Tribunal Rules in Favor of BMW India, Exempts Service Tax on Expats' Salaries & Car Sales Commission

The Tribunal allowed the appeal filed by BMW India Pvt. Ltd., setting aside the demand for service tax on salaries and perquisites of expats, commission received for services related to car sales in India, and charges for services related to the International Purchasing Office in India by BMW AG, Germany. The Tribunal concluded that the services provided were not taxable under the relevant provisions and exempt from service tax.

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Issues Involved:
1. Non-payment of service tax on salaries and perquisites of expats under Manpower Recruitment or Supply Agency Service.
2. Non-payment of service tax on commission received for services related to the sale of cars in India by BMW AG, Germany.
3. Non-payment of service tax on charges received from BMW AG, Germany for services related to the International Purchasing Office in India.

Issue-wise Detailed Analysis:

Issue No.(i): Non-payment of service tax on salaries and perquisites of expats under Manpower Recruitment or Supply Agency Service:

The appellant, BMW India Pvt. Ltd., argued that under the International Assignment Agreement, employees from BMW AG, Germany were under the direct control and supervision of BMW India and were paying income tax and provident fund in India. The Tribunal examined the terms of the agreement and found that the employees were indeed under BMW India's control, remained on its payroll, and had employment agreements with BMW India. The Tribunal referred to several judgments, including Computer Science India Pvt. Ltd. vs CST, Noida, which clarified that for a service to be taxable under Section 65(105)(k), it must be provided by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower. The Tribunal concluded that BMW AG was not a manpower supplier and that the demand for service tax on this issue was unsustainable and should be set aside.

Issue No.(ii): Non-payment of service tax on commission received for services related to the sale of cars in India by BMW AG, Germany:

The appellant contended that the services provided to BMW AG were support services for business or commerce, not Business Auxiliary Services (BAS). Even if considered BAS, the services were exported to BMW AG in Germany and thus exempt from service tax under the Export of Service Rules, 2005. The Tribunal agreed with the appellant, noting that the services promoted the sale of goods belonging to BMW AG, and referred to the Commissioner’s analysis which confirmed that the services fell under BAS. The Tribunal cited the Microsoft Corporation India Pvt. Ltd. case, which held that marketing operations done in India for a foreign principal are considered export of services. Consequently, the demand for service tax on this ground was also set aside.

Issue No.(iii): Non-payment of service tax on charges received from BMW AG, Germany for services related to the International Purchasing Office in India:

The Tribunal examined whether the services rendered to BMW AG for the International Purchasing Office in India constituted an export of services. The appellant argued that the services provided, such as identifying local vendors, were used by BMW AG outside India. The Tribunal referred to judgments in cases like Paul Merchants Limited and GAP International Sourcing India Pvt. Ltd., which held that services provided in India for a foreign principal, where the benefit is accrued outside India, are considered export of services. The Tribunal found that the services provided by BMW India to BMW AG met the criteria for export of services and thus were exempt from service tax. Therefore, the demand on this ground was also set aside.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal filed by BMW India Pvt. Ltd., concluding that the demands for service tax on all three issues were unsustainable. The order was pronounced in court on 17.10.2017.

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