The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax on commission is paid to foreign agents under service tax exemption notification.
M/s. Madras Security Printers Private Limited, the appellant engaged in the printing of security documents and papers, had paid agency commission to its foreign agents who were engaged by the appellant for procuring export orders for the appellant.
The department got intelligence that the appellant had not paid Service Tax on the commission paid to its foreign agents and the payment of commission for providing the business to the appellant was classifiable under ‘business auxiliary service’.
A Show Cause Notice was issued proposing to demand the Service Tax on the commission paid by the appellant to its foreign agents under reverse charge basis under the category of ‘business auxiliary service’.
The appellant filed a detailed reply by denying any liability to Service Tax on the payment of commission to its foreign agents inter alia claiming the benefit of exemption under Notification No. 14/2004-S.T. dated 10.09.2004. The Adjudicating Authority has not accepted the contentions of the appellant and confirmed the demands proposed against the appellant.
The question before the CESTAT was whether the appellant is eligible for exemption in terms of Notification No. 14/2004-S.T. dated 10.09.2004. It was viewed that the lower authorities denied the exemption merely on the ground that the said services are not used for textile processing.
It was 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 manufacturers and exporters. The word “textile processing” referred to in the notification is to be understood in a broader sense. The exemption of service tax under BAS was allowed for about four industries namely agriculture, printing, textile processing and education. Therefore, the appellant being the textile industry is covered under the category “textile processing” in the notification.
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 are promoted. That is an activity incidental or auxiliary to the 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.
It was observed that the appellants are entitled to the benefit of exemption Notification No. 14/2004 and are not liable to the payment of service tax under reverse charge. The appellants being the exporter of textile made-ups as per the Foreign Trade Policy are not expected to export the taxes. Appellants pleaded that there was no suppression of facts with the deliberate intention to evade payment of service tax.
It was viewed that the foreign agents of the appellant did not render any taxable service classifiable under Notification No. 14/2004 (supra), after observing that the said foreign agents only arranged/booked orders but did not involve in producing any input or input service.
The two-member tribunal bench comprising Mr P Dinesha,(Judicial) and Mr Vasa Seshagiri Rao,(Technical) observed that liaising with customers and getting export orders is itself a ‘procurement of service’ within the meaning of (a) under Notification No. 14/2004 (supra) and the same would also amount to provision of service on behalf of the client as per (c) of the above Notification.
In light of the judgement in the case of M/s. Texyard International the CESTAT set aside the denial of the benefit of exemption under Notification No. 14/2004 (supra) by the lower authority and allowed the appeal.
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