By TIOL News Service

NEW DELHI, FEB 15, 2017: THE assessees aggrieved by the confirmation of service tax demand and Revenue is aggrieved by the benefit granted by applying formula prescribed under Rule 6(3D) of CCR, 2004.

The assessee is registered and engaged in trading of goods in India and were also providing various services to M/s Sumitomo entities worldwide. Pursuant to audit, the Department entertained a view that -

(i) Service tax is liable to be paid under Business Auxiliary Service (BAS) on the commission received from foreign entities for services provided in relation to importation of goods in India.

(ii) ST under BAS for service fee received from foreign entities for services provided in relation to business of foreign entities. Total service tax demand on both the above counts is Rs.11,54,25,700/- which was confirmed.

(iii) Another issue is relating to reversal of credit in respect of input services used in relation to/or attributable to trading activities. Demand of Rs.25,53,340/- was confirmed on this account.

As mentioned, both the assessee and the Revenue are before the CESTAT.

After considering the elaborate submissions made by both sides replete with case laws, the Bench observed -

+ On the first two issues relating to liability of appellant/ assessee for service tax under the category of BAS we note that the service tax liability and the activities similar to the ones undertaken by the appellant/assessee were subject matter of decision by the Tribunal in earlier cases. …We note in the present case, the recipient of service are foreign entities and they are the consumers of these services provided by the appellant/assessee from India .

+ The various persons in India to whom the goods were sold by the foreign entities or from whom various details and information were collected were not to be considered as recipient of service provided by the appellant/assessee.

+ It is the person who requested for the said service and is liable to make payment for the same, who has to be treated as recipient of service and not the person affected by the performance of the service. The destination has to be decided based on place of consumption not the place of performance of service in the case of Category III, Business Auxiliary Service. The appellant/assessee were engaged in promoting market for foreign entities in India this will amount to export of service.

Conclusion: No merit in the impugned order insofar as it confirms the demand against the appellant under BAS.

As regards the Revenue appeal regarding quantification of amount to be reversed under rule 6 of CCR, 2004, the Bench ruled thus -

++ Admittedly, the formula adopted by the Original Authority was not part of the provisions under Cenvat Credit Rules, 2004 during the material time. However, trading to be considered as "exempted service" is inserted by an explanation under Rule 2 (e) of Cenvat Credit Rules. The said insertion clearly states that it is for removal of doubts. Accordingly, in the absence of any other statutory formula to arrive at the quantum of Cenvat credit to be reversed on common input services, we find no impropriety in the decision of the Original Authority in this regard. …The methodology adopted by the Original Authority is fair and justified in view of the reasons recorded therein.

In fine, the appeal filed by the assessee was allowed and that by the Revenue was dismissed.

(See 2017-TIOL-452-CESTAT-DEL)