TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 246
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce tax on 'export of service' by treating the service rendered by the appellant as 'business auxiliary service' [BAS] defined under section 65(105)(zzb) of the Finance Act 1994 [the Finance Act] to an entity situated in India. The show cause notice relied upon rule 3(2) of the Export of Service Rules 2005 [the 2005 Export Rules]. 3. The main contention advanced by the appellant before the Commissioner (Appeals) was that the 2005 Export Rules would not be applicable for the period of dispute from 01.07.2012 to 31.03.2015 as they were superseded by the Place of Provision of Services Rules 2012 [the 2012 Rules], which came into effect from 01.07.2012 and that the services provided by the appellant would be 'export of service', both under the 2012 Rules and the 2015 Export Rules. 4. To appreciate this contention, it would be appropriate to refer to the show cause notice dated 03.09.2014 and the relevant portions are reproduced below: "6. Vide letter dated 04.08.2014 (RUD-3) the assessee intimated that being Export of Service, hence the service is exempt and no service tax have been paid, however, provided the information regarding total commission received from them from obroad to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otential consumers in India and resultantly made themselves liable for service tax liability under section 65(105)(zzb) of the act. In the present proceedings it is observed that the party took the activities of exploring market in India on behalf of foreign principal to serve the target group of customers in this defined territory. 10. Due to the efforts of the assessee the foreign based principle could sell his products in India. There was no export of service at all made by the party. Therefore, by no innovative argument, the service provided in India can be converted into export of service. xxxxxxxxxx 13. I observe that the party undertook market promotion in the territory of India for sale of the products of their foreign based principal. As the service provided by the party are category-III under Export of service Rule, 2005 the condition that the services provided by them had a foreign location have to be satisfied by them by proving that the services were provided abroad and not in India. However, I observe that the overall activities of the party as mentioned in the impugned SCNs resulted in provision of Business Auxiliary Services in India only, thereby making them ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e it is important to point out that the appellant is dealing in overseas products like surface science test equipments, environmental analysis kits and equipments, chemical engineering equipment, life sciences and microbiology equipments, laboratory equipments etc. The impugned order clearly says that due to the efforts of the appellant the foreign based principals could sell their products in India which means that the appellant are selling these precuts on behalf of the foreign principal by exploring market, identifying consumers and therefore the activities are such that the flow of these services is not flowing abroad for consumption. Accordingly, the respondent cannot be termed as a provider of mere advisory services like a commission agent or consignment agent etc. so as to be covered under intermediary services. I therefore, do not find myself in agreement with the contention of the appellant particularly when their grounds of Appeal, the appellant has not offered any elaborate discussion or any agreement to establishes them as an intermediary. As such, the services provided by them within Indian Territory have correctly been classified to be taxable under Business Auxiliary....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as according to the Commissioner (Appeals) the order of the Tribunal had not attained finality for the reason "there is nothing on record from where it can be gathered that the above cestat order had attained finality". The decision of the Tribunal in Microsoft Corporation (l)(P) Ltd. vs. Commissioner of Service Tax, New Delhi [2014 (36) S.T.R. 766 (Tri.-Del.)] was also not followed by the Commissioner (Appeals) for the reason that the Civil Appeal filed by the department against the said order had been admitted. 11. The Commissioner (Appeals) ultimately held: "Accordingly, keeping in mind that during the period under dispute the condition with regard to the words 'the recipient of service is located outside India' was mandatorily required to be followed, the impugned Order-in-Original has correctly held that the services provided by the appellants are not 'export' as the performance, use and consumption of services happen simultaneously and these all happen in India only owing to which the recipient cannot be termed to have been located outside India. As such, when there is no difference between the spirit of Rules 3 of ESR' 05, Rule 3 of the POPS Rules, 2012 and Rule 6A of Ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification." 18. As noticed above Rule 6A of the 1994 Rules deals with export of services and sub-clause (d) of rule (1) provides that the place of provision of service should be outside ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ultimately supplies the goods to the Indian customers. For the services rendered by the appellant to the foreign supplier, the appellant receives service charges called as commission charges in convertible foreign exchange. The appellant has treated this service as 'export of service' and, therefore, has not paid any service tax, since the services were rendered to a foreign supplier and the service charges were received in convertible foreign exchange. 24. The Commissioner (Appeals) has, however, concluded that since the goods were ultimately sold to customers in India, the appellant was providing services in India and, therefore, the services provided would not be export of service. 25. The Commissioner (Appeals) completely failed to appreciate that so far as the appellant is concerned it was merely providing services to Kruss Germany (a foreign supplier) and the service charges were received by the appellant in convertible foreign exchange. The goods may have been ultimately supplied by Kruss Germany to an Indian entity on the basis of the market survey conducted by the appellant, but this would not mean that the appellant had rendered service to an Indian entity. The appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... export of service. This contention was repelled by the larger bench and it was observed that though the goods were being supplied to customers in India, the actual recipient of BAS provided by Arcelor India is Arcelor France. The relevant portions of the decision of the larger bench are reproduced below: "1. xxxxxxxxx. A prospective customer in India is either approached by Arcelor India or a prospective customer contacts Arcelor India regarding stainless steel requirement, but in either case the request is forwarded by Arcelor India to the foreign steel mills with the technical requirements of the Indian customer. Once the foreign mills and the Indian customer come to an understanding on the terms and conditions of supply, a written contract is executed between the Indian customer and the foreign mills or a purchase order is placed on the foreign mills. The documents are prepared by the foreign mills in the name of the Indian customer and the Indian customer, in turn, pays the foreign mills. Thus, the goods directly pass from the foreign mills to the Indian customer. 2. A part of the commission received by Arcelor France, as the main agent, from the foreign mills is paid to A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....larifies that the relevant factor is the location of the service receiver and not the place of performance and the phase 'used outside India' is to be interpreted to mean that the benefit of the service should accrue outside India. The term 'used outside India', therefore, means that the service is provided to such a service recipient who is located outside India. It is the location of the service-recipient which determines where the service is used. The use of intangible services should be seen with respect to the location of the service recipient and not the place of performance. xxxxxxxxxxxx 47. Arcelor France and Arcelor India act as main agent and sub-agent for foreign mills and not as an agent or service provider for the customers in India. There is no contractual relationship between Arcelor India and the customers in India. Therefore, even though the goods in the form of steel products are being supplied to customers in India, the actual recipient of BAS provided by Arcelor India is Arcelor France. Arcelor France has used the services of Arcelor India to provide services as main agents to the mills located outside India. 48. The reasoning adopted by the department is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether the 2005 Export Rules or the 2012 Rules are applicable, the appellant would render 'export of service' which was not taxable till 01.10.2014, whereafter it became taxable as the appellant became an intermediary. 46. Even otherwise, the extended period of limitation could not have been invoked in the facts and circumstances of the case. 47. The reason given by the Commissioner (Appeals) to sustain the invocation of the extended period of limitation is that the appellant could have sought clarification from the department, but no effort was made. This reason was not found to be a good reason by the Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and ors. [W.P. (C) 7542/2018 decided on 06.04.2023] and the relevant portion of the judgment is reproduced below: "32. As noted above, the impugned show cause notice discloses that the respondents had faulted MTNL for not approaching the service tax authorities for clarification. The respondents have surmised that this would have been the normal course for any person acting with common prudence. However, it is apparent from the statements of various employees of MTNL that MTNL did not believe that the amount of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL's contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. 42. We agree with the contention that the impugned show cause notice was issued beyond the period of limitation and is, thus, liable to be set aside." (emphasis supplied) 48. A perusal of the aforesaid judgment of the Delhi High Court reveals that when an assessee believes that the amount received was not chargeable to service tax, th....