Appellant's Services to Foreign Companies Qualify as Export under Service Rules 2005

The Tribunal held that the appellant's services to foreign companies qualified as export of services under the Export of Service Rules 2005, as they were provided from India and used outside India. The demand for service tax on commission received from foreign companies was deemed unsustainable. Regarding the service tax demand on commission paid to foreign agents, the Tribunal directed the Commissioner to re-examine the issue, allowing the appellant to submit representations and supporting documents. The Commissioner's order was set aside in part, and the appeal was partly allowed.

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Issues Involved:

1. Confirmation of demand of Rs. 53,37,177/- on services rendered to foreign companies for the period April 1, 2007 to February 27, 2010.
2. Service tax demand under reverse charge on the amount paid to foreign agents from the Financial Year 2008-09 to Financial Year 2010-11.

Detailed Analysis:

1. Confirmation of Demand on Services Rendered to Foreign Companies:

The appellant is engaged in providing services under 'business auxiliary service' (BAS) and 'transport of goods by road' (GTA). The appellant represents foreign companies in India, promoting their business, procuring orders, giving technical support, assisting in liasioning, preparing documents, and negotiating tenders. These services were classified under BAS.

According to the appellant, these services qualify as export of services under the Export of Service Rules 2005 (2005 Rules), and hence, no service tax was paid from April 2007 to March 2011. However, the Department initiated proceedings, asserting that the appellant did not show any amount in the ST-3 returns for services rendered to foreign companies and had not paid service tax on commission paid to foreign agents. A show cause notice was issued on October 11, 2012.

The Commissioner partly confirmed and partly dropped the demands. Specifically, the demand of Rs. 46,61,774/- for the period from April 2007 to February 27, 2010, was confirmed. The Commissioner noted that services must be provided from India and used outside India. The appellant's services related to procurement of orders from customers in India, which could not be delivered outside India, thus not satisfying the condition of services being 'used outside India'. This was based on a Circular dated May 13, 2011. For the period post-February 27, 2010, the condition of service being used outside India was omitted, but the appellant could not substantiate the quantum of services provided and the consideration received, leading to a service tax demand of Rs. 71,190/- being confirmed.

The appellant argued that the services qualified as export of services under the 2005 Rules and that the Commissioner misread the Circular dated May 13, 2011. The appellant also pointed out that the 2005 Rules were amended effective February 27, 2010, removing the condition that services must be used outside India, and both conditions (service recipient outside India and consideration received in foreign currency) were satisfied.

The Tribunal referred to the decision in M/s Involute Engineering Pvt. Ltd., which clarified that services provided from India and used outside India satisfy the conditions of rule 3(2) of the 2005 Rules. It was held that the appellant's services to foreign companies, which involved promoting their business and procuring orders in India, were provided from India and used outside India, thus qualifying as export of services. Therefore, the demand for service tax on the commission received from foreign companies was not sustainable.

2. Service Tax Demand on Commission Paid to Foreign Agents:

The Commissioner confirmed a demand of Rs. 6,75,403/- on commission paid to foreign agents during the Financial Year 2008-09 to Financial Year 2010-11. The appellant contended that this demand was not sustainable as they had already discharged service tax on Rs. 4,28,369/- and the remaining amount of Rs. 2,47,034/- was not payable.

The Tribunal noted that the facts regarding the commission paid to foreign agents required re-examination by the Commissioner. The appellant was allowed to submit a representation with factual aspects and supporting documents within six weeks, and the Commissioner was directed to take a decision within three months.

Conclusion:

The order dated December 11, 2013, passed by the Commissioner, was set aside concerning the demand of service tax on the commission received from foreign companies. The Commissioner was directed to re-examine the issue of commission paid to foreign agents. The appeal was partly allowed.

(Pronounced on 17.12.2020)

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