AI Drafter 
TaxTMI 
TaxTMI 
2018 (1) TMI 218
X X X X Extracts X X X X
X X X X Extracts X X X X
....41/10/2011-ITU dated 13.05.2011. " 4. The facts of the case are that proceeding is initiated in view of Show Cause Notice issued under C. No. V(H)ST/Adj- I/49/2007/1483-15 dated 21/05/07 to M/s National Engineering Industries Ltd., Khatipura Road, Jaipur (hereinafter also referred to as "the assessee") who are holding Service Tax Registration No. 101/ST/AMC/JPR-II/03, and were engaged in providing services of Commission Agent falling under the category of Business Auxiliary Services under Chapter V of the Finance Act, 1994. They appeared to have not paid Service Tax amounting to Rs. 49,99,770/- during the period from January, 2006 to December, 2006 in contravention of provision of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 as per facts detailed below. The assessee were not paying service tax on the commission received in Foreign Currency for the services rendered in India, the details of commission were called for from the assessee, who vide their letter dated 22.01.2007 submitted that they had received commission (amounting to Rs. 4,41,43,881/-) in Foreign Currency for the service rendered in India for the period from January, 2006 from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gn principles as a buyer in that case they do not get any commission from the seller. The reason is that assessee do not remit that portion of the price to the seller which represents their commission, therefore, the seller do not give any commission to NEI. It is therefore, service relating to import of goods in to India from a particular foreign seller where the amount of commission is paid to the assessee in Indian currency directly by the buyer or paid to seller who in turn remits to assessee. Therefore, any foreign currency paid by an Indian buyer which is returned to an other Indian person in foreign currency in India is not export of service in foreign currency and do not get covered within the scope of Export of Service Rules, 2005 for exemption from Service Tax. All the arguments made by the Assessee that it is export of service to a foreign recipient against which value of service is received from foreign in foreign currency are not valid. It is the service which starts from the procurement of order from a buyer in India and ends with the import of goods into India and the value of the service is paid from India and received in India through a foreign person, therefore, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort of Services Rules, 2005 were amended by Notification No.2/2007 ST dated 1.3.2007. The consequences of these amendments were that the words "such service is delivered outside India and used outside India" were replaced by the words" such service is provided from India and used outside India". Prior to 1.3.2007, the prerequisite to qualify such service under export was that the services shall be delivered outside India and used outside India. In the case of the appellant, it is evident that the services were performed in India by the appellant, so in any case it cannot be attributed as delivered outside India. It is admitted that the service provided by the appellant were accrued to the service recipient abroad but by that factor only it cannot be said that the services so provided by the appellant are covered in the scope of export.. In the given facts of the case, I find that the services were not delivered outside India bu the same were delivered in India so such services were outside the scope of export and liable to service tax. The appellant another argument that they have received the entire payment for the service rendered by them in convertible foreign exchange also seem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f CESTAT in the case of Paul Merchants (supra) read with judgement of the Supreme Court in the case of J.B. Boda - 1997 (229) ITR 271 (SC). Accordingly, we do not find the impugned order to be sustainable. The appeal is allowed. 8. The basic contention of Mr. Ranka is that the business auxiliary services which has been defined under sub-section (19) of Section 65 which reads as under:- 19) "Business auxiliary service" means any service in relation to- (i) Promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) Promotion or marketing of service provided by the client; or (iii) Any customer care service provided on behalf of the client; or (iv) Procurement of goods or services, which are in puts for the client; or [Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub- clause, "inputs" means all goods or services intended for use by the client] (v) Production or processing of goods for, or on behalf of, the client (vi) Provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able services provided shall be treated as export of services only if- (a) order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India; (b) service so ordered is delivered outside India and used in business outside India; and (c) payment for such service provided is received by the service provider in convertible foreign exchange; (ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received. 10. He has also taken us to details of services in respect of which criterion of location of recipient of service outside India is prescribed and he has pointed out that advertising agency's service, business auxiliary services, business support services and information technology software services are relevant for the purpose of consideration. 11. He has also taken us through the circular issued by the ministry of finance dated 24th February,2009 where clause 3A and 3 reads as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ager (a Category II service [Rule 3(1) (ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase 'used outside India' is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)] services as well. 12. He has further drew attention to the circular dated 13th May, 2011 relevant part of which of reads as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....used in India. It has already been clarified that in case of call centers and similar businesses which serve the customers located outside India for their clients who are also located outside India, the service is used outside India. 12.1. He has also pointed out decision of the Supreme Court in All India Federation of Tax Practitioners and Ors. vs. Union of India (UOI) and Ors. 2007 (7) SCC 527 wherein it has been held as under:- It is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax. 33. Applying the above tests laid down in the aforestated judgments to the facts of the present case, we find that Entry 60 of List II, mentions 'Taxes on professions, trades, callings and employments'. Entry 60 is a taxing entry. It is not a general entry. Therefore, we hold that tax on professions etc. has to be read as a levy on professions, trades, callings etc., as such. Therefore, Entry 60 which refers to profession....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o merit in the contention advanced on behalf of the appellant that the widest possible interpretation should be given to the word 'profession' in Entry 60 List II. We have to keep in mind while interpreting the Entries in the three Lists the distinction between the general entry and the taxing entry. 38. According to the appellant, Western India Theatres were entertainment providers; that they were not entertainment receivers; that they simply carried on their profession, trade or calling and, therefore, Entry 50 was not applicable. It was further urged that entertainment-providers fell under Entry 46, which Entry is similar to Entry 60 of List II in the present case and which referred taxes on professions, trades, callings and employments. This argument advanced on behalf of the appellant was rejected by this Court. It was held that Entry 50 contemplated a tax on entertainment and amusement as objects on which a tax is to be imposed and, therefore, it was not possible to differentiate between the entertainment- provider and the entertainment-receiver. It was held that entertainment was trade or calling of Western India Theaters and, therefore, the tax imposed on e....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... That, service tax would fall under Entry 92C/Entry 97 of List I. 36. In the case of Sodan Singh and Ors. v. New Delhi Municipal Committee and Ors. : reported in [1989]3SCR1038 the appellants claimed a right to engage in trading business on the pavements of Delhi city. In that context, it was held by the Constitution bench of this Court that, the guarantee under Article 19(1)(g) extends to practise any profession, or to carry on any occupation, trade or business. In that case, the word 'profession' had been defined to mean an occupation carried on by virtue of specialized qualifications, personal qualifications, training or skill. We do not find any relevance of this judgment to the present case. As stated above, we are concerned with interpretation of legislative heads under the three Lists in the Seventh Schedule to the Constitution. As stated above, we have to go by the schematic interpretation of those entries. Moreover, we are concerned with a distinct taxing entries and not general entries. Hence, the judgment in the case of Sodan Singh (supra) has no application to the present case. 50. In the case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that 'service tax' is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client. 12.2. He has contended that in Paul Merchant's decision by the Tribunal, there is difference of opinion as the third judicial member has referred the circular dated 13th May, 2011 and other two technical members have not referred and the matter is pending before the Punjab and Haryana High Court. 13. He has taken to the decision of Mumbai Tribunal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to 19-11-2003, the Board clarified vide Circular dated 25-4-2003 that "Service tax is a destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No. 6/99, dated 9-4-1999." in the light of this clarification issued by the Board, the assessee has a, prima facie, case for waiver of pre-deposit of dues adjudged for the period 1-7-2003 to 19-11-2003. 8. With regard to the period from 15-3-2005 onwards, we have to see whether the transaction undertaken by the assessee comes within scope of Export of Services Rules, 2005. During this period, under the Rules provided that a taxable service shall be treated as 'export of service' only if such service so ordered is delivered outside India and used in business outside India. In the instant case, the service of promotion of marketing of goods manufactured by the supplier has taken place in India and the said service is for the purpose of promoting the business of the foreign manufacturer in India. Therefore, it cannot be said that the service has been delivered outside India and used in business outside India; t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d trains the customers in India for its use, there is no delivery outside India. Similarly when warranty services are undertaken, the usage of the service is in India. So is the case when advertising the product in India is done. Thus the facts involved in the present case before us are substantially different and therefore, the ratio of the above cited judgments can not be adopted. 10. As regards the appellant's reliance of the Board's circular issued in 2009, the Board has clarified the matter further vide Circular No. 141/10/2011-TRU, dated 13-5-2011. The relevant portions of the said circular are extracted herein below:- Circular No. 111/05/2009-S.T. was issued on 24th February 2009 on the applicability of the provisions of Export of Service Rules, 2005 in certain situations. It had clarified on the expression "used outside India" in Rule 3(2)(a) of the Export of Service Tax Rules, 2005 as prevalent at that time................ In the context of the stated circular, an issue has been raised, whether for the period prior to 28-2-2010 the requirement that the service should be "used outside India" invariably means the location of the recipient? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e outside India. In the case of promotion/marketing of goods/services in India, which promotes the business in India of the client (who is located outside India), can it be said that the effective use and enjoyment is outside India. In our considered view, such an interpretation would be totally irrational and illogical. 11. The Hon'ble Apex Court in the case of All India Federation of Tax Practitioners [MANU/SC/3283/2007MANU/SC/3283/2007 : 2007 (7) S.T.R. 625 (S.C.)] considered the nature of levy of service tax and elucidated the concept as follows:- 6. At this stage, we may refer to the concept of "Value Added Tax (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. 7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....represented as follows:- User In India Outside India Use In India 1 (Taxable ) 2(Taxable ) Outside India 3(Taxable ) 4 (Export) Thus only when the user and the use of the service are located outside India, the transaction amounts to export and not otherwise. In the case under consideration, the user is outside India but the use of the service is in India - situation 2 of the table above. In this situation, the transaction does not amount to export and hence taxable in India. 13. In the case of Microsoft Corporation (India) Pvt. Ltd. v. Commissioner of Service Tax, Delhi [MANU/CE/0315/2009MANU/CE/0315/2009 : 2009 (15) S.T.R. 680] this Tribunal held that when a service is provided in India and the same is consumed without reverting back to the foreign principals for consumption abroad, the ultimate outcome of service is exhausted in India and there is no export of services inasmuch as the benefit of service terminated in India without travelling abroad. In such a situation, merely because the service recipient is situated abroad, it cannot be said that services has been used outside India, This order was pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eturns for the said services. They did not disclose to the department about the existence of the agreement with VIASYS and receipt of consideration towards the services rendered. These acts of the appellant clearly constitute suppression of facts on their part, thereby attracting the invocation of extended period of time for demand of service tax. 15. The appellant has not brought on record any evidence as to any financial hardship nor made any plea to the said effect in their submissions before us. The Hon'ble High Court of Andhra Pradesh in the case of SQL Star International Ltd. [MANU/AP/0383/2011MANU/AP/0383/2011 : 2012 (276) E.L.T. 465 (A.P.) : 2012 (25) S.T.R. 113 (A.P.)] held that prima facie case, balance of convenience and irreparable loss of revenue has to be considered while considering application for stay. Stay can not be granted merely on prima facie case being shown and balance of convenience must be clearly in favour of making of interim order, and there should not be the slightest likelihood of prejudice to interest of public revenue. In the present case, apart from the fact that no prima facie case has been shown, the balance of convenience lies clear....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appropriate Service Tax as provider of erection and commissioning service. The dispute in respect of other activities undertaken by the applicants on behalf of the Singapore firm such as sales and promotion of spare parts and accessories in India. The contention is that the service recipient is located outside India and service is used outside India, therefore as per the Export of Services Rules, 2005 the same is to be treated as export service and not liable to tax under the Finance Act. We find as per terms and conditions of the Agreements applicants undertake the sale and promotion of goods manufactured and supplied by the Singapore firm in India and the applicants undertake the activity of technical requirement of Indian customers, assisting the customers in providing an understanding of the various spares supplied by the Singapore firm. In addition to this, as per the Agreement applicants also to undertake the activity of assisting in evaluating the creditworthiness of potential customers in India. The relevant portion of the Agreement is reproduced below: "1. Activities to be performed by YMIN. YMIN shall primarily promote and market in India spares and acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....after taking into consideration the terms and conditions held in favour of the assessee. In those cases the Tribunal was taking into consideration the activity undertaken by the assessee in respect of sale and promotion of the goods supplied by the foreign manufacturer. As per the terms and conditions of the Agreements in question, in addition to sale and promotion of the suppliers applicants activity in evaluating the creditworthiness of potential customers in India. Therefore in terms of the Agreements in the present case the ratio is not applicable to the facts and circumstances of the present case. 11. The applicants relied upon the provisions of Rule 3(2) of Export of Services Rules, 2005 which provides as under: "(2) The provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied, namely:- (a) such service is provided from India and used outside India; and (b) payment of such service is received by the service provider in convertible foreign exchange." 12. In view of the fact that the activities undertaken by the applicant under the Agreement for promo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hearing, the case will be decided ex-parte on the merits. This show cause notice is issued without prejudice to any other action that may be taken against the recipient of the notice or any other person concerned with the act and rules as mentioned in the notice or any other law for the time being force in India. 21. He has also relied on decision of the Supreme Court in Union of India and others vs. Garware Nylons Ltd. Etc. [1996] 0 AIR (SC) 3509 wherein it has been held as under:- 15. In our view, the conclusion reached by the High Court is fully in accord with the decisions of this Court and the same is justified in law. The burden of proof is on the taxing authorities to show that the particular case or item in question, is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in the case as this, where the claim of the assessee is borne out by the trade ....