2023 (8) TMI 246 - AT - Service Tax

Tribunal rules in favor of appellant, services qualify as 'export of service'. 2012 rules apply, extended limitation period not applicable.

The Tribunal ruled in favor of the appellant, determining that their services qualified as 'export of service' under both the 2005 and 2012 Rules. It was ... Export of service - place of provision of service - business auxiliary service - intermediary - Rule 6A of the Service Tax Rules, 1994 - Place of Provision of Services Rules, 2012 - Export of Service Rules, 2005 - extended period of limitationExport of service - place of provision of service - business auxiliary service - Place of Provision of Services Rules, 2012 - Export of Service Rules, 2005 - Rule 6A of the Service Tax Rules, 1994 - intermediary - Whether the services rendered by the appellant qualify as 'export of service' or are taxable as 'business auxiliary service' (and whether the appellant becomes an 'intermediary' w.e.f. 01.10.2014) for the period 01.07.2012 to 31.03.2015. - HELD THAT: - The Tribunal accepted that w.e.f. 01.07.2012 the Place of Provision of Services Rules, 2012 apply and that Rule 6A of the 1994 Rules treats a service as export only where the provider is located in taxable territory, the recipient is located outside India, place of provision is outside India and payment is received in convertible foreign exchange. Under rule 3 of the 2012 Rules the place of provision is the location of the recipient (subject to specified exceptions). Applying these principles to the material facts, the appellant furnished services to a foreign supplier (Kruss Germany), received commission in convertible foreign exchange and had no contractual privity with the ultimate Indian buyers; the services were provided to and received by the foreign principal. The Tribunal held that the Commissioner (Appeals) erred in treating the recipient as located in India on the basis that the goods were ultimately sold in India; the relevant factor is the location of the service recipient and not the place of performance or the location of the end-customers. The Tribunal further observed that even if the 2005 Export Rules were applied, the larger bench's decision in Arcelor Mittal Stainless (I) P. Ltd. supports that similar BAS rendered to a foreign principal qualifies as export when consideration is in convertible foreign exchange. The Tribunal therefore concluded that the appellant's services amounted to export of service (and were not taxable) until the date the appellant became an intermediary under the 2012 Rules, with the department's contention that the appellant became an intermediary w.e.f. 01.10.2014 considered in the departmental appeal but not sustaining the demand under the facts of this case. [Paras 24, 25, 26, 28, 45]The services rendered by the appellant constitute 'export of service' for the period in dispute (and are not taxable as BAS); the legal tests of Rule 6A and rule 3 of the 2012 Rules apply and favour the appellant (with the question of intermediary status addressed separately by the authorities).Extended period of limitation - Whether the extended period of limitation could be invoked for issuing the show cause notices and demand in the present case. - HELD THAT: - The Tribunal held that the extended period of limitation could not be invoked. The Commissioner (Appeals) sustained extension on the basis that the appellant ought to have sought departmental clarification; the Tribunal rejected that reasoning citing precedent (Delhi High Court in MTNL) which holds there is no statutory procedure obliging an assessee to seek clarification and that mere non-disclosure or a bona fide belief that receipts are not taxable does not establish suppression with intent to evade tax. The appellant had disclosed receipt of commission in ST-3 returns for the relevant period and had informed the department by letter of the nature of receipts; the show cause notice issued much later could not be sustained on extended limitation grounds. [Paras 46, 47, 48, 49, 50]Invocation of the extended period of limitation was unjustified and cannot be sustained on the facts of this case.Final Conclusion: The impugned order dated 22.02.2017 of the Commissioner (Appeals) is set aside; the Tribunal held that the appellant rendered 'export of service' under the applicable rules for the period in dispute and that the extended period of limitation was incorrectly invoked. The appeal is allowed. Issues Involved:1. Applicability of the 2005 Export Rules vs. the 2012 Rules.2. Classification of services as 'export of service' or 'business auxiliary service' (BAS).3. Invocation of the extended period of limitation.Summary:1. Applicability of the 2005 Export Rules vs. the 2012 Rules:The appellant contended that the 2005 Export Rules were not applicable for the period from 01.07.2012 to 31.03.2015 as they were superseded by the Place of Provision of Services Rules 2012 (2012 Rules). The Tribunal noted that w.e.f. 01.07.2012, the 2012 Rules would apply, as the notification clearly mentioned that the 2005 Export Rules had been superseded. Rule 3 of the 2012 Rules states that the place of provision of a service shall be the location of the recipient of service.2. Classification of Services:The appellant argued that their services should be classified as 'export of service' under the 2012 Rules. The Tribunal observed that the appellant provided services to a foreign supplier, received payment in convertible foreign exchange, and the recipient of the service was located outside India. Therefore, under Rule 3 of the 2012 Rules and Rule 6A of the Service Tax Rules 1994, the services provided by the appellant qualified as 'export of service'. The Tribunal also referenced a larger bench decision in M/s. Arcelor Mittal Stainless (I) P. Ltd. vs. Commissioner of Service Tax, which supported the appellant's position that the services provided to a foreign entity were 'export of service'.3. Invocation of the Extended Period of Limitation:The Tribunal held that the extended period of limitation could not be invoked. The Commissioner (Appeals) had sustained the invocation of the extended period on the basis that the appellant could have sought clarification from the department. However, the Tribunal referenced the Delhi High Court judgment in Mahanagar Telephone Nigam Ltd. vs. Union of India, which stated that there is no requirement for seeking clarification from the jurisdictional service tax authority if the assessee believes the amount received was not chargeable to service tax. The Tribunal noted that the appellant had filed ST-3 Returns and disclosed the commission earned, and the show cause notice was issued only on 03.09.2014, despite the department being informed on 31.07.2012.Conclusion:The Tribunal concluded that the services provided by the appellant were 'export of service' under both the 2005 and 2012 Rules and that the extended period of limitation could not be invoked. Consequently, the impugned order dated 22.02.2017 passed by the Commissioner (Appeals) was set aside, and the appeal was allowed.