Services rendered by FASPL to Foreign Companies classifiable under BSS, Tax Not leviable as it is Export of Service: CESTAT [Read Order]

In a recent case, the Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that services rendered by Fifth Avenue Sourcing Pvt. Ltd. (FASPL) to foreign companies are classifiable under Business Support Service (BSS) and tax is not leviable as it amounts to export of service.

Fifth Avenue Sourcing Pvt. Ltd. (FASPL) , the assessee appellant, rendered services to foreign companies for evaluation of prospective garment manufacturers, processing purchase orders, customer management, tracking of delivery schedules, operational assistance for marketing, customer service, pricing policies, managing distribution, logistics, etc. They also rendered services to domestic vendors by procuring orders for them from foreign companies, rendered operational assistance in execution of purchase orders and ensured receipt of sale proceeds from foreign buyers.

The case made out by Revenue against FASPL is that the above activities fall under the category of ‘Business Auxiliary Service’ (BAS) and the consideration received is liable to service tax. On the other hand, FASPL is of the view that the above services are liable to service tax under ‘Business Support Services’ (BSS) and that no service tax is payable as the said services are required to be treated as export of services among other things.

The Show Cause Notices dated 5.6.2013, 13.2.2015 and 26.9.2017 are follow up notices for the periods from October 2011 to September 2012 and October 2012 to Sept. 2013, October 2013 to Sept. 2014 and Statement of Demand from Oct 2014 to June 2017 respectively.

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Earlier, based on intelligence that FASPL did not pay service tax, DGCEI, Madurai, after conducting investigations alleged that the company had evaded payment of service tax. This resulted in the issue of Show Cause Notice to FASPL dated 15.02.2008 for the preceding period i.e., from July 2003 to March 2007. The same was adjudicated by the Commissioner of Service Tax, Chennai vide Order in Original No. 03/2009 dated 20.01.2009 wherein he has confirmed the duty along with interest and also imposed penalties.

The appellant has submitted that the issue is no longer res integra inasmuch as the present three appeals against the respective adjudication orders and statement of demand passed by the respondent were for the subsequent period, which were initiated on the basis of the initial Show Cause Notice dated 15.02.2008 based on an investigation by the Directorate General ofCentral Excise Intelligence (DGCEI).

The matter initiated by the said Show Cause Notice dated 15.02.2008, has been decided by the Tribunal in their favour and the Civil Appeal filed against the said order of the Tribunal was also withdrawn by the Department vide Order dated 18.12.2020 passed by the Supreme Court due to the litigation policy. Therefore, the impugned orders for the subsequent period are not sustainable in law.

He further contended that the services of the appellant rendered to foreign customers cannot also be subjected to Service Tax liability since it is “export of service” as per the Export of Service Rules, 2005. Counsel submitted that the demand is also hit by limitation since the Show Cause Notices are for a subsequent period; when an earlier Show Cause Notice has already been issued, the Revenue cannot plead suppression or mis-statement of facts in the subsequent Notices.

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It was evident that the Show Cause Notice issued to FASPL dated 15.02.2008 for the period from July 2003 to March 2007, which resulted in the issuance of Order-in-Original No. 03/2009 dated 20.01.2009. Aggrieved by the said Order in Original, the appellant preferred an appeal before the Tribunal at Chennai.

Clause (104c) of Section 65 stated that “support services of business or commerce” specifically relates to evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, etc., which were the activities undertaken by the appellant, while the definition of business auxiliary service under clause (19) of Section 65 of the Act is more general in nature. Hence, the services have been correctly classified under the specific heading of ‘support services of business or commerce’ and does not require us to traverse through section 65A(2) of the Finance Act, 1994.

A two member bench of M. Ajit Kumar, Member (Technical) and Ajayan T.V., Member (Judicial) observed that “the services rendered by FASPL to foreign companies are classifiable under the category of Business Support Service and these services rendered to foreign based clients for which consideration is received in convertible foreign exchange, no tax liability will arise considering the same as export of service.”

The Tribunal set aside the impugned orders and the Statement of Demand and allowed the appeals with consequential relief, if any, as per law.

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