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TMI Blog2012 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... y of 'Business Auxilliary Services' w.e.f. 01/07/2003 under the provisions of Chapter V of the Finance Act, 1994. It was also noticed that the appellant has not been discharging any service tax on the said service rendered by it to M/s. VIASYS. After going through the various provisions of the agreement entered into by the appellant with VIASYS and also recording the statements of the officials of the appellant, a show cause notice dated 01/09/2008 was issued classifying the service rendered by the appellant M/s. Life Care to M/s. VIASYS as 'Business Auxilliary Services' under the provisions of Section 65(19) read with Section 65(105)(zzb) of the Finance Act,1994 and demanding service amount of Rs.55,21,954/- for the period from 01/07/2003 to 19/11/2003, 18/03/2005 to 02/03/2006, 02/05/2006 to 25/04/2007 and 30/07/2007 to 05/12/2007. Interest on the said amount was also demanded. It was also proposed to impose penalty on the appellant under Section 76,77 and 78 of the Finance Act, 1994 and also to deny benefit of exemption Notification No.13/2003 dated 20/06/2003 and under the Export of Service Rules,2005. The said notice was adjudicated vide the impugned order and the demand for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be interpreted to mean that the benefit of service should accrue outside India. Thus, for category (3) service, it is possible that the export of service may take place even when all the relevant activities take place in India so long as the benefit of these services accrue outside India. Since the services rendered by the appellant falls under category (3) and the recipient of the service is M/s. VIASYS, who is located outside India, the services rendered by the appellant amounts to export of services as defined in Export of service Rules, 2005 and, therefore, they are not liable to pay any service tax during the impugned period. As regards the demand of service tax for the period from 01/07/2003 to 19/11/2003 it has been clarified in Board's Circular No. 56/5/2003 dated 25/04/2003 that "Service tax is a destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No. 6/99-ST dated 09/04/1999." 3.3 In view of the above, the activities undertaken by the appellant are not liable to service tax and accordingly he pleads for grant of waiver of pre-deposit of the dues adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase at least the minimum USD amount specified in the said agreement 2. to use its best efforts to promote and sell the products in the territory allocated which shall be in addition to the minimum purchase requirements; 3. to demonstrate the products to the prospective customers and also install such products at the customers' locations and to provide training to the customers for the proper use of such products; 4. to provide its customers with warranties in a prompt and thorough manner and to respond to warranty requests within 24 hours of its initial receipt. 5. to promptly and completely translate all user and technical manuals as well as such advertising and marketing materials as the foreign manufacturer may from time-to-time provide for use in the country for promotion of the products within the territory. From the terms and conditions of the agreement, it is evident that the appellant was undertaking promotion and marketing of the goods manufactured by the foreign manufacturer, M/s. VIASYS International Corporation and also installation services, warranty services, advertising services etc. for the foreign principal. These services can be rendered by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied, the conditions relating to delivery of service outside India and the use of the service outside India are not satisfied because the promotional activity undertaken by the service provider is in India and it can be used only in promoting the business in India. Therefore, the use of service is not outside India. The same position will prevail during the period up to 30/05/2007. Even for the period from 01/06/2007 onwards, the condition relating to service be provided from India and used outside India is not satisfied. Therefore, the demand of service tax for the period 18/03/2005 to 05/12/2007 appears to be prima facie correct in law. 10. The appellant has relied upon a few decisions of this Tribunal. In the case of Em Jay Engineers and Lenovo (India) Pvt. Ltd. (cited supra), the issue pertained to liability to service tax on the commission received for procuring orders in India and forwarding the same to their principals abroad. In that context, it was held that procurement of orders and forwarding the same to their principals abroad amount to delivery of service outside India and therefore, satisfies the definition of 'export of service' and, hence, no service tax is leviable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by a client located outside India, is actually used in respect of a project or an activity in India, the service can not be said to be used outside India. 3. It may be noted that the words "Accrual of benefit" are not restricted to mere impact on the bottom-line of the person who pays for the service. If that were the intention it would render the requirement of services being used outside India during period prior to 28-2-2010 infructuous. These words should be given a harmonious interpretation keeping in view that during the period upto 27-2-2010 the explicit condition was provided in the rule that the service should be used outside India. In other words these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. The effective use and enjoyment of the service will of course depend on the nature of the service. For example effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place. This however, should not apply to services which are merely performed from India and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the above discussion shows that what was the economic concept, that there is no distinction between consumption of goods and consumption of services is translated into a legal principle of taxation by the aforesaid Finance Acts of 1994 and 1998." The above elucidation of the economic concept of service tax by the hon'ble apex court makes it abundantly clear that to make the service activity leviable to tax, the services should be rendered in India. In the instant case, the service rendered is promotion/marketing of the goods of the client in India by rendering various services such as demonstration, installation, after sales warranty and advertising services for which the appellant received a consideration. These activities are rendered in India and their effective use and enjoyment are in India and therefore, the benefit of the services rendered also accrue in India and hence leviable to service tax. 13. The Export of Service Rules owes it origin to General Agreement on Trade and Tariff. In the 8 th round of the GATT (Uruguay Round), negotiations were carried out in the area of services which led to the General Agreement on Trade in Services (GATS) to which India is a signat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be said to be bonafide only when it is formed after all the reasonable considerations are taken into account". The agreement itself contains a clause relating to "Responsibility for Taxes and Duties" which reads as follows:- "All taxes, now or hereafter with respect to the transaction contemplated hereunder (including value added taxes, sales and use taxes, customs and excise taxes or duties and other similar taxes or duties, but excluding income taxes or other taxes imposed upon Manufacturer and measured by the gross or net income of Manufacturer shall be the responsibility of Distributor, and if paid, or required to be paid by Manufacturer, the amount thereof shall be added to and become part of the amounts payable by Distributor hereunder." The above clause in the agreement itself should have alerted the appellant about their tax liability and they should have taken appropriate steps to ascertain their liability either from the department or from experts on the subject. Further it is on record that the appellant is registered with the Service Tax Department for other services such as maintenance and repair and installation during the relevant period. Therefore, it can not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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