Custom, Excise & Service Tax Tribunal
Sara Sae P Ltd vs Meerut-I on 17 December, 2020
Author: Dilip Gupta
Bench: Dilip Gupta
1
ST/51772/2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH COURT-1
Service Tax Appeal No. 51772 of 2014
(Arising out of Order-in-Original No. 70/Commr/Meerut-I/2013 dated
11.12.2013 passed by Commissioner, Customs, Central Excise, & Service Tax,
Meerut-I)
M/s. Sara Sae P Ltd. .....Appellant
(Erstwhile M/s. Nov Sara India P. Ltd.)
Mohabewala Industrial Area, Subhash Nagar
Dehradun
Versus
Commissioner, Customs, Central Excise .....Respondent
& Service Tax, Commissionerrate, Meerut-I
APPEARANCE:
Shri B.L. Narasimhan, Shri Kunal Aggarwal and Ms. Shagun Arora, Advocates for
the Appellant
Shri K. Poddar, Authorized Representatives for the Respondent
CORAM : HON'BLE MR.JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P ANJANI KUMAR, MEMBER (TECHNICAL)
Date of Hearing: 7.12.2020
Date of Decision: 17.12.2020
FINAL ORDER No. 51639/2020
JUSTICE DILIP GUPTA
This appeal has been filed for setting aside the order dated
December 11, 2013 passed by the Commissioner of Central
Excise, Meerut 1 , by which certain demand raised in the show
cause notice dated October 11, 2012 for the period from April 1,
2007 to March 31, 2011, have been confirmed and certain
demands have been dropped.
2. The issue involved in this appeal relates to confirmation of
demand of Rs. 53,37,177/- on services rendered to foreign
1. the Commissioner
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ST/51772/2014
companies for the period April 1, 2007 upto February 27, 2010
and service tax demand under reverse charge on the amount paid
to foreign agents from the Financial Year 2008-09 to Financial
Year 2010-11.
3. The appellant is engaged in the business of provision of
services under the category 'business auxiliary service' 2 and
'transport of goods by road 3 . The appellant represents foreign
companies in India who do not have any office in India and
promotes the business of such foreign companies. The work
undertaken by the appellant for foreign companies, to a large
extent, involves procuring orders from Indian clients on behalf of
the foreign companies, giving technical support in respect thereof
to the foreign companies, assisting the foreign companies for
liasioning, preparing documents, obtaining tenders and
negotiating the tenders on behalfof the foreign companies. The
said services provided by the appellant are classifiable under
'BAS'.
4. According to the appellant, these services qualify as export
4
of services under the provision of Export of Service Rules 2005
and so no service tax was paid by the appellant during the
relevant period from April 2007 to March 2011.
5. In addition to the provision of such services to the foreign
companies, the appellant also paid commission to foreign agents
for receiving services.
6. Proceedings were, however, initiated by the
Department.The Department entertained a view that the appellant
had not shown any amount in the ST-3 returns for services
2. BAS
3. GTA
4. 2005 Rules
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ST/51772/2014
rendered to the foreign companies and had not paid service tax
on commission paid to foreign agents.
7. Accordingly, a show cause notice dated October 11, 2012
was issued to the appellant. The Department compared the figure
of 'other income' appearing in the Balance Sheet for the period
from Financial Year 2007-08 to Financial Year 2010-11 with the
figures of ST-3 returns filed by the appellant for the said period
and proposed a demand of service tax on the differential income
arising on account of 'commission on sale', 'export incentives',
'foreign commission service charge', 'royalty' and 'miscellaneous.
income' and on expenditure on account of 'commission paid to
foreign agents'.
8. The Commissioner partly confirmed and partly dropped the
demands, by order dated December 11, 2013. Details of the
demands are contained in the following Table.
Sl. Category of Transaction Quantum of Findings of the
No. Demand Service Tax OIO
1. Commission on - Rs. 43,466 Dropped as
Sale service tax had
been paid.
2. Export Relates to income from sale of Rs. 1,06,77,889 Dropped as not
Incentives DEPB licenses taxable
3. Foreign Services rendered to foreign Rs. 46,61,774/- Demand partially
Commission companies. confirmed Confirmed
Service charge (partially dropped
Services rendered to Global in for the period
respect of supply of personnel. after 27.02.2010
and extending
cum-tax benefit)
4. Miscellaneous Relates to amounts received Rs. 3,56,474 Dropped as not
Income from workers/employees as taxable
notice pay or amounts payable
to the employees but remained
unpaid
5. Royalty Services received by the Rs. 1,63,385 Service tax paid
Appellant before issuance
of SCN, hence
demand dropped.
Interest
confirmed and
deposited.
6. Commission Commission paid for receipt of Rs. 6,75,403 Demand partly
paid to foreign services confirmed and Rs. confirmed
agents 21,705 dropped as
evidence of
payment of
service tax was
available
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ST/51772/2014
9. It is seen that with respect to foreign commission service
charge at Serial Number 3 of the above Table, the demand of Rs.
46,61,774/-, for the period from April 2007 to February 27, 2010,
has been confirmed. The findings, in short on this issue, are as
follows:
(i) Upto February 27, 2010, the 2005 Rules mandated
that services must be provided from India and used
outside India. The appellant was providing services
in relation to procurement of orders from customers
located in India. These services cannot be delivered
outside India and therefore, the appellant does not
satisfy the condition of services being 'used outside
India'. In this regard, reliance was placed on the
Circular dated May 13, 2011;
(ii) For the period February 27, 2010, the condition in
relation to service being used outside India has been
omitted. However, since the appellant could not
substantiate the quantum of services provided after
February 27, 2010 and the consideration received
thereon, service tax demand of Rs. 71,190/- has
been confirmed.
10. With respect to the Commission paid to foreign agents, the
Commissioner has confirmed the demand as documentary
evidence for the claims made by the appellant had not been
submitted.
11. This appeal deals with service tax on foreign commission
received for services rendered to foreign companies and on
commission paid to foreign agents.
12. Shri B.L. Narasimhan, learned counsel for the appellant
made the following submissions:
(i) The appellant is not liable to pay service tax on
commission received from foreign companies
and the findings recorded in the impugned
order are clearly contrary to the principles laid
down in various decisions that promotion and
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ST/51772/2014
marketing of goods of foreign companies in
India would qualify as export of service under
the 2005 Rules;
(ii) The Commissioner has misread the Circular
dated May 13, 2011 in as much as the said
Circular provides that services would be used
outside India if a benefit of such service accrues
outside India and accrual of benefit should be
tested beyond the factor of the person who pays
for such service;
(iii) The promotional and marketing services of
goods of foreign companies would ultimately
result in increase in business and revenue of
such foreign companies. Hence, even by virtue
of the Circular dated May 13, 2011, service
rendered by the appellant would qualify as
export;
(iv) The 2005 Rules were amended w.e.f February
27, 2012 and the condition "such service is
provided from India and used outside India" was
deleted from Rule 3(2) of the 2005 Rules. Thus,
for the period 2010-11, the only requirement is
that the service recipient should be situated
outside India and consideration is received in
foreign currency. Since both the conditions have
been satisfied, no service tax was payable by
the appellant, as the service provided by the
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ST/51772/2014
appellant to the foreign companies qualifies as
export; and
(v) The demand on commission paid to foreign
agents is not sustainable, as the same has been
discharged by the appellant. In the connection it
has been pointed out of the demand amount of
Rs. 6,75,403/-, the appellant has already
discharged service tax of Rs. 4,28,369/- and
rest of the amount of Rs. 2,47.034/- is not
payable.
13. Shri K. Poddar, learned authorized representative for the
Department has however supported the impugned order and has
made the following submissions:
(i) The services provided by the appellant is in
India and is used in India and, therefore, would
not qualify as 'export of services' under the
2005 Rules and the appellant is liable to pay
service tax on the commission paid by the
appellant to foreign agents.
14. The submissions advanced by the learned counsel for the
appellant and the learned authorized representative of the
Department have been considered.
15. The first issue is regarding the levy of service tax on the
commission received from foreign companies has recently been
decided against the Revenue by this Bench in M/s Involute
Engineering Pvt. Ltd.5, both with regard to the period prior to
5. Service Tax Appeal No. 55146 of 2013
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ST/51772/2014
February 27, 2010 and w.e.f. February 27, 2010. The relevant
portion of the decision is reproduced below:
18. A perusal of rule 3 (2) of the 2005 Rules, as it existed
prior to February 27, 2010, would indicate that the provision of
any taxable service specified in sub-rule (1) of rule 3 shall be
treated as export of service when the following two conditions
are satisfied:
(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.
19. There is no dispute in the present appeal that the
payment for the service was received by the appellant in
convertible foreign exchange. The dispute is whether the service
was provided from India and used outside India. The
Commissioner has observed, for the period prior to February 27,
2010, that the appellant was providing services in relation to
procurement of orders from customers located in India and these
services cannot be delivered outside India. Thus, the appellant
would not satisfy the condition of requiring the services to be
used outside India and in this connection, the Commissioner
placed reliance upon the Circular dated May 13, 2011. Thus, the
demand has been confirmed on the premise that the appellant
was rendering services in relation to promotion of goods in India
(including procurement of orders; collection of payment, etc.),
and therefore, the services were being 'provided and used in
India'. On this basis, the transactions have been held to not
qualify as export of services in terms of rule 3(2) of the 2005
Rules.
22. It would be seen from the aforesaid factual position stated
by the appellant in reply to the show cause notice that the
appellant had been representing various foreign companies in
India and these foreign companies did not have any business or
any other office in India. The appellant promoted the business of
such foreign companies in India and as a consideration for this
service, received commission from the foreign companies in
convertible foreign exchange. In fact, the appellant has also
described the manner in which it had promoted the business of
such foreign companies. The appellant has stated that it
procured orders on behalf of such foreign companies in India and
whenever any Indian company issued a tender, the appellant
sent it to the foreign companies and also bid on behalf of the
foreign companies under their instructions. If the bid is accepted,
the appellant procures orders from the Indian company on behalf
of the foreign companies. The purchase orders are raised in the
name of foreign companies. The foreign companies thereafter
export the goods to the customers in India and the invoices are
raised directly on the customers. The appellant thereafter raises
an invoice for its commission on the foreign companies and
receives the commission amount in convertible foreign currency.
It is, therefore, clear that the appellant supports such foreign
companies to procure orders in India. Such service is provided
from India and used outside India. The service rendered by the
appellant would, therefore, satisfy the twin conditions set out in
rule 3(2) of the 2005 Rules as has also been clarified by the
Circular dated February 24, 2009.
33. The Commissioner, in regard to the period post February
27, 2011 has recorded a finding that though the condition
relating to service being used outside India has been omitted,
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ST/51772/2014
but the appellant could not substantiate the quantum of services
provided after February 27, 2010 and the consideration received
thereon and so the entire demand has to be confirmed.
34. As noticed above, the only requirement after the
amendment in rule 3 (2) of the 2005 Rules is that the service
recipient should be situated outside India and consideration
should be received in foreign currency. Both the conditions
stand satisfied. Even otherwise, for the period prior to February
27, 2010, it has been held that no service tax could be
levied. Thus, it was immaterial as to whether the appellant was
able to substantiate the quantum of services provided after
February 27, 2010 and the consideration received thereon.
.
16. The aforesaid decision in Involute Engineering placed reliance upon the following decisions:
(i) GAP International Sourcing (India) Pvt.
Ltd. vs. Commissioner of Service Tax6;
(ii) Commissioner of Service Tax, Mumbai-VI vs. A.T.E Enterprises Private Limited7;
(iii) Commissioner of Service Tax-VII vs. Wartsila India Limited8;
(iv) Verizon Communication India Private Limited vs. Assistant Commissioner of Service Tax, Delhi9;
17. Thus, for the reasons stated above and in Involute Engineering, it is not possible to sustain the demand confirmed by the Commissioner in regard to this commission received from the foreign companies.
18. The Commissioner has confirmed demand of Rs. 6,75,403/- on commission paid by the appellant to foreign agents during the period from Financial Year 2008-09 to Financial Year 2010-11. It has been submitted by learned counsel for the appellant that this demand is not sustainable for the reasons stated in the following Table.
6. 2014-TIOL-465-CESTAT-DEL
7. 2018(8)GSTL 123 (Bombay)
8. 2019(24) GSTL 547(Bombay)
9. 2018(8) GSTL 32(Delhi) 9 ST/51772/2014 Year Taxable Amount Amount Balance Comments value confirmed deposited 2007-08 0 0 0 0 -
2008-09 Rs. Rs. 3,15,430 Rs. 2,45,430 Rs. 70,000 Amount of Rs.
25,52,026 plus interest of 1,69,197 as
Rs, 9,817 commission has been
deposited on reflected twice
20.07.2009 erroneously in the
(Annexure-7) ledger. Further, the
amount of
commission was paid
in May 2009, when
effective rate of ST
was reduced from
12.35% to 10.30%.
Therefore, total tax
payable on Rs.
23,83,829 was Rs.
2,45,430/ which has
been deposited.
(Annexure-7)
2009-10 - Rs.4,885/- Rs 4,885/- - Paid alongwith
interest (Annexure-B)
2010-11 Rs. Rs. Rs. 1,78,054 Rs. Service tax is payable
34,47,460 3,55,088/- on actual 1,77,034/- only on the amount of
out of on amt. of commission of commission actually
which Rs. Rs. Rs. 17,38,681) paid.
12,49,800 34,47,460/-
was
reversed
TOTAL 6,75,403/- 4,28,369/- 2,47,034/-
i. Out of the demand amount of Rs. 70,000/- for Financial
Year 2008-09, an amount of Rs. 52,571/- has been computed at a wrong rate of Service Tax i.e. 12.36%, instead of 10.30%;
ii. Demand of Rs. 17,429/- on Rs. 1,69,127/- is not sustainable as the commission has been erroneously entered by the appellant twice in its ledger; and iii. The remaining demand of Rs. 1,77,034/- for Financial Year 2010-11 is also unsustainable as the service tax is liable to discharged only on the amount actually paid to foreign agents. In the instant case, the Appellant has paid commission of Rs. 17,38,681/- on which service tax has already been discharged by the appellant. Thus, the demand on an amount not paid as commission (reversed) is not sustainable.
19. These facts are required to be examined by the Commissioner afresh. For this purpose, it shall be open to the appellant to submit a representation with factual aspect and supporting documents before the Commissioner within a period of six weeks from today. The Principal Commissioner shall thereafter take a decision within a period of three months, without being influenced by any of the observation made in this order.
20. The order dated December 11, 2013 passed by the Commissioner in so far as it relates to the demand of service tax on 10 ST/51772/2014 the Commission received from foreign companies is set aside. However, the Commissioner shall examine the second issue relating to Commission received from foreign agents in the light of the observations made above. The appeal is accordingly, partly allowed.
(Pronounced on 17.12.2020) (JUSTICE DILIP GUPTA) PRESIDENT (P. ANJANI KUMAR) MEMBER (TECHNICAL) JB