By TIOL News Service

NEW DELHI, APR 07, 2014: THE appellant Alpine Modular Interiors (P) Ltd (AMIL) provided certain services to UB Office Systems Ltd UBOS under an agreement dated 02/01/02. The scope of the services provided by AMIL are evaluation of market trends and identification of prospective customers in India for the overseas entity, for its modular furniture business; and providing a list of prospective customers on a regular basis to enable UBOS to strategies its decisions, for sale of its products to customers. The agreement also records a clear stipulation that the ultimate customer shall deal directly with UBOS and remit payments against supplies received, to UBOS, with a specific stipulation that AMIL is not authorized to collect any payments from customers on behalf of the foreign entity. The agreement clearly stipulates that goods would be supplied by UBOS directly to the customers. Clause 2 of the agreement stipulates that UBOS shall pay commission in U.S. dollars at the stipulated rates (in percentage terms) to AMIL for every successful sale made by UBOS in India. The agreement between the parties also stipulates that AMIL should bear the minor and incidental expenditure incurred for assembly of the finished components at customer's premises, for or on behalf of UBOS; that reimbursement of these expenses is not estimated to be more than 1% of the FOB value of the products and is included in the commission payable by UBOS to the appellant AMIL. 

Revenue initiated proceedings on an allegation that AMIL provided Business Auxiliary Service to the overseas entity and was liable to remit service tax. Before the Adjudicating Authority AMIL contended that Business Auxiliary Service provided to UBOS amounts to export of service within the ambit of Export of Service Rules, 2005, since from the nature of the services provided, these were utilized by the recipient outside India; that it received consideration in convertible foreign exchange; and is therefore, excluded from exigibility of the tax, under provisions of the 2005 Rules. 

The above defence was negated by the Adjudicating Authority resulting in confirmation of the demand of tax, interest and penalty, and hence the appeal before the Tribunal. 

Larger Bench of this Tribunal in Paul Merchants Ltd. vs. CCE, Chandigarh reported in - (2012-TIOL-1877-CESTAT-DEL) considered substantially analogous facts and the relevant statutory provisions and concluded that the transactions fall within the ambit of Export of Service Rules, 2005 and are not therefore liable to levy of service tax. This view is reiterated in the recent decision of this Tribunal dated 28/02/14 in an appeal preferred by M/s GAP International Sourcing (India) Pvt. Ltd. vs. CST, Delhi, reported in - (2014-TIOL-465-CESTAT-DEL).

The Departmental Representative would contend that the judgment in Paul Merchants Ltd. vs. CCE, Chandigarh and in GAP International Sourcing (India) Pvt. have not correctly comprehended the scope and trajectory of provisions of the Export of Service Rules, 2005 nor Board Circular No. 141/10/2011-TRU dated 13/05/2011. 

The Tribunal noted:

"The invitation by Revenue to ignore the law declared by the Larger Bench in Paul Merchants Ltd. vs. CCE, Chandigarh (supra) and reiterated in GAP International Sourcing (India) Pvt. Ltd. vs. CST, Delhi (supra) is unacceptable. It is axiomatic that decisions of this Tribunal are binding on Revenue. Jurisprudential stability and coherence in law is the foundation for a stable investment climate which is critical to economic stability of the Republic. Once the Tribunal pronounces a verdict after consideration of the relevant legal environment, the executive branch and an adjudicator at a lower level in the hierarchy is bound by such verdict, subject only to remedies within the judicial branch or appropriate and constitutionally permitted legislative curatives. We are informed that Revenue has preferred an appeal against Paul Merchants Ltd. vs. CCE, Chandigarh (supra) and the same is under the consideration before the Punjab & Haryana High Court. In the circumstances, Revenue cannot be heard to contend that there are errors in the declaration of law by the Larger Bench. The contention on behalf of the Revenue is therefore fundamentally mis-conceived and rejected out of hand. 

The transactions in issue in the present appeal are identical to issues presented in the appeal preferred by M/s GAP International Sourcing (India) Pvt. Ltd. vs. CST, Delhi (supra) and substantially analogous to the facts that were considered in Paul Merchants Ltd. vs. CCE, Chandigarh (supra). On application of these precedents, the impugned order passed by the learned Commissioner, New Delhi dated 25/05/2010 cannot be sustained. It is therefore quashed."

(See 2014-TIOL-517-CESTAT-DEL)