2023 (2) TMI 938 - Commissioner - Service Tax

Court rules services provided as 'export of services,' not 'intermediary services.' No extended limitation period.

IN RE : M/s ENSIM INDIA PRIVATE LIMITED

IN RE : M/s ENSIM INDIA PRIVATE LIMITED - TMI Issues Involved:1. Whether the services provided by the noticee are 'Intermediary Service' or 'Export of Service'.2. The applicability of extended period of limitation.3. The imposition of interest and penalty.Issue-wise Detailed Analysis:1. Whether the services provided by the noticee are 'Intermediary Service' or 'Export of Service':The Show Cause Notices (SCNs) were issued alleging that M/s Ensim India Private Limited (the noticee) provided intermediary services to M/s Ensim Corporation, USA, and thus, the place of provision of such services should be the location of the service provider (India), making the services taxable. The noticee argued that they provided software development and consulting services on their own account and not as an intermediary.The judgment analyzed the agreement between the noticee and Ensim Corporation, USA, and concluded that the noticee provided services directly to Ensim Corporation, USA, and not to third-party customers. The agreement did not establish the noticee as an agent or broker of Ensim Corporation, USA. The services provided by the noticee were independent and on a principal-to-principal basis. The noticee was remunerated based on the cost incurred plus a margin, not as a commission for intermediary services.The judgment referred to several case laws and Advance Rulings, including M/s Evalueserve.Com Pvt. Ltd. vs. CST, Gurgaon, AMD India Pvt. Ltd. vs. CST, Bangalore, and others, which supported the view that similar services provided on their own account do not qualify as intermediary services.The judgment concluded that the services provided by the noticee qualified as 'export of services' under Rule 6A of the Service Tax Rules, 1994, as all conditions for export of services were satisfied:- The service provider (noticee) was located in India.- The service recipient (Ensim Corporation, USA) was located outside India.- The services were not in the negative list.- Payment was received in convertible foreign exchange.- The service provider and recipient were distinct legal entities.2. Applicability of Extended Period of Limitation:The SCNs invoked the extended period of limitation alleging suppression of facts. The noticee argued that there was no willful misstatement or suppression of facts as all relevant information was disclosed during the audit and in their ST-3 returns.The judgment found that there was no positive act of suppression or intention to evade tax by the noticee. The demand was based on information available in the noticee's records and returns. The judgment referred to several Supreme Court decisions, including M/s Anand Nishikawa Co Ltd v. Commissioner of Central Excise, Meerut, which held that mere failure to declare does not amount to willful suppression.The judgment concluded that the invocation of the extended period of limitation was not justified.3. Imposition of Interest and Penalty:Since the services provided by the noticee were held to be export of services and not intermediary services, there was no service tax liability. Consequently, the imposition of interest and penalty was not warranted.The judgment emphasized that penalties are not imposable when there is no intention to evade tax and when the demand itself is not sustainable. The noticee acted in good faith and under a bona fide belief that their services were not taxable.Order:The judgment ordered the dropping of the entire proceedings initiated by the issuance of the two Show Cause cum Demand Notices against M/s Ensim India Private Limited.