (11) TMI 1134 - AT - Service Tax

Service Tax on the Commission received from services provided to foreign clients - Assessee engaged in providing taxable services, including services under the category of business auxiliary service to their clients located in the United Kingdom (U.K.) - Appellant rendered the service of collecting necessary information based on the questionnaire sent by M/s. J.S. Humidifiers PLC, U.K. and supplying back such information directly to the foreign party in the U.K. - HELD THAT - In the Circular No. 111/05/2009-S.T. dated 24.02.2009, it has been clarified that for the services under category III rule 3(i)(iii) , the deciding factor is the location of the service receiver and not the place of performance. We observe that the said Circular has interpreted the phrase used outside India to mean the benefit of the services accrues outside India. Business auxiliary services falls under Rule 3(i)(iii) of the Export Service Rules. Thus, in this case we observe that the phrase used outside India has to be interpreted to mean that the benefit of the services accrues outside India. In the present case, we observe that the appellant has collected the information and provided the same to the foreign principal, who, after analyzing the information, negotiated the price, delivery schedules, technical evaluation, etc., with the customers and delivered the goods directly to them. We observe that the Appellant had no role in the purchase of the goods by the Indian customer. The information gathered by the appellant and provided to the principal viz. M/s. J.S. Humidifiers PLC, U.K., has been utilized by the principal located in a foreign country and thus the benefit of the information gathered by the them accrues only to the foreign principal. Accordingly, we hold that in terms of Circular No. 111/05/2009-S.T. dated 24.02.2009, the services rendered by the appellant would be appropriately classifiable as export of service . Accordingly, we hold that the services rendered by the Appellant in the instant case are exempted from Service Tax, being export of services, and thus the demand of Service Tax confirmed vide the impugned order is not sustainable. The same is therefore set aside.

Summary

Issues:
Interpretation of 'export of service' under the Export of Services Rules, 2005 for services provided to foreign clients in convertible foreign exchange.
Applicability of Circular No. 111/05/2009-S.T. dated 24.02.2009 in determining the location of service receiver for 'business auxiliary services'.
Validity of demand for Service Tax on commission received from foreign clients.
Imposition of penalty under Section 78 of the Act for alleged evasion of Service Tax.

Analysis:
The case involved a dispute regarding the liability of Service Tax on the commission received by the Appellant for providing services to foreign clients. The Department contended that the commission received falls under 'business auxiliary service' and is taxable. The Appellant argued that services provided to foreign clients should be considered as 'export of service' under the Export of Services Rules, 2005, and hence exempt from Service Tax.

The Appellant relied on Circular No. 111/05/2009-S.T. dated 24.02.2009, which interpreted the phrase "used outside India" to mean that the benefit of the service should accrue outside India. They argued that since the foreign principals utilized the information provided by them outside India to negotiate directly with Indian customers, the services should be classified as 'export of service'. The Tribunal agreed with this interpretation and held that the services provided by the Appellant to foreign clients are exempt from Service Tax under the category of 'export of service'.

The Tribunal also noted that the Circular No. 141/10/2011-TRU dated 13.05.2011, relied upon by the Department, was issued after the period in question (2006-07 to 2010-11). Therefore, it held that the Circular dated 24.02.2009 is applicable in this case for interpreting the phrase "used outside India".

Furthermore, the Tribunal found that the Appellant had no role in the purchase of goods by Indian customers and that the benefit of the services accrued only to the foreign principal. Citing the Circular's interpretation that the location of the service receiver is crucial, the Tribunal concluded that the services rendered by the Appellant to foreign clients indeed qualify as 'export of service'.

Consequently, the Tribunal set aside the demand for Service Tax, ruling in favor of the Appellant. Since the demand itself was deemed unsustainable, the Tribunal held that there was no basis for demanding interest or imposing a penalty on the Appellant for alleged evasion of Service Tax. Thus, the appeal filed by the Appellant was allowed, and the impugned order was set aside.