By TIOL News Service

MUMBAI, FEB 26, 2013: THE appellant is engaged in rendering taxable services such as Courier Agency Services and Air Travel Agency Services. 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.

So, three demand notices came to be issued one year apart and all of them waited for confirmation at one go at the hands of the Commissioner (TAR) of Service Tax, Mumbai.

The submission of the appellant that since the services were rendered abroad there is no liability to pay Service Tax in India and that they have paid Service Tax on the entire amount collected from the customers in India for delivering the letters/packets abroad did not find favour with the adjudicating authority who confirmed the Service Tax demand of Rs.4,99,18,106/- for the three years and imposed the penalties galore.

The appellant caught the first flight and is before the CESTAT.

It is submitted that -

++ 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. 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-MUM, 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 are relied in support.

The Revenue representative reiterated the findings of the Commissioner.

The Bench 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. Similar issue arose for consideration in the case of Intas Pharmaceuticals Ltd. (supra) and Paramount Communications Ltd. (supra) in respect of services such as technical testing and analysis, Business Exhibition Services etc. and this Tribunal came to the conclusion that when the services rendered abroad completely, liability to pay Service Tax under Section 66A of Finance Act, 1994 under Reverse Charge Mechanism does not arise and accordingly, granted relief, either interim or finally.  

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.”

In fine, the Bench granted unconditional waiver of pre-deposit of the adjudged dues and stayed the recovery.

Tail spark - Double taxation?

(See 2013-TIOL-373-CESTAT-MUM)