By TIOL News Service

MUMBAI, SEPT 19, 2013: THE appellants are a part of the Reuters Group worldwide and are registered with the department under the category of ‘On-Line Information and Database Access and/or Retrieval Services'. During the course of audit of the records of the company, it was noticed that the appellant had received ‘data and edit fees' in convertible foreign exchange from M/s. Reuters Ltd., U.K., a sister-concern. It was also noticed that the appellant had purchased equipment from Reuters Ltd., U.K. and maintainedcommunication lines for providing Reuter's services in India. The department was of the view that the services rendered in the form of maintenance of communication lines was classifiable as ‘Maintenance or Repair Services'.

It was further observed that the appellant had received ‘marketing fees' from Reuters Transmission Services Ltd., U.K., for providing marketing and other support services in relation to Reuters' products distributed by the appellant in India and the said activity appeared to merit classification under ‘Business Auxiliary Services'.

Four SCNs came to be issued to the appellant for the period 2003-04 to 2006-07, 2007-08 to 2008-09, 2009-10 and 2010-11 in the months of October 2008, October 2009, October 2010 & October 2011 demanding service tax of Rs.43,88,75,968/-. Of the above amount, Rs.43,51,43,874/- was towards “edit and data fee services' and Rs.57,79,342/- was towards “marketing and other support services”.

The CCE, Thane-II adjudicated all the four SCNs together and this too was in the month of October, year 2012. He confirmed a service tax demand of Rs.43,09,23,218/- along with interest thereon and also imposed penalties under Sections 75, 76, 77 and 78 of the Finance Act, 1994.

Aggrieved, the appellant is before the CESTAT and submits -

+ ‘Edit and data fee services' and ‘marketing and other support services' were rendered by the appellant to their sister-concern in U.K. in terms of an agreement dated 24/09/2004. The appellant is engaged in collecting and providing to Reuters Ltd., UK data for inclusions in those products. For the services rendered, Reuters Ltd., UK, compensated the appellant on ‘a cost plus basis'. The service rendered by the appellant to their sister-concern is more appropriately classifiable under ‘Business Support Services' and, therefore, the classification proposed in the impugned order under the category of ‘Management, Maintenance or Repair Service' is incorrect.

+ As ‘Business Support Service' became taxable only from 01/05/2006 and since the appellant had received the consideration in convertible foreign exchange, the services will qualify as exports and hence not liable to service tax. Reliance is placed on the decision in the case of Paul Merchants Ltd. vs. Commissioner of Central Excise, Chandigarh - (2012-TIOL-1877-CESTAT-DEL-LB) & Maersk India Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai - (2008-TIOL-497-CESTAT-MUM) to negate the conclusion of the adjudicating authority that declaring of dividends is equivalent to repatriation of export proceeds.

The Revenue representative reiterated the findings of the adjudicating authority and pleaded that the appellant be put to terms.

The Bench observed -

+ As per the agreement Reuters Limited, U.K. are engaged in producing news and financial information and related products compiled by the Reuters Group situated all over the world and the appellant, the Indian entity, is required to collect and provide data for inclusion in the Reuters products. For the services rendered, Reuters Ltd., UK, has agreed to compensate the appellant for performing such activities and for the related financial risks.

+ As regards the ‘editorial services' the appellant is required to collect from all sources including but not limited to journalists, photographers and cameraman and supply to Reuters Ltd., U.K., a file of general, political and economic and financial news reports and pictures and news film of its standard suitable for use in the Reuters Group media products and other information products. Such file has to be supplied to the foreign entity by electronic or other means. In consideration for the services rendered, the foreign entity, Reuters Ltd., U.K., is required to pay a fee to the appellant in an amount equal to 108% of the costs and expenses incurred by the appellant in providing those services. Thus, as per the agreement, the services rendered is one of the collecting, collating, verifying data and transmission of the same to the foreign-sister concern of the appellant. Thus, the services rendered by the appellant does not seem to be of the nature of any management or repair services as alleged in the SCNs.

+ The data furnished by the appellant is used by the foreign entity for inclusion in their products for dissemination to the customers situated worldwide. In other words, the activity of the appellant supports the business undertaken by the foreign entity abroad. Thus, prima facie, there is merit in the argument of the appellant that the activities undertaken by them, merits classification under ‘Business Support Services'.

+ ‘Business Support Services' merit classification under Rule 3(1)(iii) of the Export of Service Rules and if the services were rendered from India and consideration is received in convertible foreign exchange, then the transaction would amount to exports. On export of services, service tax liability is not attracted. The argument of the department that the appellant has repatriated the export proceedings by declaring dividends is unsustainable in law for the reason that declaration of dividends is out of the profits made by the appellant and has nothing to do with the exports undertaken by the appellant. This Tribunal in the case of Maersk India Pvt., cited supra, has held that declaration of dividends is not equivalent to repatriation of the consideration for the export of services.

+ From the balance sheets it is evident that during the periods i.e. 2003-04 to 2011-12, the appellant had not declared any dividend whatsoever. Thus, factually also the impugned order is incorrect.

Holding that the appellant has made out a strong prima facie case in their favour the Bench waived pre-deposit and granted stay in the matter.

In passing: Even this makes news!

(See 2013-TIOL-1386-CESTAT-MUM)