Marketing services from overseas entity held non-taxable under intermediary services with Dubai provision place

CESTAT Mumbai allowed the appeal, setting aside service tax demands for April 2014-September 2015. The tribunal held that marketing and sales promotion services received from overseas entity could not be examined under pre-2012 Business Auxiliary Services definition as transactions occurred post-negative list regime. Services qualified as intermediary services under POPS Rules with place of provision being Dubai, making them non-taxable in India. Free supplies of materials to construction service providers were held outside taxable value under Section 67. Extended limitation period was deemed unjustified as dispute was revenue neutral. All service tax demands and penalties were set aside.

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Issues Involved:

1. Taxability of services received from M/s Hoshizaki Europe BV.
2. Inclusion of free supplies in the value of works contract services.
3. Invocation of extended period of limitation for service tax demand.
4. Imposition of penalty under Section 78 of the Finance Act, 1994.

Summary:

1. Taxability of Services Received from M/s Hoshizaki Europe BV:
The Tribunal examined whether the services received by the appellants from M/s Hoshizaki Europe BV could be considered taxable under the definition of 'taxable service' post-negative list regime effective from 01.07.2012. The services were deemed to be 'intermediary services' under Rule 9 of the Place of Provision of Services Rules, 2012 (POPS). The Tribunal concluded that the place of provision of such services would be Dubai, and hence, not subject to service tax in India.

2. Inclusion of Free Supplies in the Value of Works Contract Services:
The Tribunal referred to the Larger Bench decision in Bhayana Builders (P) Ltd. and the Hon'ble Supreme Court's affirmation that the value of goods and materials supplied free of cost by the service recipient to the provider of taxable construction service would be outside the taxable value or the gross amount charged under Section 67 of the Finance Act, 1994. The Tribunal held that the value of free supplies should not be included in the assessable value for calculating service tax liability.

3. Invocation of Extended Period of Limitation:
The Tribunal found that the entire exercise of demanding service tax was revenue neutral, as the service tax paid under the Reverse Charge Mechanism (RCM) would be available as input credit to the appellants. Citing relevant judgments, the Tribunal concluded that there was no intention to evade payment of service tax, and thus, the invocation of the extended period of limitation was not justified.

4. Imposition of Penalty Under Section 78:
Given the findings that the demands of service tax were not legally sustainable and the transactions were recorded in specified records, the Tribunal held that the imposition of penalty under Section 78 of the Finance Act, 1994, was not warranted.

Conclusion:
The Tribunal set aside the impugned order dated 14.02.2018, allowing the appeal in favor of the appellants. The adjudged demands of service tax and the imposition of penalties were found to be legally unsustainable.

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