Relief for Goodyear India: CESTAT Rules Services Rendered Outside India by Foreign Agents Not Taxable Under Reverse Charge [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that services provided entirely outside India by foreign agents are not liable to service tax in India under the reverse charge mechanism.

Goodyear India Ltd., the appellant, had engaged foreign commission agents to procure export orders from overseas buyers. These agents operated entirely outside India, and the company paid them commission for services related to overseas sales. The department issued two show cause notices, alleging that Goodyear was liable to pay service tax under reverse charge for the “Business Auxiliary Services” received from these foreign agents.

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The appellant's counsel argued that the services were rendered and received entirely outside India and therefore could not be taxed under the reverse charge mechanism. They referred to Rule 3(iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, which requires that the service must be received in India to attract tax. Since the services were not received in India, the tax could not be levied.

They also relied on the Delhi High Court judgment in Orient Crafts Ltd., which had held that service tax is not payable when services are both performed and consumed outside India. Goodyear further argued that the services were eligible for full CENVAT credit, making the demand revenue neutral, and the department had full knowledge of the transactions, which made the extended limitation period inapplicable.

The revenue counsel argued that the services, though performed abroad, benefited the Indian exporter and thus should be considered as received in India. They claimed that the reverse charge mechanism was applicable and relied on other tribunal decisions to support their interpretation.

The single-member bench comprising Sanjiv Srivastava (Technical Member) observed that both the service and its use took place outside India, and there was no legal basis for invoking reverse charge. It held that Rule 3(iii) clearly applies only when services are received in India, which was not the case here. The tribunal also referred to the CBEC Circular and the judgment in Orient Crafts Ltd. to support its conclusion that such services are not taxable.

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The tribunal found that the demand was not only incorrect on merits but also time-barred. It held that there was no suppression or willful misstatement by the appellant, as the department was already aware of the commission payments through correspondence. The invocation of the extended limitation period and imposition of penalties was unjustified. The tribunal set aside the service tax demand, interest, and penalties, and allowed the appeal filed by Goodyear India Ltd. along with connected appeals.

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