The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed the service tax demand and observed that the services provided by the overseas entity not to be taxed under Business Support Service in the absence of outsourcing.
The appellant, M Suresh Company Pvt Ltd, is engaged in the business of manufacture and sale of cut and polished diamonds. The department interpreting that the value-added services provided by the overseas entity should be taxable under the category of “Business Support Service” (BSS) and since appellant is the recipient of such service in India, it should be liable for payment of Service Tax, under Section 66A of the Finance Act, 1994.
Similarly, the department has also interpreted that the services provided by M/s. H. Goldie & Co. Ltd. and the commission charged by them from the appellant should be considered as a taxable service under the category of “Business Auxiliary Service”.
On the basis of investigation, the department, initiated show cause proceedings against the appellant, seeking confirmation of service tax demand on the provision of both the category services namely “Business Support Service” and “Business Auxiliary Service”.
With regard to the service tax demand confirmed on Business Support Service, the counsel for the appellant submitted that the alleged services were not outsourced by the appellant and since availment of the value-added services is a condition precedent for supply of the rough diamonds by the overseas entity, the same should not be subjected to levy of service tax under the Business Support Service.
Authorized Representative appearing for the Revenue submitted that since the value-added services were provided in relation to sale of cut and polished diamonds by the appellant to its customers in India, such services are to be considered as support services of the business activities undertaken by the appellant and should be taxed under the category of Business of Support Service.
A Two-Member Bench of the Tribunal comprising S.K. Mohanty, Member (Judicial) and M.M Parthiban, Member (Technical) observed that “In the present case, since for provision of the value-added services, the appellant had not outsourced services to the overseas entity, it cannot be said that such services provided by the overseas entity should be taxed under the category of Business Support Service. Thus, we are of the considered view that confirmation of the service tax demand in the adjudication order on Business Support Service will not stand in judicial scrutiny.”
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