2026 (2) TMI 400 - AT - Service Tax

Place of provision of services and import of service by overseas commission agents: services received abroad not taxable; matter remanded for rehearing.

Section 66B and related rules require the taxable event to occur within the taxable territory; services are taxable only if received in India, so ... Place of provision of services - import of service - taxable territory - overseas commission agent had rendered the services of promotion of sales to customers located in North America - intermediary - liability on recipient under reverse charge - whether the demand of tax on the provision made in the book of accounts on commission payable to overseas agents but not paid is correct. - HELD THAT:- Section 66B clearly provides that the taxable event i.e. the ‘service’ must happen in the ‘taxable territory’. The term ‘taxable territory’ has been defined in section 65B(52) as ‘the territory to which the provisions of this Chapter apply’. By section 64(1) Chapter V of the Finance Act, 1994 (i.e. the law governing service tax) extends to the whole of ‘India’ except the State of Jammu & Kashmir. In this context, we note that it is a settled legal position that taxable event for service tax is the provision or rendering of taxable services. Overseas commission agent - We note that the Board's Circular F. No. B1/4/2006-TRU dated 19.4.2006 categorically clarifies that the services have to be received in India for the same to be taxable under Section 66A read with Taxation of Services Rules, 2006. In this context, we note that in Genom Biotech Pvt. Ltd. [2016 (3) TMI 139 - CESTAT MUMBAI] In the instant case, we note that the services were clearly received in North America, and hence is not liable to service tax. Intermediary - place of provision of services - We note that the definition of the term of ‘intermediary’ was amended w.e.f. 01.10.2014. Consequently, the service of arranging or facilitating supply of goods between two or more persons, such as a commission agent would be covered within the definition of ‘intermediary’. Consequently, the place of provision of services as per Rule 9 (c) of POPS Rules would be the location of service provider. In the instant case, it is a fact that the Commissioner Agent was abroad. Consequently, the liability of service tax would not arise. As regards the liability on the two invoices, it has been submitted that no payment was made even though the invoices had been raised. This fact would also have to be verified. As discussed earlier, it is settled legal provision that the liability to pay service tax arises only when the service is provided. In the instant case, it has been categorically submitted that the service was not provided by the overseas Commissioner Agent. Consequently, the liability of service tax does not arise. Thus, we are of the opinion that this matter requires to be reconsidered by the original adjudicating authority. Accordingly, we remand the matter to the original authority to hear the appellant giving them opportunity to submit all relevant documents to substantiate their contentions. The impugned order is set aside and the appeal is allowed by way of remand. Issues: (i) Whether services provided by overseas commission agents and consumed outside India are taxable under the service tax provisions and Import Rules for the period 01.04.2011-30.06.2012; (ii) Whether provision made in books for commission payable (without payment and where service was not rendered) attracts service tax liability for the period 01.07.2012-30.09.2014; (iii) Whether, after amendment to the definition of 'intermediary' (w.e.f. 01.10.2014), place of provision rules render services by overseas commission agents taxable in India for the period 01.10.2014-31.03.2016.Issue (i): Whether services rendered by overseas agents for promotion/sales to customers located outside India and received/consumed outside India are taxable under Section 66A/66B read with the Import Rules for 01.04.2011-30.06.2012.Analysis: The taxable event requires provision/receipt of service within the taxable territory. The Import Rules and authoritative circulars require receipt of service in India for taxation under reverse charge. If services are provided and received in a non-taxable territory and are connected solely with business/commercial activity outside India, they do not qualify as imported services taxable in India.Conclusion: Services received and consumed outside India are not taxable under the service tax provisions for the period 01.04.2011-30.06.2012; tax demand on such services cannot be sustained.Issue (ii): Whether mere provisions made in books for commission payable, without payment and where the service was not rendered, attract service tax liability for 01.07.2012-30.09.2014.Analysis: Liability to pay service tax arises on provision or receipt of taxable service and is linked to the point of taxation; consideration and actual provision/receipt are relevant. Where no service has been rendered and no consideration has been paid, the taxable event and point of taxation are not triggered. Allegations beyond the scope of the show-cause notice cannot be upheld without appropriate notice and proof; factual verification (e.g., reversal of provisions) is required.Conclusion: No service tax liability arises on mere book provisions for commission where no service was rendered and no payment made for the period 01.07.2012-30.09.2014; demands based solely on such provisions are unsustainable without verification.Issue (iii): Whether amendment to the definition of 'intermediary' (from 01.10.2014) and corresponding place of provision rules make services by overseas commission agents taxable in India for 01.10.2014-31.03.2016.Analysis: Amendment expanding 'intermediary' to include arranging/facilitating supply causes place of provision (per Rule 9(c) of POPS Rules) to be the location of the service provider. If the service provider is located outside India, such place-of-provision rule results in the services not being taxable in India.Conclusion: For the period 01.10.2014-31.03.2016, services by overseas commission agents characterized as intermediary services are not taxable in India because the place of provision is the service-provider's foreign location.Final Conclusion: The impugned demand requires fresh adjudication consistent with the principles that (a) imported services are taxable only if received in India, (b) tax is attracted upon provision/receipt of service and relevant consideration/point of taxation, and (c) place-of-provision rules and intermediary definition govern post-amendment periods; accordingly, the matter is remitted for factual verification and fresh decision by the original authority.Ratio Decidendi: Services are taxable in India only when the provision/receipt of the service occurs within the taxable territory; imported services demand under reverse charge requires receipt in India and the place-of-provision/intermediary rules determine taxability where the service provider is located outside India.