TaxTMI 
TaxTMI 
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2018 (1) TMI 218
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.... 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 M/s NTN Corporation, Singapore, NTN Corporation, Japa....
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....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, it is a service neither delivered outside India nor used outside India....
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.... 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 seems to be not tenable because in the impugned order it has been categorically discussed....
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.... 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 activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, in....
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....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:- 2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories: (i) Category (I) [Rule 3(1)(i)] : For services (such as Architect service, General Insurance service, Construction service, Site Preparation serv....
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.... 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:- 2. In the stated Circular it was inter-alia, clarified that the words, "used outside India" should be interpreted to mean that "the benefit of the service should accrue outside India". It is well known that services, being largely intangibles, are capable of being paid from one place and actually used at another place. Such arrangements co....
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....on 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 professions cannot be extended to include services. This is what is called as an Aspect Theory. If the argument of the appellants is accepted, then there would be no difference between interpretation of a general entry and interpretation of a taxing entry in List I and List II of the Seventh Schedule to the Constitution. Therefore, 'professions' will not include services ....
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....inment 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 entertainment under the Cantonment Act came within Entry 50 of the Provincial List. The importance of this judgment lies in the fact that this judgment makes a distinction between tax imposed for the privilege of carrying on any trade or calling on one hand and a tax on every show that is to say on every incidence of the exercise of the particular trade or calling. It was held that if....
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....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 India and Ors. : reported in [2006]282ITR273(SC) the question which arose for determination before this Court was whether a telephone service (mobile or fixed) would attract liability to service tax. It was held that in order to attract the liability under the service tax there has to exist what is called as 'goods'. Since goods in question consisted of electromagnetic waves or radio frequencies,....
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....pt 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 in Life Care Medical Systems Vs. Commissioner of Service Tax, Mumbai-II (2012) 26 taxmann.com 271 which is in favour of the department wherein it has been observed as under: 6. We have perused the International Distribution Agreement entered into by the appellant with M/s. VIASYS International Corporation, Pennsylvania, USA. As per the said agreement, the appellant was required to render the following services in....
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.... 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; therefore, the activity does not come within the scope of export of service during the period from 15-3-2005 to 18-4-2006. 8.1 As regards the period from 19-4-2006 to 28-3- 2007, the Rules provided that any taxable service shall be treated as 'export of service' when the following conditions are satisfied, namely, (a) such service is delivered outside India and used outside India and payment for such service provided outside India is received by the service provider i....
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....fied 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? 2. In the stated circular it was inter alia clarified that the words, "used, outside India" should be interpreted to mean that "the benefit of the service should accrued outside India". It is well known that services, being largely intangibles, are capable of being paid from one place and actually used at another place. Such arrangements commonly exist where the services are procured centrally e.g. audit, advertisement, consultancy, business auxiliary services. For example, it is possible to obtain a consultanc....
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....d 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 added tax. 8. As stated above, service tax is VAT. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services. Therefore, for our understanding, broadly "services" fall into two categories, namely, property based services and performance based services. Property based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas, etc. Performance based service are services provided by service providers like stock brokers, practicing ....
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....NU/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 passed in the context of business auxiliary service' which is also the issue before us. This decision of the Tribunal was upheld by the Hon'ble High Court of Delhi in the same case reported in MANU/DE/2878/2009MANU/DE/2878/2009 : 2009 (16) S.T.R. 545. Even though the above judgments were was passed in the context of a stay application, since we are also considering the stay application at present, the ratio can be applied. 14. The appellants have contended that the demands are barred by limitation of time inasmuch as the show cause notices have been issued by invoking the extended period of time. It is their contention that they have not supp....
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..... 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 clearly in favour of revenue. This Tribunal, being creature of statute, cannot ignore the statutory guidance while exercising the powers of interim stay. 14. However against that also the decision is pending before the Mumbai High Court. 15. He has also taken us to another decision of Star India Pvt. Ltd. Vs. Commissioner of Central Excise, Thane-I 2015 (38) S.T.R. 884 (Tri.-Mumbai) wherein it has been held as under:- "Broadcasting agency/ Organization - Taxability of - Appellant engaged in activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting broadcasting charges on behalf of star Hong Kong as its representativ....
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....nical 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 accessories supplied by YMT. 1.1 Activities to be performed by YMIN specifically would involve the following: 1.1.1 Promoting and Marketing in India - spares and accessories by YMY: i. Understanding the technical requirements of the Indian Customers; ii. Assisting the customers in providing an understanding of the various spares supplied by YMT meeting its technical requirements; iii. Assistant in evaluating the creditworthiness of customers/potential customers; iv. Communicating the terms of the contract and the pricing decisions of YMT to prospective customers and acts as a channel of communication between YMT and existing/prospective customers. It is understood that YMIN will have no authority for con....
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....g 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 promotion and marketing of spare parts, obligation of collection of receivables, etc., in India hence it cannot be said that the service is used outside India. 13. In view of this prima facie the applicants have not made out a case for total waiver of the pre- deposit of the Service Tax. 14. Applicants also submitted that the demand is time-barred. The issue of limitation is a mixed question of facts and law which will be gone into at the time of final hearing. No financial hardship is pleaded before us. 15. Keeping in view the facts and circumstances of the case the applicants are directed to deposit amount equal to 50% of the Service Tax confirmed, within eight weeks. On deposit of the above mentioned amount, the pre-deposit of the remaining dues is waived and recovery thereof stayed for hearing the appeal. 18. He contended that the Tribunal has lost sight of the fact that ....