No Service Tax Leviable on Foreign Logistics Services: CESTAT [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that services rendered by foreign service providers outside India cannot be subjected to service tax under the reverse charge mechanism when such services are neither performed nor consumed in India.

Sundaram Fasteners Ltd., the appellant, is engaged in manufacturing automotive components and exports its products overseas. During a departmental audit, it was found that the company had engaged foreign service providers for warehousing, transportation, storage, and delivery of goods in the United States.

The Department alleged that these services amounted to Business Support Services and were taxable in India under Section 66A of the Finance Act, 1994 read with the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

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Based on this reasoning, show cause notices were issued demanding service tax, interest, and penalties. The demands were confirmed by the adjudicating authority and upheld by the Commissioner (Appeals), prompting the appeal before the Tribunal.

The Appellant argued that services in question were entirely performed and consumed outside India and therefore did not satisfy the conditions prescribed under Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

The appellant submitted that the services were in the nature of clearing and forwarding operations carried out abroad and could not be artificially taxed in India under the reverse charge mechanism. Further, submitted that even assuming tax liability existed, the situation was revenue neutral and no penalty could be imposed.

The bench of Ajayan T.V., Judicial Member and M. Ajit Kumar, Technical Member held that services in question which are wholly performed and consumed outside India cannot be brought within the service tax net under the reverse charge mechanism, observing that Rule 3 of the Taxation of Services Rules clearly excludes services that are entirely performed outside India.

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The Tribunal decided that the demand was unsustainable in law since the Department had misapplied the provisions of the Finance Act, 1994 by attempting to tax offshore services. Accordingly, the Tribunal set aside the impugned orders and allowed the appeals with consequential relief.

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