The Customs, Excises, and Service Taxes Appellate Tribunal (CESTAT) quashed the quashes demand of service tax on Commission received from foreign companies.
Facts of the case
The appellant, Wintech Taparia Ltd. is a manufacturer of food processing machines. The appellant is also registered under service tax for the provision of taxable services under the category of erection, commissioning and installation service. During the relevant period, the appellant provided services to various food processing machine manufacturers located outside India by way of acting as a commission agent for the sale of their products in and outside India.
In this regard, the work undertaken by the appellant for foreign companies involves procuring orders on behalf of foreign companies and receiving sales commission in lieu thereof. The commission received by the appellant from the foreign companies in convertible foreign exchange was duly reflected in the balance sheets for the relevant period. The said services provided by the appellant are classifiable under BAS. Considering these services to qualify as “export of services”, the appellant did not pay service tax during the relevant period.
Interpretation of law:-
An audit of the appellant was, however, conducted and the same resulted in the issuance of a show-cause notice dated September 27, 2012, wherein the service tax demand was proposed on the amount of commission received from the foreign companies under BAS. The issue involved in the appeal was regarding confirmation of the demand for service tax on the commission received by the appellant for the services rendered to foreign companies under “business auxiliary service”.
The applicant contended that the services rendered by the appellant qualify as “export of service” under the 2005 Rules and, therefore, the appellant would not liable to pay service tax. The appellant is located in India and the service receiver i.e. foreign entities are located outside India and that the appellant received payment in convertible foreign exchange for which debit note and FIRC have been issued by the banks.
The coram headed by Justice Dilip Gupta while allowing the appeal held that the services being provided by the appellant are covered by Clause (iii) of Rule 3 (1) of Export Service Rules, 2005, as these services are in relation to business or commerce and in terms of this clause, read with sub-rule (2) of Rule 3, these services would be treated as exported out of India if the recipient is located outside India and the same have been delivered outside India and used India and payment for the same has been received by the service provided in convertible foreign exchange.