2024 (12) TMI 349 - AT - Service Tax

Marketing support services to foreign corporation qualify as export despite domestic rendering, service tax at 10.12% rate upheld

M/s. Nokia India Pvt. Ltd. Versus Commissioner of Service Tax, New Delhi

The CESTAT New Delhi ruled in favor of the appellant on all issues. The tribunal held that marketing support services provided to a foreign corporation ... Levy of service tax - export of service or not - marketing support provided to Nokia Corporation Finland - Service Tax is payable at the rate prevailing at the time of rendering service or at the time of raising bills or not - applicability of benefit of N/N. 1/2006-ST - invocation of Extended period of limitation. Whether marketing support provided to Nokia Corporation Finland is export of service? - HELD THAT:- The services rendered by the Appellants i.e. 'Business Auxiliary services' qualify as export of services as even though the services were rendered in India as the benefits of such services accrued outside India, being utilized by Nokia Corporation, Finland situated in Finland. The Circular dated 24.02.2009 issued by CBEC extensively deals with the issues relating to rule 3(1)(iii) and rule 3(2)(a) of the 2005 Export Rules. It notices that in cases where Indian agents undertake marketing in India of goods of a foreign seller, the Indian agent undertakes all the activities within India and receives commission for his services from the foreign seller in convertible foreign exchange - in this category 'export of service' may take place even when all the relevant activities take place in India so long as the benefit of these services accrues outside India. The Hon’ble Supreme Court in the case of Association of Leasing and Financial Service Companies vs. Union of India [2010 (10) TMI 4 - SUPREME COURT] has held that the taxable event is the rendition of service and not the date of payment - the services provided to Nokia Corporation, Finland are wrongly denied to be export of service. The issue stands decided in favour of the appellants and against the Department. Whether Service Tax is payable at the rate prevailing at the time of rendering service or at the time of raising bills? - HELD THAT:- The rate of payment of service tax was enhanced to 12.24% after the services were rendered but prior the date of payment. Since rendition of service is the point of taxation, except for TRU clarification dated 28.04.2008 which has been set aside, it is held that the service tax at the rate of 10.12% has rightly been paid. The short-paid Service tax demand confirmed is therefore, held liable to be set aside. The issue stands decided in favour of the appellant and against the department. Whether benefit of notification No. 1/2006-ST accrues to the Appellant? - HELD THAT:- It is clear that the appellant has charged for the equipments required for respective civil and electrical work for turn-key project. The perusal of these documents is sufficient to falsify the allegation that the value of goods has not been included by the appellant, to the gross value of the turn-key projects, though there are few invoices, wherein only installation and commissioning services have been charged. But it is clear that on such invoices no abatement has been availed by the appellant. The abatement has been availed only on the contracts of Civil Construction Services and not on the Services of Management Maintenance and Repair. Otherwise also there is no denial of the Department that the services provided by the appellants were in the nature of works contract being turn-key projects - the abatement has wrongly been denied to the appellants. This issue also decides in favour of the appellant. Whether the extended period is wrongly invoked while issuing Show Cause Notice? - HELD THAT:- Vide the present Show Cause Notice dated 31.03.2009, the allegedly short-paid service tax for the period October, 2003 to September, 2006 is proposed to be recovered. Clearly the department has invoked the extended period of limitation while issuing the said Show Cause Notice, alleging that the appellant has not assessed/disclosed the correct service tax which came to the notice of the department only through the audit. The mere ipse dixit that the noticee willfully suppressed the material facts with intent to evade payment of service tax is not sufficient. The notice must contain particulars of facts and circumstances in support of such allegation, even if, such particulars are not included in the notice the department should be in a position to justify and /or substantiate its allegations of suppression of material facts on the part of the noticee. But in the present case, it is clear that department has raised demand based on presumptions and without appreciating the contract entered into by the appellant with its service recipient and the invoices raised for rendering the impugned services. The appellant had diligently provided all the documents. The department has failed to substantiate the allegations of suppression. The demand is set aside - appeal allowed. Issues Involved:a) Whether marketing support provided to Nokia Corporation Finland is export of serviceRs.b) Whether Service Tax is payable at the rate prevailing at the time of rendering service or at the time of raising billsRs.c) Whether benefit of notification No. 1/2006-ST accrues to the AppellantRs.d) Whether the extended period is wrongly invoked while issuing Show Cause NoticeRs.Issue-wise Analysis:Issue (a): Export of ServiceThe tribunal examined whether the Business Auxiliary Services provided by the appellant to Nokia Corporation, Finland, qualify as export of services under Rule 3 of the Export of Service Rules, 2005. The rule stipulates that services provided in relation to business or commerce to a recipient located outside India are considered exports if the service is delivered and used outside India, and payment is received in convertible foreign exchange. The tribunal found that the services were indeed provided to Nokia Corporation, Finland, which is located outside India, and the services were used by Nokia Corporation for strategizing in the Indian market. The tribunal relied on a CBEC Circular clarifying that the location of the service recipient, not the place of performance, is crucial for determining export of service. Consequently, it was held that the services provided were indeed exports, and the demand by the department was set aside.Issue (b): Rate of Service TaxThe tribunal addressed the issue of whether service tax should be paid at the rate prevailing at the time of rendering service or at the time of raising bills. The department argued that the service tax should be paid at the rate applicable at the time of payment, which was increased to 12.24% after the services were rendered but before payment. The tribunal, however, noted that the taxable event is the rendition of service, as held by the Supreme Court in previous cases. Therefore, the tribunal concluded that the service tax should be paid at the rate of 10.12% prevailing when the service was rendered, and the department's demand for higher payment was incorrect.Issue (c): Benefit of Notification No. 1/2006-STThe tribunal examined whether the appellant was entitled to the benefit of abatement under Notification No. 1/2006-ST, which allows a 67% abatement for certain services when the gross amount includes the value of goods sold. The department alleged that the appellant did not include the value of goods in the gross value of services. The tribunal found that the appellant had entered into a turn-key project contract that included both supply of goods and provision of services, and the invoices reflected the inclusion of goods' value. The tribunal held that the abatement was wrongly denied, as the services were in the nature of a works contract, and thus the appellant was entitled to the benefit under the notification.Issue (d): Extended Period of LimitationThe tribunal considered whether the extended period of limitation was wrongly invoked in the Show Cause Notice. The department alleged suppression of facts by the appellant, which justified the extended period. However, the tribunal found that the department's demand was based on presumptions without substantial evidence of willful suppression. The tribunal cited a Supreme Court decision indicating that mere failure to declare does not constitute willful suppression unless there is a deliberate act to evade duty. Consequently, the tribunal held that the extended period was wrongly invoked, and the demand was set aside.Conclusion:The tribunal set aside the demand for service tax and penalties, holding in favor of the appellant on all issues. The services provided were deemed exports, the correct rate of service tax was applied, the benefit of abatement was allowed, and the extended period of limitation was deemed improperly invoked. The appeal was allowed, and the order under challenge was set aside.