By TIOL News Service

MUMBAI, JULY 12, 2016: THE appellant is engaged in rendering taxable services of Courier Agency and Air Travel Agency. They are also engaged in the business of collecting documents and articles from customers located all over India and delivering them abroad. The company has appointed various Courier Agents outside India to deliver such items outside India.  

The Service Tax authorities noticed that in respect of the services of courier agents engaged by the company abroad, on the payment made to such courier companies, the appellant was liable to pay Service Tax under Reverse Charge Mechanism and they had not discharged the Service Tax liability during the period 2008-09, 2009-10 and 2010-11.  

The total service tax demand of around five crores was confirmed by the adjudicating authority with penalties etc. and in their application for stay before the CESTAT, the appellant submitted -

++ they had engaged agents abroad to deliver the courier parcels/packages abroad and the services were rendered by these agents abroad and no part of the said services was rendered in India.

++ as the service is rendered abroad, the question of paying Service Tax on the activity should not arise. In any case, they have paid the Service Tax on the entire amount collected from customers in India for delivery of the courier parcels abroad and, therefore, the Service Tax liability for the transaction has been discharged completely.

++ Even if it is held that the Service Tax is liable to be paid by them under Reverse Charge Mechanism, they would be eligible for taking CENVAT Credit of the Service Tax so paid and, therefore, the entire situation is revenue neutral.

++ in the Budget 2006-07, it was clarified by the CBE&C in the Budget instruction as follows:-

"In the Budget 2006-07, explanation of clause 105 of Section 65 provided for charging of Service Tax on taxable services received from outside India has been omitted and for this purpose, a new Section 66A has been incorporated in the Finance Act, 1994. Section 66A is to be read with ‘Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. It may be noted that only services received in India are taxable under this provisions."

++ Courier services come under category of clause (ii) of Rule 3 of Taxation of Service (Provided from Outside India and Received in India) Rules 2006 . As per these Rules, when the taxable service is partly performed in India, it shall be treated as performed in India. In the instant case, the services have not been rendered partly in India and, therefore, in terms of Rule 3(ii), Service Tax liability under Reverse Charge Mechanism is not attracted.

++ the decisions of the Tribunal in the case of Roha Dyechem Pvt. Ltd. vs. Commissioner of Central Excise, Raigad - 2012-TIOL-1339-CESTAT-MUM, Intas Pharmaceuticals Ltd. Vs. CST, Ahmedabad - 2009-TIOL-1537-CESTAT-AHM, Paramount Communication Ltd. Vs. Commissioner of Central Excise, Jaipur - 2011-TIOL-1663-CESTAT-DEL, Orient Crafts Ltd. Vs. UOI - 2006-TIOL-271-HC-DEL-ST, Reliance Industries Ltd. Vs. Commissioner of Customs - 2012-TIOL-1626-CESTAT-MUM   were relied in support.

The Bench while granting unconditional waiver of pre-deposit of the adjudged dues and staying the recovery observed -

"5.1 The services undertaken by the appellant is classifiable under the category of Courier Service which falls under sub-clause (f) of clause 105 of Section 65 of Finance Act, 1994. Therefore, it falls under sub-rule (ii) of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. As per the said sub-rule, only when the services are partly performed in India, liability to pay Service Tax arises under Reverse Charge Mechanism. Inasmuch as the service rendered by the Courier Agency outside India is not partly performed in India, prima facie Service Tax liability would not be attracted...

5.2 In any case, as contended by the appellant, even on the discharge of Service Tax liability under Reverse Charge Mechanism, they would be eligible for availing input service credit on such taxes paid under the CENVAT Credit Rules, 2004. Thus, the situation would be revenue neutral. In the similar case involving a revenue neutral situation, this Tribunal in the case of Reliance Industries Ltd. (supra) waived the requirement of pre-deposit and granted stay. In the light of these decisions, we are prima facie of the view that the appellant is not liable to pay Service Tax in respect of services rendered abroad."

We reported this order as 2013-TIOL-373-CESTAT-MUM.

The appeal was heard in January this year and the order has been issued recently.

Noting that the adjudicating authority had proceeded on the presumption that any service rendered by an overseas entity is liable to tax under section 66A of Finance Act, 1994, the Bench further observed -

++ Section 66A of Finance Act, 1994 is intended to place burden of tax on the recipient of the service in India in relation to the services that are taxable if rendered by an overseas service provider. The manner in which each of the taxable services are deemed to be received in India is laid down in the Taxation of Service (Provided from Outside India and Received in India) Rules 2006. Therefore, the leviability of a tax in the hands of recipient of a service will necessarily have to be in accordance to the provisions of the said Rules. Mere reliance on section 66A of Finance Act, 1994 without reference to the relevant provisions of the Rules is not sufficient to sustain a demand for service tax.

++ The original authority also appears to have treated the transfer of package from the Indian consignor to the overseas consignees to be service that is liable to tax. The booking of package by customers in India is liable to tax under section 65(105)(f). The tax on charges levied from customers is discharged by the appellant. In the course of rendering this service, appellant uses a service provider at the destination to complete the delivery.

++ This is a separate service rendered to the Indian service provider outside the country and for which expenses are incurred by the appellant. The issue is whether that expense paid by the appellant is liable to tax under Finance Act, 1994. We find that the impugned order has not identified the service rendered to the appellant by the overseas entity. Rule 3 of the said Rules identifies and categorises the services as destination-based, performance-based or beneficiary-based. Without a categorization of the service, it is well-nigh impossible to invoke Rule 3.

++ The services rendered by the overseas entities to the appellant is a performance-based service and, to become taxable, requires that at least some portion of that be rendered in India. The role of the overseas entities commences upon the landing of the packages at the airport of destination. From there, the overseas correspondents ensure delivery of such packages to the consignees. It is, therefore, amply clear that the role of the overseas entity commences and ends beyond the border of India. It, therefore, cannot be said to be in conformity with Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

Holding that the service rendered by the overseas entity is not liable to service tax under section 66A of Finance Act, 1994, the impugned order was set aside and the appeal was allowed with consequential relief.

In passing: Also see 2010-TIOL-744-CESTAT-BANG.

(See 2016-TIOL-1706-CESTAT-MUM)