2025 (11) TMI 598 - AT - Service Tax

Activities like evaluation, order processing and logistics are support services and qualify as tax-free exports of services

M/s. Fifth Avenue Sourcing Pvt. Ltd. Versus. Commissioner of GST & Central Excise, Chennai

CESTAT CHENNAI - AT held that the activities (evaluation of prospective manufacturers, processing purchase orders, customer management, tracking ... Classification of service - Business Support service or Business Auxuliary services? - evaluation of prospective garment manufacturers, processing purchase orders, customer management, tracking of delivery schedules, operational assistance for marketing, customer service, pricing policies, managing, distribution, logistics etc - services to domestic vendors by procuring orders for them from foreign companies - HELD THAT:- This issue has again been dealt with in the appellant’s own case [2023 (3) TMI 500 - CESTAT CHENNAI] where it was held that 'It is found from a plain reading of clause (104c) of Section 65 that “support services of business or commerce” specifically relates to evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, etc., which were the activities undertaken by the appellant, while the definition of business auxiliary service under clause (19) of Section 65 of the Act is more general in nature. Hence, the services have been correctly classified under the specific heading of ‘support services of business or commerce’ and does not require us to traverse through section 65A(2) of the Finance Act, 1994.' As per the orders in the appellant’s own case discussed above, the services rendered by FASPL to foreign companies are classifiable under the category of Business Support Service and these services rendered to foreign based clients for which consideration is received in convertible foreign exchange, no tax liability will arise considering the same as export of service. The impugned orders and the Statement of Demand set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the activities of evaluation of prospective garment manufacturers, processing purchase orders, customer management, tracking delivery schedules, operational assistance for marketing, customer service, pricing policies, managing distribution and logistics, procurement of orders for domestic vendors and ensuring receipt of sale proceeds from foreign buyers, constitute 'support services of business or commerce' (Business Support Services - BSS) or 'business auxiliary service' (BAS) under Section 65 of the Finance Act, 1994. 2. Whether services rendered to foreign based clients for consideration received in convertible foreign exchange qualify as 'export of service' under the Export of Service Rules, 2005 and therefore escape service tax liability. 3. Whether the subsequent show cause notices and demands for periods after an earlier adjudication (and favourable Tribunal decision) are sustainable, having regard to limitation and the applicability of earlier adjudication and withdrawal of departmental appeal by litigation policy. ISSUE-WISE DETAILED ANALYSIS - Classification as BSS v. BAS Legal framework: Clause (104c) of Section 65 defines 'support services of business or commerce' including evaluation of prospective customers, telemarketing, processing of purchase orders, fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, operational or administrative assistance, formulation of customer service and pricing policies, infrastructural support services and other transaction processing. Clause (19) of Section 65 defines 'business auxiliary service' in broader terms including promotion, marketing, procurement of inputs, customer care on behalf of client, processing, and incidental services. Precedent Treatment: The Tribunal's earlier orders in the appellant's own matter have consistently classified the described activities as BSS rather than BAS, and those findings were followed by the Tribunal in subsequent appeals. Interpretation and reasoning: A plain reading shows clause (104c) is a specific provision enumerating activities identical to those undertaken by the service provider. The specific listing for 'support services of business or commerce' properly captures the services rendered. The broader and more general BAS definition is not the specific statutory container for these activities. Given Section 65A(1) mandates classification according to the terms of the relevant sub-clauses of Section 65, satisfaction of clause (104c) renders further examination under Section 65A(2) unnecessary. The adjudicating authorities did not invoke Section 65A(2) in the show cause notices. Ratio vs. Obiter: Ratio - Services matching the activities listed in clause (104c) of Section 65 are classifiable as 'support services of business or commerce' (BSS); therefore specific classification controls over a broader BAS classification. Obiter - observations about inapplicability of Section 65A(2) beyond the facts of this case are ancillary. Conclusion: The services in question are correctly classifiable as Business Support Services under clause (104c) of Section 65, not as Business Auxiliary Services under clause (19). ISSUE-WISE DETAILED ANALYSIS - Export of Service and Tax Liability Legal framework: Export of service under the Export of Service Rules, 2005 requires that the service is provided to a person outside India, the service is used outside India, and consideration is received in convertible foreign exchange, among other conditions. Precedent Treatment: The Tribunal earlier held for identical facts that services rendered to foreign based clients with consideration received in convertible foreign exchange constitute export of service and are not taxable as domestic service, subject to temporal application of taxability for import of services post specific dates. Interpretation and reasoning: The Tribunal examined the commercial arrangement, including banking documentation and the nature of consideration (LC margin retention), and found that the services were availed and consumed by foreign clients and payment was in convertible foreign exchange. The Revenue's contention that LC margin represented local consideration for marketing or procurement for vendors was not supported by the facts or the banking arrangements. Hence, for the periods covered, where conditions for export are fulfilled, no service tax liability arises. Ratio vs. Obiter: Ratio - Services meeting the Export of Service Rules' conditions (used outside India and paid in convertible foreign exchange) are to be treated as export of service and are not subject to service tax. Obiter - detailed commentary on LC margin treatment as local consideration is fact-specific. Conclusion: The services rendered to foreign based clients for consideration in convertible foreign exchange qualify as export of service; no service tax arises on those transactions for the relevant periods. ISSUE-WISE DETAILED ANALYSIS - Effect of Earlier Adjudication, Limitation and Subsequent Notices Legal framework: Principles of finality and consistency in adjudication and limitations on reopening identical factual issues that were subject of earlier show cause notice and adjudication; precedent authority recognizing limitation where Revenue relies on suppression after earlier adjudication on same facts. Precedent Treatment: The Tribunal's prior favorable final orders in the appellant's case set aside the original demand and have been followed in later decisions involving identical facts. The Department's appeal against that Tribunal order was withdrawn pursuant to litigation policy, reinforcing finality. Interpretation and reasoning: The present appeals are follow-ups of the original show cause notice adjudicated in favour of the taxpayer by the Tribunal. Where the earlier issue was fully examined and decided by the Tribunal, subsequent show cause notices for later periods on the same legal and factual matrix are not sustainable. The Revenue did not base later notices on new facts or invoke Section 65A(2); the Tribunal's earlier reasoning on classification and export remains applicable. The withdrawal of departmental appeal under litigation policy further underlines the settled position in the departmental file. Ratio vs. Obiter: Ratio - Subsequent demands on the same factual and legal matrix as previously adjudicated by the Tribunal cannot be sustained; prior Tribunal findings are binding insofar as identical issues and facts are concerned. Obiter - references to limitation jurisprudence are supportive but fact-dependent. Conclusion: The follow-up show cause notices and demands for subsequent periods are unsustainable in law in light of the prior adjudication in favour of the service provider and the departmental withdrawal of appeal; consequent orders and demands are to be set aside. OVERALL CONCLUSION The Tribunal follows its earlier consistent decisions: the described activities are classifiable as Business Support Services under clause (104c) of Section 65; services rendered to foreign based clients with consideration in convertible foreign exchange constitute export of service and are not liable to service tax for the relevant periods; and follow-up show cause notices and demands premised on the same facts and legal classification are not maintainable. The impugned orders and statements of demand are set aside and the appeals are allowed with consequential relief as per law.