A two judge bench of the Rajasthan High Court in Commissioner Central Excise Commissionerate vs. National Engineering Industries Ltd held that a service not being delivered outside India and not used outside India but provided for the benefit of foreign entity, can be termed as export of service and therefore, the service provider is not liable to pay Service Tax on the same.
The main question before the High Court was whether a service not being delivered outside India and not used outside India but provided for the benefit of foreign entity, can be termed as export in violation of provisions of Export of Service Rules, 2005 and whose effective use and enjoyment was in India
The Respondent/Assessee- M/s National Engineering Industries Ltd. was engaged in providing services of Commission Agent falling under the category of Business Auxiliary Services under Chapter V of the Finance Act, 1994. The assessee is appointed as distributor by the foreign company to promote sales of their product in India. They get commission on the imports into India when orders are placed through them. The assessee, thus finds buyers in India for the product of foreign seller and procure orders from the Indian buyers for supply of product by the foreign seller to Indian buyer. Indian buyer makes payment to the foreign seller and in turn the foreign seller pays commission to assessee. The assessee were not paying service tax on the commission received in Foreign Currency for the services rendered in India to M/s NTN Corporation, Singapore, NTN Corporation, Japan and NTN Corporation, USA.
The department was of the view that the assessee was liable to pay service tax as the service which starts from the procurement of order from a buyer in India and ends with the import of goods into India and the value of the service is paid from India and received in India through a foreign person. According to them, it was a service neither delivered outside India nor used outside India.
On appeals, the Commissioner also confirmed the findings of the adjudicating authority. Aggrieved, the Respondent appealed to the Tribunal. The Tribunal held that the services rendered were in conformity with that of the requirements for acquiring the status of “export”. Reliance was placed on the decision of CESTAT in the case of Paul Merchants Limited vs. Commissioner of Central Excise and Service Tax. Consequently the appeal was allowed. The Commissioner Central Excise Commissionerate preferred an appeal to the High court.
On second appeal, the Tribunal concluded the issue in favour of the appellant.
The main contention of the appellant-Revenue was that the order for import are procured in India and goods against such orders are imported into India and the portion of commission in foreign currency gets remitted from India which is received back in India. Thus according to him the cycle of service starts from India and finishes in India. In other words it is the same foreign currency remitted out of India is rotating back to India and thus such a service cannot qualify to be the export of service for exemption from service tax.
Taking into consideration of the fact that there were no branches of the company with which the assessee had done his work and merely because subsidiary company had a Branch in India, the bench comprising of Justice Vijay Kumar Vyas and Justice K.S. Jhaveri, upheld the Tribunal’s decision.
The Court found that the assessee had nothing to do with the subsidiary company and upheld the decision of the Tribunal. “In that view of the matter the contention that clause (3) of the Export Rules will come into operation, in our considered opinion, the language used wholly or subsidiary company having branch in India will not disentitle the assesse from benefit, therefore, he is not required to make payment of tax and he will be entitled for exemption.” Said the Bench.
Subscribe Taxscan Premium to view the Judgment
