2023 (7) TMI 1121 - AT - Service Tax

Appellant granted refund as service tax not liable for services outside India. Appeal allowed, refund confirmed.

M/s. Sharda Cropchem Ltd. Versus Commissioner of CGST & CE, Mumbai West

The Tribunal held that the appellant was not liable to pay service tax for services received and consumed outside India. The refund claim was granted as ... Refund of Service Tax alongwith Interest - refund claimed on the ground that services were rendered outside India and also were received outside India - whether the services received by the appellant outside India are to be treated as received in India and hence taxable as per the reverse charge mechanism? As per Anil G. Shakkarwar, Member (Technical) HELD THAT:- Hon’ble Bombay High Court in INDIAN NATIONAL SHIPOWNERS ASSOCIATION VERSUS UNION OF INDIA [2008 (12) TMI 41 - BOMBAY HIGH COURT] had clarified that before enactment of Section 66A ibid, there was no authority vested by law in Revenue to levy service tax on a person who is resident in India and who has received services from outside India - It is noted that the period for which the present dispute relates is after the enactment of Section 66A ibid. Therefore, the said ruling by Hon’ble Bombay High Court which was relevant for the period before insertion of the said Section 66A is not relevant for deciding the present issue. The other ruling by Hon’ble Supreme Court in UNION OF INDIA VERSUS INDIAN NATIONAL SHIPOWNERS ASSOCIATION [2009 (12) TMI 850 - SC ORDER] relied upon by learned AR is in respect of Indian National Shipowners Association wherein the earlier referred ruling by Hon’ble Bombay High Court was not interfered with. It is noted that even if a person has a fixed establishment in India, but if the services are provided and consumed in foreign country, then they are not chargeable to service tax in terms of Section 64 of Finance Act, 1994. The provisions of Section 66A of Finance Act, 1994 will operate when the person is having a fixed place of business in India and services are provided from outside India and consumed in India - In the present case, the services were not consumed in India. Therefore, as observed by Hon’ble Delhi High Court in the case of ORIENT CRAFTS LTD VERSUS UNION OF INDIA [2006 (9) TMI 2 - DELHI HIGH COURT], it is opined that in the present case, the services were not consumed in India, therefore service tax was not liable to be paid by the appellant in the present case - appeal allowed. As per Dr. Suvendu Kumar Pati, Member (Judicial) Dr. Suvendu Kumar Pati is in complete agreement with findings of technical member, however, some additional facts and laws for the purpose of better clarity also given. The appellant had its branch office in China from where goods were purchased and majority of the invoices were raised, against which service tax was paid under the reverse charge mechanism. Further, it is also clear that the appellant had agents/representatives in China and other countries wherein it was effecting purchase and sale of those purchased items and some of service providers were agencies in the foreign countries. More importantly, goods were cleared from one foreign country to another foreign country, for which the facts of the case can be stated to be identical with the cases where the goods were exported from India, but services related to such exports are availed from overseas service providers, which were mostly fact based situations and required to be ascertained to find out the exact status of the appellant as service recipient. On unjust enrichment, direction was also given to the adjudicating authority to verify the book of accounts to ascertain if duty element had been passed on to any other person! A close scrutiny of Section 66A under Clause 2 read with Explanation No. 1 would clearly go in favour of the appellant since the order of CESTAT passed in 2014 and the order-in-appeal under challenge both have observed from the record and through examination of invoices respectively that not only the appellant had branch office in China but also it was operating through agencies to carry out the business of trading in two or more different foreign countries. In business parlance is treated as merchant trading - without satisfaction of the conditions of Section 66A, Rule 3 of the Taxation and Services (Provided from outside India and Received in India), Rules 2006 could never be made applicable to the appellant. In respect of payments made from India, it is noticeable from the sample invoices submitted additionally by the appellant that to the agents employed by the appellant in foreign countries and the service providers, all payments were made in foreign exchange from appellant’s foreign exchange account maintained in the Union Bank of India from its Mumbai branch and it is surprising that the appellant had not claimed any benefit under Foreign Trade Policy or as a deemed exporter generating foreign exchange for India, since both the definitions of “import” and “export” as contained in Section 2(23) and Section 2(18) are not confined to the import taking place from outside into India and export taking place out of India to a place outside India, in view of the fact that both the definitions are conditional to its grammatical variations and cogent expression and general meaning of export in the business parlance is also equated with export from one country to another country - the appeal succeeds and the order of the Commissioner Appeals in confirming Refund rejection order is set aside. Thus, the appeal allowed by both of the members. Issues Involved:1. Taxability of services received outside India.2. Applicability of Section 66A of the Finance Act, 1994.3. Eligibility for refund of service tax paid under reverse charge mechanism.4. Examination of unjust enrichment.Summary:Issue 1: Taxability of Services Received Outside IndiaThe appellant was engaged in the marketing and sale of agrochemicals overseas as a merchant trader, purchasing goods from one country and selling them to another without bringing them to India. The appellant paid various charges in foreign countries and subsequently paid service tax along with interest for the period from 01.10.2007 to 31.12.2012. The appellant filed a refund claim on the ground that the services were rendered and received outside India, thus not liable for service tax under Section 64 of the Finance Act, 1994. The Assistant Commissioner initially sanctioned the refund, but the Commissioner (Appeals) later reversed this decision, leading to the present appeal.Issue 2: Applicability of Section 66A of the Finance Act, 1994The Commissioner (Appeals) contended that the services received by the appellant fell under Clause 3(iii) of Notification No. 11/2006-ST dated 19.04.2006, which prescribes the criteria of the location of the recipient of service in India, thus making the services taxable. However, the Tribunal observed that the services were neither imported into India nor exported out of India, and were consumed outside India by service providers situated outside India. The Tribunal held that Section 66A of the Finance Act, 1994, applies only when services are received and consumed in India, which was not the case here.Issue 3: Eligibility for Refund of Service Tax Paid Under Reverse Charge MechanismThe Tribunal noted that the appellant paid service tax on their own without any notice or enquiry from Revenue and later sought a refund. The Tribunal held that the services were not consumed in India and thus were not liable for service tax. The refund granted through the order dated 28.05.2013 was in accordance with the law. The Tribunal upheld the order-in-original dated 28.05.2013 and set aside the impugned order, allowing the appeal.Issue 4: Examination of Unjust EnrichmentThe Tribunal also examined whether there was any unjust enrichment. It was observed that the appellant had not passed on the incidence of service tax to any other person, as verified from the books of accounts and invoices. Therefore, the Tribunal concluded that the appellant was eligible for the refund.Conclusion:The Tribunal concluded that the appellant was not liable to pay service tax for services received and consumed outside India. The refund of service tax paid by the appellant was in accordance with the law, and the appeal was allowed, setting aside the impugned order. The order of the refund sanctioning authority dated 28.05.2013 was confirmed, and ongoing recovery proceedings were quashed.