Custom, Excise & Service Tax Tribunal
M/S. Fifth Avenue Sourcing Pvt. Limited vs Cst, Chennai on 7 September, 2017
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
ST/254/2009
(Arising out of Order-in-Original No. 3/2009 dated 20.01.2009 passed by the Commissioner of Service Tax, Chennai)
M/s. Fifth Avenue Sourcing Pvt. Limited : Appellant
Vs.
CST, Chennai : Respondent
Appearance Shri A.R.J. Nayak, Advocate, for the Appellant Shri S. Govindarajan, AC (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Date of Hearing / Decision: 07.09.2017 FINAL ORDER No. 42008/2017 Per: B. Ravichandran The appeal is against the order dated 20.01.2009 of the Commissioner of Service Tax, Chennai. The appellants are registered with the department for payment of service tax and were rendering taxable service under various categories. They are engaged in providing service to Indian garment exporters and their foreign buyers. Based on certain enquiries conducted with the appellants, Revenue initiated proceedings against them to demand and recover service tax not paid during the period 01.07.2003 to 31.03.2007 under the category of Business Auxiliary Service (BAS) in terms of Section 65 (19) of the Finance Act, 1994. Proceedings initiated against the appellant culminated in the impugned order resulting in confirmation of tax liability of Rs. 93,60,126/-. A penalty of Rs. 94,00,000/- lakhs was also imposed under Section 78 of the Finance Act, 1994.
2.1 The Ld. Counsel contesting the findings of the lower authority submitted that details of services rendered by the appellant is not in dispute. The application of tax entry suitable for such services is in dispute. He drew our attention to the decision of the Tribunal in the case of one of their group company involved in identical set of activities viz., Fifth Avenue Vs. Commissioner 2009 (15) STR 387 (Tri.-Chen.). He submitted that the Tribunal after elaborately examining the nature of activities and contract, held that the appellants were liable to service tax under the category of Business Support Services (BSS) in terms of Section 65 (104c) of Finance Act, 1994 and not under BAS. Accordingly the demand for the period prior to 01.05.2006 was held to be not sustainable. The Ld. Counsel submitted that the present appellant is involved in identical set of activities was decided by the Tribunal in the said order. Further, it is submitted that the tax liability in respect of services rendered by the appellants were indicated in four annexures to the SCN. In respect of Annexure-A, it is submitted that the services were actually rendered to a foreign based company and the consideration is also received in convertible foreign exchange. They have rendered services of identifying prospective vendors in India and various follow-up actions for which benefit accrued to the foreign based service recipient and consideration is received in convertible foreign exchange. The service is exported and not liable to tax.
2.2 As regards Annexure-B, it is submitted that they have paid service tax for the period post 01.05.2006 under BAS. For the period prior to that no tax is payable for the said services as they are now contesting only the classification of service. It is their view that their liability should be correctly categorized under BSS only.
2.3 Regarding Annexure-C, they have admitted the taxability, however past 18/04/2006, on reverse charge basis after the introduction of a new Section 66A. Prior to that date no tax liability on reverse charge basis is payable, in line with the decision of the Honble High Court in Indian Ship-owners Association Vs. UOI 2009 (13) STR 235 (Bom.) was affirmed by the Honble Supreme Court.
2.4 Regarding Annexure-D, the Ld. Counsel submitted that the service rendered are typically covered under BSS and taxable only with effect from 01.05.2006. Even otherwise, these services are rendered to the foreign based buyers of Indian garment manufacturers and the consideration which is sought to be taxed under Annexure-D is LC margin, the nature of which was explained by the bank. In their letter dated 05.10.2007, Bank of India Overseas Branch, stated as below:
Letter Ref.No. COSB:EXP:SN:212, dated 05.10.2007 from Bank of India Overseas Branch:
Sub: Service Tax Investigation against M/s. Fifth Avenue Sourcing Pvt. Ltd., Chennai Our Ref.: 8025FBC06000900, Dated 09.10.2006.
We acknowledge the receipt of your letter F.No. INV:DGCEI:MRU:18/2007, dated 26.09.2007 requesting us to furnish certain documents in respect of the bill submitted by the above company towards export of garments.
2. We submit that M/s. Fifth Avenue Sourcing Pvt. Ltd., Chennai-600 040 are receiving Transferable Letters of Credit established in their favour by the foreign buyers and transfer the same in favour of second beneficiary/ies who would actually ship the goods as per LC terms and send the documents to us for substitution/submission to issuing bank. M/s. Fifth Avenue Sourcing Pvt. Ltd. replace the Bill of Exchange and Invoice of the original shipper with their own bill of exchange and Invoice for a higher value (original Invoice value of the shipper pus their margin) and then the documents are presented to the LC issuing bank by us for payment. Upon receipt of payment from the LC issuing Bank, we transfer the amount of the second beneficiarys bill of exchange after deducting the Foreign Bank charges to the foreign bank account of the second beneficiarys bankers towards payment of their bill. The margin amount is credited to the fist beneficiarys (M/s. Fifth Avenue Sourcing Pvt. Ltd.) current/EEFC account with us. This way, the entire transaction comes to its logical end.
3. We send herewith the photo copies of the following documents In respect of the captioned Bill, referred to in your letter.
(a) Bill of Exchange for Euro 4765.20 drawn by Second Beneficiary, East Coast Clothing Co. Ltd. Tirupur.
(b) Invoice No. 05/9-9-2006 for Euro 4765.20
(c) Bill of Lading No. 701061400825 dated 16-9-2006
(d) Covering Schedule from Union Bank of India, Chennai Overseas Br. forwarding the export documents drawn by East Coast Clothing Pt. Ltd. to us.
(f) Invoice No. 05/9-9-2006 for Euro 5513.59 drawn by Fifth Avenue Sourcing Pvt. Ltd.
(g) Letter from Fifth Avenue Sourcing submitting the export documents to us.
(h) Our letter dated 9.10.2006 to LC issuing Bank, Deutsche Bank, Dusseldorf, presenting the documents drawn on their LC No. 0030001798101
(i) Payment advice received from our Paris Br. dated 16.10.2006
(j) Credit Advice dated 9.10.2006 for Rs. 36210.00 being sent to Current A/c. of Fifth Avenue Sourcing Pvt. Ltd.
We give hereunder the workings of the amount remitted.
Bill amount of first beneficiary. Fifth Avenue Sourcing Euro 5513.59 Amount realized Euro 5593.59 Foreign Bank charges Euro 220.00 Second Benc. East Clothings bill amount Euro 4765.20 Less: 50% of Foreign Bk. Charges (as per Inst. Of 1 Bene.) Euro 110.00 Balance remitted to Union Bank of India on 20.10.2006 Euro 4655.20 Amount realized Euro 5293.59 Less: Amt remitted to union Bank of India Euro 4655.20 Balance converted @ Rs. 56.72 and credited to the current account of M/s. Fifth Avenue Sourcing Pvt. Ltd. Rs. 36210.00 Euro 683.39 We hope the above details meet with your requirements.
Sd/-
Chief Manager. As such the submission of the Ld. Counsel is that apart from classification of their services is to be considered as export out of Country for which both the conditions that the recipient of service is located outside India and the consideration is received in convertible foreign exchange is fulfilled.
2.5 The Ld. AR supported the findings of the original authority relying on the decision of the Tribunal with reference to Fifth Avenue a group company of the appellant, the Ld. AR submitted that the Revenue had preferred an appeal against the said order which is admitted by the Honble Supreme Court and pending decision. However, no stay has been granted by the Apex Court. He submitted that the services examined in Annexure-B are basically towards commission received from local vendors and should be classified under BAS as promotion of business activity. The classification claimed under BSS by the appellant is not tenable.
3. We have heard both sides and perused the appeal records.
4.1 The first point is regarding classification of services rendered by the appellant with respect to foreign based clients. This aspect has been examined in detail with reference to LC margin which is substantial portion of the main demand. The Tribunal in the case of Fifth Avenue (supra) examining the identical set of facts and held that these services cannot be considered as BAS and should be treated as BSS, brought under tax liability only with effect from 01.05.2006. We note that even in the category of BSS these services are to be considered as export as both the conditions referred to for export of services have been fulfilled in the present case. The services are availed and consumed by the foreign based client and the consideration has been paid by the said client in convertible foreign exchange. The inference of the original authority is that the LC margin retained by the appellant should be considered in respect of local vendors also, is not supported by facts or law. This is explained by the arrangement as detailed in the letter issued by the bank.
4.2 Regarding services rendered to the local vendors on agreement, the Ld. Counsel submitted that the services are of almost identical nature as that rendered to the foreign clients and typically the same are to be considered as BSS. It is not a simple commission agent work of promotion of the product of the vendor. Though they were registering with the department under BAS and paid service tax under such category with effect from 01.05.2006, tax liability paid after 01.05.2006 is rightly to be appropriated under BSS. This is not being contested. However, for the period prior to 01.05.2006 no tax liability will arise and same is not paid by them.
4.3 Regarding the commission paid to the foreign based agents to get business for the appellants, the appellants admitted that they are liable to pay service tax on reverse charge basis with effect from 18.04.2006. We note that in terms of the Honble Bombay High Court decision in the case of Indian Shipo-owners Association (supra) no tax liability on reverse charge basis will arise prior to 18.04.2006.
4.4 In view of the above discussion and analysis, we find that the services rendered by the appellants are for tax liability under the category of BSS with effect from 01.05.2006. In so far as these services rendered for foreign based clients and consideration was received in convertible foreign exchange no tax liability will not arise considering the same as export. For import of services tax liability is confirmed for the period post 18.04.2006.
4.5 Considering the above findings, we hold that there is no justification for imposition of penalties in the present case.
Accordingly, the penalties are set aside.
5. Appeal is partly allowed in the above terms.
(Order dictated and pronounced in the open court)
(B. RAVICHANDRAN) (SULEKHA BEEVI C.S.)
Member (Technical) Member (Judicial)
BB
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