By TIOL News Service

MUMBAI, FEB 25, 2017: DURING the course of its business, appellant had exported diamonds under the then existing Foreign Trade Policy and accrued certain benefits under FTP which they were entitled to transfer to any other entity by mentioning their name on the export documents such as invoice, shipping bills etc.

The appellant mentioned on the invoice and shipping bills the name of M/s Adani Exports and in return the appellant got 1% of the FOB value of the exported goods, from Adani Exports Ltd.

Revenue is of the view that this amount received from Adani Exports is liable to service tax under the category of ‘Business Auxiliary Service' [Production or Processing of goods for or on behalf of the client].

SCN dated 03.03.2008 was issued demanding service tax for the period 15th July 2003 to 30th November 2003.

The demand was confirmed by the AA and, therefore, the appellant is before the CESTAT.

The appellant submitted that appellant has not rendered any services to Adani Exports Ltd. and merely because the ‘income received by transfer of the benefits accrued due to export of diamond and jewellery etc.'is accounted as commission in the ‘Books of Accounts' does not mean that this amount is taxable under ‘business auxiliary service'; that Adani Exports Ltd. have certified that this amount paid by them to appellant is not in respect of any services.

The Bench observed thus -

++ Revenue wants to include the amount received by appellant under the category of ‘production or processing of goods for or on behalf of client' which we find incorrect and unsustainable, for the simple reason that there is nothing on record to show that Adani Exports Ltd. , is getting the diamond jewellery manufactured by appellant; nor there is any agreement brought on record to show that Adani Exports Ltd ., had in fact placed an order with the appellant for manufacturing and export of diamond jewellery.

++ In the absence of any such evidence to indicate that Adani Exports Ltd. , had availed the services of appellant for production or processing of goods, we find that the impugned order holding that appellant is producing or processing of goods on behalf of Adani Exports Ltd., is unsustainable.

++ Amount received by transferring the benefit of export cannot be considered either as commission or brokerage. [Commr. of I. T, Thiruvananthapuram v. Baby Marine Exports – 2007-TIOL-46-SC-IT relied upon.]

Noting that the Bench was disposing the appeal on merits, no findings were recorded on the limitation aspect argued by both sides.

In fine, holding the order as not sustainable, the same was set aside and the appeal was allowed with consequential relief.

(See 2017-TIOL-594-CESTAT-MUM)