By TIOL News Service

MUMBAI, OCT 24, 2017: A SCN was issued to the assessee for levy of unpaid service tax on commission earned by arranging charter of vessels operated by their clients overseas [i.e. consortium of M/s Valentine Maritime Ltd - M/s Valentine Maritime Gulf LLC and M/s Sinori Marine Company Ltd.] to M/s ONGC Ltd and M/s Shipping Corporation of India.

The notice demanding Service Tax from the appellant assessee as being a provider of ‘Business Auxiliary service' for the period 2004-05 to 2008-09 alleged that the commission amount was received in Indian currency from the Indian entities who discharged their contractual payments to the overseas entities after deducting the commission payable to the noticee.

The adjudicating authority did not accept the contention of the assessee that their activity was covered by the exemption from tax afforded by the Export of Services Rules, 2005 with the finding that, the claim of reduction in foreign exchange outflow from M/s ONGC Ltd and M/s Shipping Corporation of India , thus entitling them to be an earner of consideration in foreign convertible currency notwithstanding, the service having been provided in India, coverage under Export of Services Rules, 2005 was deniable.

Nonetheless, the AA held that the demand was hit by limitation.

Both, the assessee and Revenue are before the CESTAT.

The assessee reiterated that merely on account of non-receipt of the consideration in convertible foreign exchange by them, they cannot be excluded from coverage of Export of Services Rules, 2005. It is their contention that the amounts so received were, in effect, a part of the consideration to be paid by M/s ONGC Ltd and M/s Shipping Corporation of India to the charterers in foreign exchange and by accepting the payment from these entities, foreign exchange outflow had been reduced.

Reliance is placed on the decisions in National Engineering Industries Ltd - 2008-TIOL-939-CESTAT-DEL, Nipuna Services Ltd - 2009-TIOL-709-CESTAT-BANG and JB Boda & Co Pvt Ltd v. Central Board of Direct T axes - 2002-TIOL-2578-SC-IT .

The AR sought to press into service the decision in ETA Travel Agency Pvt. Ltd - 2007-TIOL-1182-CESTAT-MAD.

The Bench considered the rival submissions and observed -

"9. We, accordingly, restrict ourselves to the question of whether the consideration has been received in foreign currency as claimed by the assessee. We take note that it is only after 18th April 2006 that receipt of foreign currency was explicitly included as a condition in Export of Services Rules, 2005. Accordingly, any levy pertaining to the period prior to that would not sustain. With the decision of the Tribunal in re Nipuna Services Ltd that …

"18. … Revenue is denying the refund for the simple reason that the appellant themselves had not directly received the payment in foreign currency. In our view, the stand of the Revenue is not sustainable. If Revenue's contention is accepted it would amount to levying service tax on services exported…."

we are precluded from accepting the contention of Revenue that intent of the condition has not been complied with.

Furthermore, in re JBBoda& Co Pvt Ltd., the Hon'ble Supreme Court has held that -

"11. … … … It seems to us that a "two way traffic" is unnecessary. To insist on a formal remittance to the foreign reinsures first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case. … …."

Concluding that having exported the services, the assessee is not liable to tax, the appeal of assessee was allowed and that of Revenue was dismissed.

(See 2017-TIOL-3768-CESTAT-MUM)