2012 (8) TMI 607 - AT - Service Tax

Tribunal rules against appellant on service tax issue, partial pre-deposit required with waiver granted for specific period.

The Tribunal held that the services provided by the appellant did not qualify as 'export of service' for the periods from 18/03/2005 to 05/12/2007. The ... Export of services - Business Auxiliary Services - Used outside India / effective use and enjoyment - Destination based consumption tax - Pre-deposit for stay of recovery - Extended period / suppression of factsExport of services - Destination based consumption tax - CBEC clarification - Whether services rendered by the appellant for the period 01/07/2003 to 19/11/2003 qualify as export of services and are therefore not liable to service tax - HELD THAT: - The Tribunal noted that for the interim period after rescission of Notification No.6/99-ST the Board had issued a clarification (Circular dated 25/04/2003) that service tax is a destination based consumption tax and export of services would continue to remain tax free. Applying that clarification, the Tribunal found that the appellant has a prima facie case that the services for the period 01/07/2003 to 19/11/2003 amounted to export and hence were not taxable. On that basis the Tribunal granted relief limited to that period for the purpose of the stay application. [Paras 8]Prima facie case established for the period 01/07/2003 to 19/11/2003; benefit of the Board's circular accepted for stay purposesExport of services - Used outside India / effective use and enjoyment - Business Auxiliary Services - GATS modes of supply - Whether services rendered by the appellant for the period 18/03/2005 to 05/12/2007 qualify as export of services under the Export of Service Rules, 2005 - HELD THAT: - The Tribunal examined the International Distribution Agreement and the nature of services (promotion, demonstration, installation, training, warranty, advertising) performed within the territorial territory assigned in India. It held that these services were rendered in India and, by their nature, were used in India to promote the principal's business in India. Applying the Export of Service Rules and subsequent CBEC clarification that 'used outside India' requires effective use and enjoyment abroad, the Tribunal concluded that the conditions for export were not satisfied for the period from 15/03/2005 onwards (including sub periods under amended Rules). The Tribunal also relied on authority and the economic concept that service tax is a destination based consumption tax to reason that where use and enjoyment occur in India the transaction is taxable. The factual distinction from precedents relied on by the appellant (where order procurement was forwarded abroad) was noted. [Paras 9, 10, 11, 12, 17]Services for the period 18/03/2005 to 05/12/2007 do not qualify as export of services; demand prima facie sustainable and pre-deposit directedFinal Conclusion: The Tribunal allowed limited relief for the period 01/07/2003 to 19/11/2003 on the basis of the Board's circular, but upheld the view that services rendered from 18/03/2005 to 05/12/2007 were used in India and not exportable; consequently the appellant was directed to make a partial pre-deposit of Rs.25 lakhs within eight weeks, upon compliance the balance was stayed during the appeal. Issues Involved:1. Classification of services under 'Business Auxiliary Services.'2. Determination of whether the services rendered qualify as 'export of service.'3. Applicability of service tax exemptions and Export of Service Rules.4. Invocation of the extended period for demand of service tax.5. Financial hardship and balance of convenience for granting stay.Detailed Analysis:1. Classification of Services under 'Business Auxiliary Services':The Tribunal noted that there is no dispute regarding the classification of the services provided by the appellant under 'Business Auxiliary Services' as per the provisions of Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994.2. Determination of Whether Services Rendered Qualify as 'Export of Service':The primary issue was whether the services rendered by the appellant to the foreign service recipient qualify as 'export of service' during the periods from 01/07/2003 to 19/11/2003 and 18/03/2005 to 05/12/2007.- For the period 01/07/2003 to 19/11/2003: The Tribunal considered the Board's Circular No. 56/5/2003 dated 25/04/2003, which clarified that 'Service tax is a destination-based consumption tax and it is not applicable on export of services.' Accordingly, the appellant had a prima facie case for waiver of pre-deposit of dues adjudged for this period.- For the period from 15/03/2005 onwards: The Tribunal examined the Export of Service Rules, 2005, which stipulated that a service shall be treated as 'export of service' if it is delivered outside India and used in business outside India. The Tribunal found that the promotional and marketing activities undertaken by the appellant were conducted in India and used for promoting the business of the foreign manufacturer in India. Hence, these services did not qualify as 'export of service' as the effective use and enjoyment of the services were within India.3. Applicability of Service Tax Exemptions and Export of Service Rules:The Tribunal analyzed various notifications and rules governing service tax exemptions:- Notification No. 6/99-ST and Notification No. 21/2003-ST: These provided exemptions for services where payment was received in convertible foreign exchange. However, these notifications were rescinded, and the Export of Service Rules, 2005, came into effect.- Export of Service Rules, 2005: For the period under consideration, the rules required that the service be delivered and used outside India. The Tribunal concluded that the services rendered by the appellant did not meet these criteria as they were used within India.4. Invocation of the Extended Period for Demand of Service Tax:The appellant contended that the demand was barred by the limitation of time. However, the Tribunal found that the appellant failed to disclose the agreement with VIASYS and the receipt of consideration for services rendered. This constituted suppression of facts, justifying the invocation of the extended period for demand under Section 73 of the Finance Act, 1994.5. Financial Hardship and Balance of Convenience for Granting Stay:The Tribunal noted that the appellant did not provide evidence of financial hardship. The balance of convenience favored the revenue, and the Tribunal directed the appellant to make a pre-deposit of Rs. 25 lakhs within eight weeks. Upon compliance, the pre-deposit of the balance amount would be waived, and recovery stayed during the pendency of the appeal.Conclusion:The Tribunal concluded that the appellant's services did not qualify as 'export of service' for the periods from 18/03/2005 to 05/12/2007. The demand for service tax was upheld, and the appellant was directed to make a partial pre-deposit. The Tribunal granted a waiver for the period 01/07/2003 to 19/11/2003 based on the Board's circular, acknowledging the appellant's prima facie case for this period.