Relief to Tata Chemicals: CESTAT Sets Aside Service Tax Demand on Export Services [Read Order]

The Allahabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) granted relief to Tata Chemicals Limited by setting aside a service tax demand imposed by the Commissioner of Service Tax.

The issue was whether the services provided by Tata Chemicals to Canpotex Limited, a Canadian company, qualified as export services.

The dispute began when Tata Chemicals entered into an agreement with Canpotex on 1-9-2011. Under this agreement, Canpotex agreed to pay Tata Chemicals USD 800,000 per month to develop the potash market in India sustainably and improve the application capabilities of Indian farmers.

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During an audit of Tata Chemicals' records for the financial years 2010-11 and 2011-12, the Service Tax Department observed that the services provided were Business Support Services (BSS) and Business Promotion Services (BPS), which were taxable under Indian law.

Tata Chemicals contended that these activities constituted business auxiliary services (BAS) and qualified as export services, making them exempt from service tax.

The Department issued a Show Cause Notice (SCN) on May 20, 2015, demanding service tax for the periods 2011-12 and 2013-14. The notice alleged that the services provided by Tata Chemicals fell under the categories of BSS and BPS and did not qualify as export services. The Adjudicating Authority upheld this demand in a 29-4- 2017 order, prompting Tata Chemicals to appeal to CESTAT.

 Tata Chemicals' counsel contended that the classification of services under BSS and BPS was incorrect. The counsel submitted that the services provided were like BAS, which are not taxable when exported.

The counsel further submitted that the service recipient, Canpotex, was located outside India, and the services were aimed at developing the potash market in India for the benefit of Canpotex, not Indian farmers and thus the services qualified as export services under the Export of Service Rules, 2005, and the Place of Provision of Service Rules, 2012.

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The tribunal observed that the services provided by Tata Chemicals were in the nature of BAS and not BSS or BPS. The tribunal also noted that the service recipient, Canpotex, was located outside India, and the services were provided to meet Canpotex's business needs. The tribunal further held that the payments received by Tata Chemicals from Canpotex were in the nature of discounts or incentives for the purchase of goods, which are not subject to service tax.

CESTAT noted that ‘all conditions of Rule 6A are fulfilled in the present case and the services rendered by the Appellant qualify as export of services.’

The bench comprising P. K. Chaudhary (Judicial Member) and Sanjiv Srivastava (Technical Member), set aside the service tax demand and held that  Tata Chemicals' services to Canpotex qualified as export services and were not subject to service tax.

To Read the full text of the Order CLICK HERE

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