Custom, Excise & Service Tax Tribunal
Harrow Exports vs Calicut on 17 July, 2025
St/21150/2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 2
Service Tax Appeal No. 21150 of 2015
(Arising out of Order-in-Appeal No.19/2015-ST dated 06.01.2015
passed by the Commissioner of Central Excise, Customs and Service
Tax (Appeals), Cochin.)
M/s. Harrow Exports
TTN 391, Kaoser Complex, Appellant(s)
Kaltex Junction
Kannur - 670 002.
VERSUS
The Commissioner of Customs,
Central Excise and Service Tax Respondent(s)
C.R. Building, I. S. Press Road, Cochin - 18.
APPEARANCE:
Shri M. Saravanan, Consultant for the Appellant Shri Rajashekar B.N.N, Superintendent Authorised Representative for the Respondent CORAM:
HON'BLE MR. P.A. AUGUSTIAN, MEMBER (JUDICIAL) HON'BLE MRS. R. BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 21239 / 2025 DATE OF HEARING: 17.07.2025 DATE OF DECISION: 17.07.2025 PER : P.A. AUGUSTIAN The issue in the present appeal is whether the appellant is liable to pay service tax under Reverse Charge Mechanism (RCM) on commission paid to foreign agents under Business Auxiliary Service and whether the appellant is entitled for availing the benefit of Notification No.14/2004-ST dated 10.09.2004. Appellant is engaged in export of ready-made garments and also obtained service tax registration under the category of Business Page 1 of 5 St/21150/2015 Auxiliary Service. Alleging that the appellant had availed the services of overseas agents for export of garments prior to taking service tax registration and further, alleging non-payment of service tax on the commission paid to overseas agents for the period from 18.04.2006 to 31.3.2009, proceedings were initiated and show-cause notice was issued on 21.04.2010. Thereafter, adjudicating authority vide Order-in-Original No.3/2012 dated 20.1.2012 confirmed the demand and also imposed penalties.
Aggrieved by said order, appeal was filed before Commissioner (A), who as per the impugned order confirmed the demand and dismissed the appeal. Aggrieved by the said order, present appeal is filed.
2. When the appeal came up for hearing, the learned counsel for the appellant submits that the demand is made under RCM and they have registered with the department in March 2009 and eligible for claiming the exemption as per Notification No.18/2009-ST dated 7.7.2009. Learned counsel further submits that the issue is no more res integra as the Tribunal in the case of Texyard International vs. Commissioner of Central Excise, Trichy: 2015 (40) STR 322 (Tri.-Chennai) and Arvind A Traders vs. Commissioner of Central Excise, ST, Trichy: 2016 (44) STR 264 (Tri.-Chennai). Thus the commission paid to overseas agent for service provided by them is only for the export of goods and thereby sale is promoted. This activity is incidental to processing of textiles goods and covered by Business Auxiliary Service. As per clause (d) of the Notification No.14/2004-ST dated 10.09.2004, payment of service tax under RCM on the commission paid to foreign overseas agent is exempted from payment of service.
3. As regarding invoking the extended period of limitation, the learned counsel submitted that in the case of Hyundai Motor India Pvt. Ltd. vs. CCE, Chennai: 2019 (29) GSTL 453 (Tri.-Chennai), following the decision of the Hon'ble High Court of Madras in the case of CCE, Chennai vs. M/s. Tenneco Page 2 of 5 St/21150/2015 RC India Pvt. Ltd.: 2015 (323) ELT 299 (Mad.), it is held that the allegation of suppression has to be established by a positive act on the part of the appellant with cogent evidence to establish an intention to evade payment of service tax. Further it is held that, even if the service tax is paid as demanded by the department, the appellant would be eligible to avail credit of the same. Thus extended period of limitation cannot be invoked alleging intention to evade payment of service tax when the entire transaction amounts to a revenue neutral situation. This decision was upheld by the Hon'ble Supreme Court in 2020 (32) GSTL J154 (SC).
4. The learned Authorised Representative (AR) reiterated the findings in the impugned order.
5. Heard both sides. As regarding first issue whether the appellant is liable to pay service tax under Reverse Charge Mechanism (RCM) on the commission paid to foreign agents under Business Auxiliary Service or entitled for availing the benefit of Notification No.14/2004-ST dated 10.09.2004, it was considered by the Tribunal in the case of Texyard International Ltd. (supra) and held that:
"6.1 We have carefully considered the submissions of both sides and also examined the records. The assessees filed appeals contesting the service tax demanded under reverse charge on the commission paid to the overseas agents for export of finished goods. The Revenue filed appeal against setting aside of penalties by Commissioner (Appeals). The main issue in the present appeals is whether appellant-assessees are eligible to the benefit of exemption of service tax under Business Auxiliary Service under Notification No. 14/2004-S.T., dated 10-9-2004 and whether assessees are liable for penalty as contended by Revenue. Prima facie, we find that there is no dispute on the fact that the appellants are manufacturer-exporters and they manufacture textile made ups and export to overseas. They have engaged overseas agents and paid commission for procurement of export orders and the commission agency service is covered under the Business Auxiliary Service. The appellants claimed the exemption under Notification No. 14/2004-S.T., dated 10-9- Page 3 of 5 St/21150/2015 2004 as applicable during the relevant period before appellate authority and he rejected their plea on the ground that the said exemption is applicable to the input services related to textile processing. The period involved in all these appeals relates to post 18-4-2006. It is relevant to reproduce the Notification No. 14/2004-S.T., dated 10-9-2004 as under :-
"Service tax exemption to specified services in relation to Business auxiliary service In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts taxable service provided to a client by any person in relation to the business auxiliary service, insofar as it relates to, -
(a) procurement of goods or services, which are inputs for the client;
(b) production or processing of goods for, on behalf, of the client;
(c) provision of service on behalf of the client; or
(d) a service incidental or auxiliary to any activity specified in
(a) to (c) above.
and provided in relation to agriculture, printing, textile processing or education, from the whole of service tax leviable thereon under section 66 of the said Finance Act.
6.2 The lower authorities denied the exemption merely on the ground that the said services are not used for textile processing. On careful reading of the above notification, it is evident that service tax was exempted during the relevant period for the services provided under Business Auxiliary Service if it relates to agriculture, printing, textile processing or education. The appellants are Textile manufacturer and exporters. The word "textile processing" referred in the notification is to be understood in a broader sense. The dictionary meaning of "textile processing" means sequence of operations or changes undergone and the definition of "textile" includes fabrics, fibre, yarn suitable for weaving into fabric. The exemption of service tax under BAS was allowed in relation to four industries namely agriculture, printing, textile processing and education. Therefore, the appellant being textile industry, it is covered under the category "textile processing" in the notification.
Page 4 of 5St/21150/2015 6.3 Commission paid to the overseas agents is in respect of service provided by that agent to the appellant to export its goods and thereby sales is promoted. That is an activity incidental or auxiliary to processing of textile goods and covered by Business Auxiliary Service and Clause (d) of the notification extracted above covers the case of the appellant bringing the export promotion activity abroad as incidental and auxiliary to the activity of production as is meant by Section 65(19) of Finance Act, 1994. Appellants are accordingly entitled to the benefit of exemption Notification No. 14/2004 and not liable to the payment of service tax under reverse charge.
6. Following the ratio of the above decision and the decision of the Tribunal in the matter of Hyundai Motor India Pvt. Ltd. (supra) which was upheld by the Hon'ble Supreme Court (2020 (32) GSTL J154 (SC), we find that the appellant is not liable to pay service tax under RCM. Accordingly, impugned order is set aside and the appeal is allowed.
(Operative portion of the order was pronounced in Open Court on conclusion of hearing.) (P.A. AUGUSTIAN) MEMBER (JUDICIAL) (R. BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 5 of 5