Appeal allowed: Service tax on consultant services to foreign client deemed export, tax credit upheld

The Tribunal allowed the appeal of the appellant-assesses, ruling in favor of their contentions regarding the liability of service tax on management or business consultant services provided to a foreign-based client. The Tribunal held that the services rendered were considered exports and not subject to service tax. Additionally, the Tribunal upheld that tax liability paid on a reverse charge basis was eligible as a credit and dismissed the Revenue's appeal against dropping the demand attributable to reimbursable expenditure. The judgment was pronounced on 08.12.2017.

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Issues:
1. Liability of service tax on management or business consultant services.
2. Taxability of services provided to a foreign-based client.
3. Treatment of expenses shown in foreign exchange in balance-sheet.
4. Eligibility of tax liability paid on reverse charge basis.
5. Confirmation of irregular Cenvat credit and its reversal.
6. Applicability of legal principles and decisions in determining tax liability.
7. Appeal by Revenue against dropping of demand attributable to reimbursable expenditure.

Issue 1: Liability of service tax on management or business consultant services
The appellants were engaged in providing management or business consultant services liable to tax under the Finance Act, 1994. The demand for recovery of service tax was initiated for the period 2007-08 to 2011-12. The original authority held the appellants liable to pay service tax of a specific amount while dropping a demand for another amount attributable towards reimbursable expenditure. Penalties were imposed under relevant sections of the Finance Act, 1994.

Issue 2: Taxability of services provided to a foreign-based client
The appellant-assesses contended that the services provided to a foreign-based client were for consumption and benefit of the client, thus constituting an export of service not liable to service tax. They argued that the consideration was received inconvertible foreign exchange, supporting their claim with references to legal precedents. The Tribunal agreed with the appellants, citing relevant decisions and upholding that the services rendered were indeed export of service, hence not subject to service tax.

Issue 3: Treatment of expenses shown in foreign exchange in balance-sheet
The Revenue sought to establish tax liability based on expenses shown in foreign exchange, contending that the services received in lieu of such expenditure were covered by the tax entry of management or business consultant services. However, the Tribunal found that the demand was presumptive and lacked clarity on how the expenditure could be considered payment towards taxable services. The demand for an extended period was deemed unjustified, especially considering the evolving legal position on reverse charge basis for service tax.

Issue 4: Eligibility of tax liability paid on reverse charge basis
The appellants argued that any tax liability paid on reverse charge basis should be eligible as a credit, negating any intention to evade tax. The Tribunal agreed, emphasizing that tax paid on reverse charge basis would be eligible as a credit for discharging further service tax liability, thus finding no justification for invoking the extended period for demand.

Issue 5: Confirmation of irregular Cenvat credit and its reversal
An amount confirmed towards irregular Cenvat credit was already reversed by the appellants, which was not properly recognized by the lower authority. The Tribunal noted this submission but did not delve into detailed analysis due to the reversal of the amount.

Issue 6: Applicability of legal principles and decisions in determining tax liability
The Tribunal extensively analyzed the nature of services provided by the appellants, citing relevant legal precedents and decisions to support their findings on the tax liability. They emphasized the consumption/destination-based nature of service tax and applied established legal principles to determine the taxability of the services rendered.

Issue 7: Appeal by Revenue against dropping of demand attributable to reimbursable expenditure
The Revenue contested the dropping of demand attributable to reimbursable expenditure, arguing that such expenditure should be treated as consideration for taxable services. However, the Tribunal found no sustainable material in the Revenue's appeal, upholding the original authority's decision based on the Delhi High Court's decision and established principles regarding reimbursable expenditure.

In conclusion, the Tribunal allowed the appeal of the appellant-assesses and dismissed the appeal of the Revenue, pronouncing the judgment on 08.12.2017.

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