Custom, Excise & Service Tax Tribunal
Owens Corning (I) Ltd vs Commissioner Of Service Tax Mumbai-Ii on 21 August, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Service Tax Appeal No. 87762 of 2014
(Arising out of Order-in-Original No. 15/ST-II/RS/2014 dated
12.03.2014 passed by Commissioner of Service Tax,, Mumbai-II)
M/s. Owens Corning (I) Ltd. Appellant
Plot No. T-28, MIDC Phase 2,
Taloja, Raigad 410 208.
Vs.
Commissioner of S. Tax, Mumbai-II Respondent
4th floor, New Central Excise Bldg., M.K. Road, Churchgate, Mumbai 400 020.
Appearance:
Shri Vinay Jain, Advocate for the Appellant Shri M. Suresh, Authorised Representative for the Respondent CORAM:
Hon'ble Mr. S.K. Mohanty, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) FINAL ORDER NO. A/86423/2019 Date of Hearing: 22.04.2019 Date of Decision: 21.08.2019 PER: SANJIV SRIVASTAVA This appeal is directed against order in original No 15/ST-II/RS/2014 dated 12.03.2014 of Commissioner Service Tax Mumbai -II. By the impugned order Commissioner held as follows:
"82.1 Out of the demand amount made in the Show Cause Notice under Section 73(1) of the Finance Act, 1994 by invoking the proviso thereto, I confirm an amount of Rs 2,19,62,780/- (Rupees Two Crore Nineteen Lakhs Sixty Two Thousand Seven Hundred and Eighty Only) in terms of Section 73(2) of the Finance Act, 1994, the service tax amount as detailed below as payable by / recoverable from M/s Owens Corning 9India) Ltd Raigad 410208 towards provision/ receipt of the following services:-2
(i) Rs 65,93,940/- out of Service Tax amounting to Rs 79,08,692/- under Business Auxiliary Service for the period from 01.07.2004 to 31.03.2008.
(ii) Rs 1,44,71,931/- out of Service Tax amounting to R%s 3,18,89,501/- under Franchise Service for the period 2006-07 to 2007-08.
(iii) Rs 8,41,354/- out of Service Tax amounting to Rs 43,87,707/- under Consulting Engineer Service for the period from 2006-07 to 2007-08.
(iv) Rs 55,555/- out of Service Tax amounting to Rs 2,21,770/- under Technical Testing and Analysis Service for the period 2006-07 to 2007-08.
82.2 I order recovery of interest at the appropriate rate, on the amount confirmed as at para 82.1 (i to iv) above, from the due date(s), under the provisions of Section 75 of the Finance Act, 1994, from M/s Owens Corning (India) Ltd Raigad 410208;
82.3 I impose a penalty under Section 76 of the Finance Act, 1994 in respect of Business Auxiliary Service on M/s Owens Corning (India) Ltd Raigad 410208, as it existed at material time, on the amount confirmed as at para 82.1(i) which shall be:-
(i) Rs 200/- for every day on the Service Tax liability not discharged starting from the first day after the due date till the date of actual payment of the outstanding amount of service tax for the period 01.07.2004 to 17.04.2006 subject to a maximum of total service tax not paid for the said period, and
(ii) Rs 200/- for every day during which such failure continues or at the rate of 2(two) percent of such tax per month, whichever is higher, starting from the first day after the due date till the date of actual payment of the outstanding amount of service tax for the period 18.04.2006 to 31.03.2008 subject to a maximum of total service tax not paid for the said period.3
82.4 I impose a penalty under Section 76 of the Finance Act, 1994 in respect of 'Franchise Service', 'Consulting Engineer Service', 'Technical Testing and Analysis Service' on M/s Owens Corning (India) Ltd Raigad 410208, as it existed at material time, on the amount confirmed as at para 82.1(i) which shall be Rs 200/- for every day during which such failure continues or at the rate of 2(two) percent of such tax per month, whichever is higher, starting from the first day after the due date till the date of actual payment of the outstanding amount of service tax for the period 18.04.2006 to 31.03.2008 subject to a maximum of total service tax not paid for the said period.
82.5 I impose a penalty of Rs 5000/- (Rupees Five Thousand only) under Section 77 of the Finance Act, 1994, on M/s Owens Corning (India) Ltd Raigad 410208.
82.6 I impose a penalty of Rs 2,19,62,780/- (Rupees Two Crore Nineteen Lakhs Sixty Two Thousand Seven Hundred and Eighty Only) on M/s Owens Corning (India) Ltd Raigad 410208 under ten provisions of Section 78 of the Finance Act, 1994, as it existed at the material time."
2.1 We have heard Shri Vinay Jain Advocate for the Appellant and Shri M Suresh, Assistant Commissioner, Authorized Representative for the revenue.
2.2 Arguing for the Appellant, learned advocate submitted-
(i) Admittedly the demand has been confirmed against them in respect of four services namely-
Franchise Services/ royalty payments; Consulting Engineer Services;
Technical Testing and Analysis Services Business Auxiliary Service (Commission Received).
(ii) The service tax demanded by them under the category of Franchise Service has already been discharged by them by treating the transactions as one under the category of Intellectual Property Service as has also been noted in para 3.10 & 3.11 4 of Show Cause Notice. Since the Service Tax has been paid by them under one category of service, the demand made under another category should have been adjusted against the amount paid as per the CBEC Circular No 58/2003-ST dated 20.05.2003 and decision of tribunal in case of Air Charter Services P Ltd 2017 (5) GSTL 107 (T-Del)].
(iii) They have paid the service tax on Franchise Service, Consulting Engineer Service and Technical Testing & Analysis Services on reverse charge basis and have also taken the CENVAT Credit of the same. Availment of CENVAT Credit has not been objected by the revenue. They do not intend to seek the refund of the same. However since the situation is totally revenue neutral extended period and consequent penalties are not imposable on them as has been held in the following cases:
Jet Airways (I) Ltd [2016 (44) STR 465 (T- Mum)] Jain Irrigation Systems Ltd [2015 (40) STR 752 (T-Mum)] JPP Mills Ltd [2013-TIOL-1643-CESTAT-MAD] Tvl Kasi and Sethu [2003 (13)STC 73 Mad] Steel Authority of India [1997 (90) ELT 287] Modipon Fibre Co [2001 (135) ELT 1420 (T-
Del)] Mittal Pigments Pvt Ltd [2016 (332) ELT 841 (T-Del)] Emcure Pharmaceuticals [2016 (342) ELT 172 9Bom)]
(iv) In respect of transactions sought to be levied to Service Tax under the category of Business Auxiliary Services, they do not dispute the classification of services as has been made by the Commissioner. Commissioner has allowed them the benefit of exemption under Notification No 13/2003- ST dated 20.06.2003 for the period from 01.07.2003 to 09.07.2004. This notification was modified and 5 restricted only to the services provided by the commission agents in relation to sale and purchase of agricultural produce with effect from 10.07.2004.
(v)Commissioner has denied the benefit of exemption under Notification No 21/2003 dated 20.11.2003-ST. This notification exempted taxable services from payment of service tax as long as the payment for services was received in convertible foreign exchange and the amount so received is not repatriated out of India. Commissioner has denied the benefit of exemption stating that they have failed to produce any evidence to show that these amounts received in convertible foreign exchange has not be repatriated outside India. They had produced the FIRC to evidence that the they had received the Commission in convertible foreign exchange. Revenue had verified and investigate the books of accounts of the appellants and has not come with any evidence to show that they had repatriated these amounts outside India. Thus the denial of this exemption for the period prior to 15.03.2005 is not justified.
(vi) The services provided by them are used by Owens Corning Hongkong (OC HK) and Owens Corning Australia (OC A), both located outside India. They have received the commission from these entities in convertible foreign exchange. OC HK and OC A do not have any business establishment in India and are engaged in manufacture/ trading of goods outside India. They use the services of appellant for their business which is located outside India. The fact that the goods of these entities were sold to the Customers located in India does not mean that they have not used the services provided by the appellant outside India.
(vii) As per the Export of Service Rules, 2005, following three conditions need to be satisfied for 6 treating the Business Auxiliary Services to be exported out of India_ The recipient of services is located outside India;
Such service is delivered outside India and used outside India.
Payment for such services provided is received in convertible foreign exchange.
(viii) Since they satisfy all the three conditions the benefit of export of services should have been extended to them as has been held in following decisions:-
Paul Merchants Ltd [2013 (29) STR 257 (T- Del)] ATR Enterprises Pvt Ltd [2015 (39) STR 81 (T- Mum) Blue Star Ltd [2016 (46) STR 59 (T-Mum)]
(ix) Service Tax is destination based consumption tax, and the recipient of the service is outside India, thus no service tax is leviable in India, even without exemption or Export of service benefit. CBEC has clarified so by Circular Date d 25.04.2003, and same was stated in the Finance Minister speech in the parliament.
(x)It is well settled position that service tax is leviable only if services are consumed within India as held in case of SGS India Pvt Ltd [2011 (24) STR 360 (T- Mum)]. This decision has been affirmed by the Hon'ble Bombay High Court as reported at [2014- TIOL-580-HC-Mum-ST]
(xi) In any case this demand is barred by limitation as the appellants were under a bonafide belief that no service tax was leviable in respect of these services provided by them to OC HK and OCA A. TH issue involved is one of interpretation of statue hence extended period of limitation cannot be invoked.7
(xii) Since there is no suppression of facts no penalties can be imposed on them.
2.3 Arguing for the revenue learned Authorized Representative while reiterating the findings recorded in order submitted that-
i. The dispute in the present case is now limited to two issues viz-
a. Whether the amounts paid by the appellant under the taxable category of "Intellectual Property Right Service" can be adjusted against the service tax demand made under the category of "Franchise Services".
b. Whether the services under the category of "Business Auxiliary Services" to OC HK and OC A, can be given the benefit of Export of Services as it was available from time to time.
ii. In respect of the service tax payable under the category of Consulting Engineer Services and Technical Testing & Analysis Services, appellants have paid the service tax due from them on reverse charge basis and have also taken the credit of the tax so paid.
iii. The provisions of Finance Act, 1994 and Rules made thereunder, do not permit the adjustment of tax paid under one taxable category with the tax demand under different category. The proper course in such case would have been to pay the demand of tax under the category in which the tax is correctly payable, and seek the refund of tax paid under different category in respect of the same transaction. Having failed to claim the refund of the tax paid under wrong service tax head within the prescribed the period the claim for refund has become time barred and appellants cannot claim adjustment of the said refund against tax payable under other taxable category (head).
iv. In respect of the tax demand in respect of Business Auxiliary Service provided by the appellant to OCA 8 HK and OCA A, commissioner has rightly analyzed the provisions of law as they existed from time to time and has confirmed the demand against the appellant.
v. The services provided by the appellant under this category to OCA HK and OCA A were in respect of the sale of the goods in India. Hence the services provided cannot be said to be export of services as the benefit of the said service had accrued to OCA HK and OCA A in India. The decision in case of Paul Merchants relied upon by the appellants will not be applicable in the present case as the periods covered by that decision is different from the period involved in the present case.
vi. The extended period of limitation as provided by the proviso to Section 73(1) is applicable in the present case as the appellants have not filed the relevant details of the services provided to the OC HK and OC A in the ST-3 returned filed by them.
vii. Penalties under various provisions Finance Act, 1994 are for various acts of omission and commission and since they have violated the various provisions of Finance Act, 1994 and Rules made thereunder, penalties on them under Section 76 and 77 are justified. Also for their act leading to evasion of Service Tax the penalties under section 78 to are justified.
3.1 We have considered the impugned order along with the submissions made in the appeal and during the course of arguments. The issues that have been considered by the Commissioner in the impugned order have been grouped in following four categories:
i. Demand on services received by the appellant from overseas service providers under the category of Consulting Engineer Services. [Amount Rs 8,41,354/-] ii. Demand on services received by the appellant from overseas service providers under the category of 9 Technical Testing and Analysis Services. [Amount Rs 55,555/-] iii. Demand on service tax under the category of Franchise Services. [Rs 1,44,71,931/-]. iv. Demand of service tax under the category of Business Auxiliary Services [Rs 65,93,940/-] 3.2 In respect of the services mentioned at "i" and "ii", appellants have during the course of arguments and in their written submissions stated as follows:
"C.1 The appellants in the present case have paid service tax demanded under the category of Consulting Engineer Services and Technical Testing and Analysis service. The appellants have taken CENVAT credit of the service tax paid. The same has not been objected by the department.
C.2 The appellants would not seek refund of the service tax paid."
In view of the above submissions we find that appellants do not dispute the demand made in respect of these services and have already paid the amounts demanded. They have also taken the CENVAT Credit in respect of the tax paid by them. Since the demand itself is not disputed on the merit we uphold the same accordingly.
3.3 In respect of The Franchisee Services appellant's submitted that they had paid the service tax under the category of "Intellectual Property Right Services". Commissioner has in para 48 and 49 of impugned order recorded as follows:
"48. As can be seen, a study of the various articles of the 'Technology License Agreement' entered into by the notice with OC-USA, has revealed that the agreement deals not only with trade mark, designs etc., but also with transfer of technology, grant of representational right etc. OC-USA had full right and title to their patents and know-how licensed to OCIL. Further, the agreement permits OC-USA to send their technical personnel to OCIL's plants and OC- USA shall permit OCIL to send their technical personnel to OC-USA's plants and to OC-USA's technical center for 10 technical consultation or training on problems relating to the commercial production of Glass products with the aid of OC-USA Patents and OC-USA Know-How. The notice have admittedly stated in their reply that the notice used the technology given by OC-USA.
49. Therefore, in the instant case, OC-USA is the franchisor who has granted representational rights under the category of 'Franchise Service' to the notice who is the franchisee. Hence, OC-USA has provided the said taxable service for which they are liable to pay service tax on the amount received from the notice. But as the service provider in the instant case is a foreign company who is not having office or fixed establishment in India, as per Rule 2(1)(d)(iv) of Service Tax Rules, 1994 read with Section 66A the notice as a service receiver is liable to pay service tax on the royalty amount paid to the foreign service provider during the disputed period. However, going by the discussions held earlier in this regard, the notice is liable to pay Service Tax for the period from 18.04.2006 to 31.03.2008. This notice have claimed that the royalty paid for transfer of technology is not chargeable to Service Tax under 'Franchise Service'. They have also stated in their reply that they are paying Service Tax on the royalty paid by them for transfer of technology under 'Intellectual Property Rights' service w.e.f. 10.09.2004 onwards. However, they have failed to establish along with appropriate legal documents, as to how the said services are taxable under the category of 'Intellectual Property Rights' service. The documents provided by the notice in this regard do not support their contentions. Therefore, I find that the said services received by OCIL are appropriately classifiable under Section 65(105)(zze) read with Section 65(47) and Section 65(48) of Finance Act, 1994 as 'Franchise Service' and the notice is liable to discharge the service tax for the period from 18.04.2006 to 31.03.2008."
In our view there appears to be no dispute about the fact that the appellants were required to discharge the service 11 tax liability in respect of these transactions under the category of "Franchise Service". However instead of making the payment under said category appellants have paid the service tax under the category of "Intellectual Property Right Service". The issue for consideration is whether the tax paid under the category of "Intellectual Property Right Service" can be taken into account for the discharge of service tax payable under the category of "Franchisee Services".
3.4 Central Board of excise and Customs has vide Circular dated 20.05.2003 clarified as follows:
ST Circular No. 58/7/2003 20th May,2003 F.No.157/2/2003 CX.4 Government of India Ministry of Finance & Company Affairs Department of Revenue Central Board of Excise & Customs Subject:- Using a wrong accounting Code for payment of Service Tax clarification- Regarding.
I am directed to say that a representation had been received by the Board raising apprehensions regarding using wrong Accounting Code for payment of Service Tax. Whether, amounts to having paid the Service Tax or not.
2. The Board has examined the issue. In this connection, I am directed to clarify that the assessee need not be asked to pay the service tax again. In such cased the matter should be sorted with the P.A.O. As regards to the cases where the assessee was asked to pay service tax again, the amount thus paid may be refunded by the concerned divisional Asst. Commissioner/Deputy Commissioner.
3. The field formations may suitably be informed.
4. Trade Notice may be issued for the information of the trade.
5. The receipt of this Circular may kindly be acknowledged.12
6. Hindi Version will follow.
Manish Mohan Under Secretary to the Government of India 3.5 In case of Air Charter Services P Ltd [2017 (5) GSTL 107 (Tri Del)] tribunal has approved the order of Commissioner allowing the adjustment of tax paid under one category of taxable service with the tax demand under other category stating as follows:
"9.We note that the adjudicating authority in para 45.8 of the impugned order has tabulated the relevant details of gross turnover and service-wise consideration received by the respondent. Such tabulation is duly certified and supported by the Chartered Accountant after verifying the books of accounts of the respondents. The adjudicating authority has given the relief in the service tax only to the extent of amounts which are not to be considered as part of the consideration. The fact that he has taken the support of Chartered Accountant certificate for verification of the figures cannot by itself be taken as a ground for holding that the impugned order is incorrect or bad. Consequently, we find no reason to interfere with the decision of adjudicating authority to restrict the demand.
10.While reducing the demand of Service Tax on supply of tangible goods, the Commissioner has also allowed the respondent to adjust the amount of Rs. 14,43,02,740/- already paid by them considering their activity under service of "transport of passengers by air" including Rs. 5,83,28,905/- paid through cenvat. Revenue is aggrieved with the fact that before allowing such adjustment, Commissioner failed to undertake detailed verification by supporting documents on the basis of which the above adjustment was allowed. On going through records, we note that adjudicating authority has allowed adjustment of the total Service tax paid by respondent and reported in periodic ST-3 returns. There is nothing on record challenging the figures in the ST-3 returns. Tax already paid under a wrong category can always be 13 considered towards the liability under the new category. Hence, we find no infirmity in the finding of the Commissioner.
11.In the relevant Show cause notice, demand stands raised on reverse charge mechanism under the taxable service of management, maintenance or repair service. The basis for such demand in the show cause notice is the expenditure incurred by the respondent in foreign currency, towards purchase of spares, import of aircrafts levy lease of aircraft, purchase of capital goods, etc. The adjudicating authority recorded that there is no evidence in the show cause notice that these amounts were paid in respect of such services received by the respondent from the foreign based service providers. He has further recorded that the respondent had been filing from time to time the details of foreign remittance in the format advised by the Department along with supporting documents. After scrutiny of such documents, learned Commissioner has concluded that none of the remittance has been effected by the respondent for importing any taxable service including management, maintenance and repair service. As discussed above, the finding recorded by the Commissioner is on the basis of verification of the records before him. We are also convinced that nature of activities for which foreign remittance have been made again come within the services of management, maintenance and repair. Consequently, we find no reason to interfere with the finding of the Commissioner dropping the demand of Service Tax in this category.
12.The adjudicating authority has held that the activities undertaken by the respondents would be rightly classifiable under 'Supply of Tangible Goods for Use' Service. He has also confirmed the demand of service tax under the above service. It is also pertinent to record that the entire service tax demand has also been paid by the respondent along with interest partially through cash and partially by availing of Cenvat credit which has been regularized by the Commissioner in the impugned order.14
The Only point on which the Revenue is aggrieved is that the adjudicating authority has refrained from imposing any penalty under various sections of Finance Act, 1994, even though the demand itself has been confirmed on the basis of show cause notice issued invoking the proviso to Section 73(1). The adjudicating authority has given detailed reasons for not imposing the penalty and the same are reproduced below :-
"Whether the assessee is liable for penalty under Sections 76, 77 and 78 of the Act.
48. In this regard, I find that the present SCN has also proposed penal action under sections 76, 77 and 78 of the Act, as they failed to assess the tax, file the return and deposit the tax within the prescribed period as discussed in the preceding paragraphs. However, I find that during the course of investigation, the assessee admitting their liabilities has paid whole of the outstanding service tax amounting to Rs. 15,40,30,674/- (including Cess and SHEC) through Cash and cenvat credit voluntarily along with interest of Rs. 54,00,892/- which shows their bona fide that they had no intention to evade the tax liabilities. I find that there remains no outstanding service tax liability against them. I further find that section 73(3) of the Act provides that an assessee may pay such amount of Service tax not paid or short paid along with interest payable under Section 75 of the Act before service of notice on the basis of --(i) own ascertainment of such tax; or (ii) tax ascertained by the Central Excise officer. Further, after payment of tax, the assessee should inform the Central Excise officer in writing about such payment, and then the Central Excise officer shall not issue any SCN under section 73(1) in respect of service tax so paid. Explanation-2 to Section 73(3) also provides that no penalty under any provisions of the Finance Act or the rules made thereunder shall be imposed in respect of such payment of service tax along with interest.
49. In the instant case, the short payment/non-payment of service tax has been ascertained by the Central Excise 15 Officer in course of investigation conducted against the assessee. The assessee has also paid whole the amount of Service Tax along with interest. I further find that the C.B.E. & C. vide letter No. 137/167/2007-CX.4, dated 3-
10-2007 had also clarified that if tax and interest is paid before SCN, all proceedings are concluded. In the case of M/s. Auto Transport Services v. CCE - [2006 (5) STT 396 (CESTAT SMB) the Hon'ble Tribunal held that if tax with interest is paid, no SCN could have been serviced upon the assessee. Further, in case of CCE, Kolkata I v. Hazi Abdul Razzaque [2006-TIOL-1237-CESTAT-KOL], the Tribunal held that under section 73, if the amount is paid by Noticee before issuance of SCN, there is no need to issue any SCN, hence upheld the waiver of penalty. Thus, in view of principles of natural justice, the assessee is entitled for the benefits of waiver of penal action as was available under Section 73(3) of the Act, during the period under dispute. Therefore, I do not propose any penal action against the assessee under sections 76, 77 and 78 of the Act, and I hold it accordingly."
13. After going into the detailed reasons given by the adjudicating authority and the case law relied by him, we are of the view that this is not a fit case for imposition of penalty. The supply of tangible goods service was introduced with effect from 16-5-2008. We note that the demand for service tax in this case has arisen for the periods immediately after the introduction of this service when the activities covered under these services were being debated and settled by various judicial forum. We also note from the records of the case that the respondent has disputed the classification of their activity under the supply of tangible goods service. However, during the course of investigation they were convinced and they have discharged the entire service tax liability along with interest. Keeping these circumstances in view, we are convinced that this is a fit case to waive all the penalties under the provisions of Section 80."
163.6 Thus in view of the circular as referred above and the decision of tribunal allowing such adjustment of service tax paid in respect of a transaction, under a wrong taxable category, against the demand of service tax under the category determined by the adjudicating authority, we are not in position to uphold the order of Commissioner disallowing such adjustment. Commissioner should have determined the amount of service tax payable after allowing the benefit of service tax paid albeit under a wrong taxable category. For the purpose of re-computing the demand under this category after taking into account the tax paid by the appellants under category of "Intellectual Property Right Services" in respect of the same transactions the matter needs to be remanded back to the Commissioner.
3.7 In case of demands made under the category of "Business Auxiliary Services" appellants do not dispute the classification of service made by the Commissioner. They have in their submissions stated:
"G.1 The demand of service tax is on commission received by the appellants from OC HK and OC Australia under the heading "business auxiliary service". There is no dispute on classification of the services provided by the appellants."
3.8 For making the demand in respect of the services under this category Commissioner has considered the provisions in respect of the export of services as they existed from time to time as follows:
17 18 193.9 Undisputed fact is that appellants were engaged in selling the goods manufactured by their foreign counterparts namely OC HK and OC A in India. For undertaking the sale of such goods appellants were receiving certain commissions from those foreign companies. Undisputedly the said commission was received in convertible foreign exchange. Appellants have contended that though the services rendered by them as commission agent to the foreign counterparts fall within the taxable category of "Business Auxiliary Services" the same should be treated as export of service and hence should not be subjected to any service tax.
3.10. As per the appellants during the period prior to introduction of Export of Service Rules, 2005, i.e. 14.03.2005, the benefit of exemption under Notification No 21/2003 dated 20.11.2003 should have been extended by the Commissioner to them. However Commissioner has 20 denied the benefit under the said notification stating that appellants have not substantiated their claim under the said notification. The text of the Notification is reproduced below:-
" In exercise of the powers conferred by 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 the taxable services specified in sub-section (105) of section 65 of the said Act, provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the service tax leviable thereon under section 66 of the said Act.
Provided that nothing contained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India."
In our view the above notification exempts all the payments received by a person in connection to taxable service rendered in convertible foreign exchange. Commissioner has in his order not denied the admissibility of the benefit of said exemption notification but has only stated that appellants have failed to substantiate their claim under the said notification. We are aware that a five member bench Hon'ble Supreme Court has in case of Dilip Kumar & Co [2018 () ELT (SC)] laid down the law in respect of interpretation and admissibility of exemption notification as follows:
"52. To sum up, we answer the reference holding as under -
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such 21 ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.
(3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands overruled."
Thus it is for the appellants to satisfy that they fall strictly with the parameters as specified by the exemption notification. In our view the end of justice will be me if appellants are allowed one more opportunity to produce the requisite documents and records before the adjudicating authority for establishing their claim to benefit of the exemption notification No 21/2003-ST dated 20.11.2003. Thus matter for the period 09.07.2004 to 14.03.2005 is remanded back to the adjudicating authority, before whom the appellants should produce all records and documents to establish their claim for exemption under Notification No 21/2003-ST.
3.11 Export of Service Rules, 2005 were notified with effect from 15.03.2005. Despite various amendments made in the said rules from time to time during the period of dispute i.e. upto 31.03.2008, in respect of "Business Auxiliary Services", these rules laid down that for services to be export of service, they should have been used by the recipient of services outside India. Undisputedly the services rendered have been used by the foreign contemporaries of the Appellant, for sale of their goods in India. This fact is undisputed. Appellants have contended on the basis of various case laws that these services have been received by their foreign contemporaries for conducting their business which is located outside India. In case of Toshuku Ltd [1981 AIR 148 SC], interpreting the provisions of Section 9 of Income Tax Act, 1961, in respect of foreign entities providing the services of commission agent to Indian Companies for the sale of goods outside India, Hon'ble Supreme Court laid down the law as follows:
"In the instant case the non-resident assessees did not carry on any business operations in the taxable territories.22
They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the assessees in India as contemplated by clause (a) of the Explanation to section 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessees for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the Department."
Applying the above ratio in respect of selling agents, selling the goods of foreign entity in India, the services rendered for sale of goods in India, cannot be anything but the services rendered in India, even if the sale proceeds of the said goods accrue to foreign entity. Following the ratio of said decision Delhi High Court has in case of EON Technologies Pvt Ltd [Order dated 8th November 2011 in Income Tax Appeal No 1167/2011] held as follows:
"14. The term "business connection" has been interpreted by the Supreme Court to mean something more than mere business and is not equivalent to carrying on business, but a relationship between the business carried on by a non- resident, which yields profits and gains and some activities in India, which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in India [CIT Vs. R.D. Aggarwal and Company (1965) 56 ITR 20 (SC), Carborandum & Co. Vs. CIT (1977) 2 SCC 862 and Ishikawajma-Harima Heavy Industries ltd.
Vs. Director of income Tax, Mumbai (2007) 3 SCC 481]. The test which is to be applied is to examine the activities in India and whether the said activities have contributed to the business income earned by the non-resident, which has accrued, arisen or received outside India. The business connection must be real and intimate from which the income had arisen directly or indirectly....."
23Thus the test, which has been laid down for determination is not the place where the income has accrued but the place where the activity resulting into such business income has taken place. Though the beneficiary of such sale of goods where the foreign counterparts of the appellants but the actual activity of the sale of the said goods have been undertaken by the appellants in India as selling agent/ commission agent. Hence the services of commission agent provided by the appellants to their foreign counterparts have been provided by the appellants for the sale of goods in India, is nothing but service provided/ used by the recipient of service in India. In our view the findings recorded by the Commissioner, in this respect cannot thus be faulted with. Hence we do not find any merits in the submissions of the appellant to the effect that the services provided by them were used by the service recipient for their business which is outside India.
3.12 Appellants have heavily relied upon the decision of tribunal in case of Paul Merchant [2013 (29) STR 257 (T- Del)]. The facts as recorded in para 2 on wards of that decision are reproduced below:
"3.PML entered into an agreement with M/s. Western Union Network Ltd., Ireland a company engaged in money transfer from persons located in one country to persons located in any country. PML was executing part of the activities, in territory assigned to PML in India, necessary for Western Union to carry out its business. The contract entered into between the two parties deals with remittances from persons abroad to persons located in India as well as remittances from persons located in India to persons located outside India. However it is affirmed by PML that they have not done any business of the latter type because such business requires permissions from RBI which they have not got. So it is asserted that the dispute before the Tribunal is in relation to remittance from persons abroad to persons in India. This statement is not contradicted by Revenue. In this business the person located abroad approaches any of the offices of the 24 Western Union or its agents and give money to be remitted to a person in India. The office abroad charges the person abroad commission for remitting money to India. They convert the foreign exchange into Indian rupees and pay the recipient in India following a system to ensure the identity of the person to whom the money is delivered. No charges are levied from the recipient of money in India. PML gets their remuneration from Western Union by sharing the commission collected from the person abroad. They also make some profits due to changes in exchange rate between the date of receipt of money abroad and date of delivery of equivalent Indian rupees in India. However this profit is subject to the risk of loss if the exchange rate changes adversely for the Western Union and its agents.
4.PML does some promotional activities like advertising, organizing promotional programs, distributing promotional material etc. The amount incurred by PML for promotional activities was reimbursed by Western Union to the extent of Rs. 1,02,08,980/- during the relevant period. On this amount received Service Tax amounting to Rs. 11,69,838/- is demanded.
5.PML appointed sub-agents within the territories allotted to them to establish a large number of outlets in the area to make it easy for the recipient in India to get the money easily without much travel and hassles. PML compensates these sub-agents by sharing the commission received by them from Western Union which commission itself is received from the person located abroad remitting the money to India."
As is seen from the facts recorded in that decision that Western Union was providing the money transfer facility to its client located abroad through its offices located abroad. The appellant i.e. Paul Merchant, was the Indian Entity who was coming into picture at the last leg of service to deliver the amounts transferred by the foreign client of Western Union to Indian Recipient. Receiver of the amount 25 In India was not paying anything to the Paul Merchant and hence the services provided by the Paul Merchant to Western Union, was not for promoting any business activity of Western Union in India, but for promoting their business outside India. The clientele and business of Western Union was located outside India and hence the services provided by Paul Merchants have been held to be used outside India. Thus it has been held that in terms of the export of service rules, the services have been exported. In the present case the facts are completely opposite, here the customers of foreign entity i.e. OC HK and OC A are located in India and Appellants are receiving the commission in respect of the goods of these foreign entities sold by them in India. Thus services provided by the appellant facilitate the conduct of business of the Foreign Entities in India. In our view the decision of Tribunal in case of Paul Merchant is distinguishable and not applicable to the facts of this case. The decisions of tribunal in case of ATR Enterprises Pvt Ltd [2015 (39) STR 81 (T-Mum)] and Blue Star Ltd [2016 (46) STR 59 (T- Mum)], relying on the decision of Paul Merchant too are distinguishable.
3.13 There is no dispute about the fact as has been held by various decisions that service tax is destination based consumption tax. However for application of the said principle, the foremost condition is to determine the place of "destination based consumption". If the place of consumption of service is in India then the service tax is leviable and if the place of consumption is outside India the services are treated as export. In the present case when we find that the services have been consumed in India, we do not find any merits in the submission made by the appellant, that the services provided by them were "export of services". Thus reliance placed by the appellants on (i) Finance Minister Speech and (ii) Decision in case of SGS India Pvt Ltd [2011 (24) STR 360 (T-Mum)] do not advance the case of Appellants any further.
263.14 We do not find any merits in the submissions of the appellant that they were under a bonafide belief that service tax was not leviable on the Commission received by them from their foreign counterparts. It is settled law that it is for the appellant tom establish that such a bonafide belief existed. Commissioner in his order rejecting such contentions held as follows:
27 283.16 We do not find any reason to differ from the findings recorded by the Commissioner in his order for invoking the extended period of limitation.
3.17 We also uphold that penalties are leviable on the appellants for the various acts of commission under Section 76, 77 and 78 of the Finance Act, 1994. However since the appellants had paid the service taxes due even prior to issuance of show cause notice in respect of Consulting Engineer Services and Technical Testing and Analysis Services, we are inclined to give the benefit of Section 80 of the Finance Act, 1994 in respect of demands made in respect of these services. Also appellants have paid the Service Tax demanded under the category of Franchisee Services, albeit by treating the tax to be payable under the category of "Intellectual Property Right Service", we are inclined to extend the benefit of Section 80 in respect of this demand.
3.18 Effectively the demand which is determined against the appellants is only in respect of "Business Auxiliary Services". Since appellants have not provided the details of the said services in their ST-3 return and have not paid the service tax in respect of these service we uphold the penalties levied in respect of the services under the section 76, 77 and 78. However the quantum of penalty need to be redetermined after re-determining the demand in respect of these services.
3.19 Thus we summarize our findings as follows:
Demand on services Amount paid by the appellants received by the appellant appropriated against the from overseas service demand. Penalties set aside providers under the by extending the benefit of category of Consulting Section 80 Engineer Services.
[Amount Rs 8,41,354/-]
Demand on services
received by the appellant
from overseas service
29
providers under the
category of Technical
Testing and Analysis
Services. [Amount Rs
55,555/-]
Demand on services Matter remanded for
received by the appellant verification of the fact about from overseas service payments made by the providers under the appellant under category of category of Franchise "Intellectual Property Right Services. [Rs Service". Penalties set aside 1,44,71,931/-] extending the benefit of section 80.
Demand of service tax Matter for the period under the category of 9.07.2004 to 14.03.2005 Business Auxiliary remanded to adjudicating Services [Rs 65,93,940/-] authority. Demands and penalties upheld for the period 15.03.2005 to 3.03.2008.
4.1 Appeal filed by the appellants is partially allowed as indicated in para 3.19 above.
(Order pronounced in the open court on 21.08.2019) (S.K. Mohanty) Member (Judicial) (Sanjiv Srivastava) Member (Technical) tvu