Export of service and limitation in service tax: commercial substance prevails, new grounds beyond notice fail, extended period needs suppression proof

An exclusive distributorship arrangement was treated as export of service because the appellant earned sales commission from a recipient located outside India and received payment in convertible foreign currency; the invoice nomenclature did not override the actual commercial arrangement, so service tax was not attracted. The demand also could not rest on a new objection regarding non-receipt of foreign currency because that ground was not part of the show cause notice or the original adjudication, and an authority cannot travel beyond the notice. The extended limitation period was likewise unavailable because the transactions were recorded in books and returns, with no proof of suppression, wilful misstatement, or intent to evade tax.

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Issues: (i) Whether the services rendered under the distributorship arrangement were taxable as Management, Maintenance or Repair Service, or constituted export of service not liable to service tax; (ii) Whether the demand could be sustained on the basis of a new ground relating to non-receipt of consideration in foreign currency when that issue was not part of the show cause notice; (iii) Whether the extended period of limitation was invocable in the absence of suppression of facts or intent to evade tax.

Issue (i): Whether the services rendered under the distributorship arrangement were taxable as Management, Maintenance or Repair Service, or constituted export of service not liable to service tax.

Analysis: The distributorship agreement showed that the appellant acted as an exclusive distributor and earned sales commission. The invoices were not treated as conclusive; instead, the actual commercial arrangement was examined. The recipient of the service was located outside India, and the commission was received in convertible foreign currency. The record did not establish that the services were rendered in India in the manner alleged by the department.

Conclusion: The services qualified as export of service and were not liable to service tax.

Issue (ii): Whether the demand could be sustained on the basis of a new ground relating to non-receipt of consideration in foreign currency when that issue was not part of the show cause notice.

Analysis: The show cause notice and the order-in-original proceeded only on the classification and taxability of the services. The appellate authority introduced a fresh ground concerning foreign currency receipt, which was neither alleged nor adjudicated earlier. The authority could not travel beyond the scope of the notice.

Conclusion: The demand could not be sustained on that new ground.

Issue (iii): Whether the extended period of limitation was invocable in the absence of suppression of facts or intent to evade tax.

Analysis: The transactions were recorded in the books and reflected in regular returns. No specific finding or evidence established suppression, wilful misstatement, or intent to evade payment of tax. In the absence of such proof, invocation of the extended period was unjustified.

Conclusion: The extended period of limitation was not invocable.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief as admissible in law.

Ratio Decidendi: In service tax matters, the true nature of the underlying commercial arrangement prevails over invoice nomenclature, and a demand cannot be sustained on grounds not alleged in the show cause notice or by invoking the extended period without proof of suppression or intent to evade.

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