2025 (6) TMI 1808 - AT - Service Tax

Recovery of service tax - services rendered by the appellant to the foreign buyer - Export of service or not - HELD THAT - This Tribunal in Kishore Kumar Company Pvt. Ltd. s case 2018 (10) TMI 973 - CESTAT BANGALORE in similar facts i.e. the appellant therein was acting as a purchase agent for overseas buyers of processed foods looking after sourcing the seller negotiating price on behalf of foreign buyer checking the quality of the processed food and supervision of the packing and dispatch of the goods for which the appellant received a commission on the purchase. The overseas principal was taking decision to purchase and place order on the basis of the feedback furnished by the appellant who in turn place the purchase order on respective Indian exporters. The foreign principal opens a Letter of Credit in the name of the appellant and the appellant then transfer the Letter of Credit to the exporters with an instruction to the bank and the exporters that the amount of Letter of Credit includes the commission of the appellant. After the export the exporter transfers the commission to the appellant in Indian rupee. In some cases the foreign buyer remits the commission to appellants in freely convertible foreign exchange. Conclusion - The service rendered by the appellant would fall under the scope of Export Service. There are no merit in the impugned order - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Tribunal is whether the services rendered by the appellant, acting as a sourcing agent for foreign buyers of seafood, qualify as export of services under the relevant service tax laws and Export of Services Rules, 2005, thereby exempting such services from service tax liability. Specifically, the Tribunal examined:

• Whether the appellant's activities in India, involving sourcing, negotiating, placing purchase orders, and facilitating payment through Letters of Credit on behalf of foreign principals, constitute export of services.
• Whether the commission received by the appellant from foreign principals for such services is taxable under the category of Business Auxiliary Services or exempt as export of service.
• The applicability and interpretation of Export of Services Rules, 2005, including conditions related to receipt of payment in convertible foreign exchange and the place of consumption of services.
• The relevance and binding nature of prior Tribunal decisions and Supreme Court precedents on the export of service classification in similar factual scenarios.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Classification of appellant's service as export of service or taxable Business Auxiliary Service

Relevant legal framework and precedents: The Tribunal relied on the Export of Services Rules, 2005, which categorize services and define conditions under which services rendered in India to recipients outside India qualify as export of services. Key provisions include Rules 3(1)(i), 3(1)(ii), and 3(1)(iii), which relate to services in relation to business or commerce, and the conditions concerning receipt of payment in convertible foreign exchange.

Precedents considered include:

• The Tribunal's earlier decision in Kishore Kumar Company Pvt. Ltd. Vs. CCE & ST, which involved similar facts where the appellant acted as a purchase agent for overseas buyers and was held to have rendered export services.
• The Supreme Court decision in J.B. Boda & Co. Ltd. Vs. CBDT, which was cited to support the principle that services rendered to foreign principals can constitute export of service.
• The Tribunal's ruling in Microsoft Corporation (India) Pvt. Ltd. Vs. Commissioner of Service Tax, which upheld that services provided by agents in India to recipients outside India constitute export of services.
• The decision in Paul Merchants Ltd. Vs. CCE, where the majority view held that services rendered by sub-agents in India to foreign recipients are export of services.
• The Tribunal's observations in Muthoot Fincorp Ltd. Vs. Commissioner of Central Excise and Nipuna Services Ltd. Vs. CCE & ST, which clarified that export of service may occur even when all activities take place in India, provided benefits accrue outside India.
• The ruling in GAP International Sourcing (India) Pvt Ltd. Vs. Commissioner of Service Tax, which detailed the conditions under which services provided in India to foreign companies without Indian establishments qualify as export of services.

Court's interpretation and reasoning: The Tribunal analyzed the appellant's role as a sourcing agent who, on behalf of foreign principals, sourced seafood from Indian exporters, communicated purchase orders, and facilitated payments through Letters of Credit. The Tribunal noted that the foreign principal was the ultimate decision-maker and recipient of the service benefits. The commission earned by the appellant was included in the price paid by the foreign buyer, and payments were received either in Indian rupees or convertible foreign exchange.

The Tribunal emphasized that the services were provided to a foreign principal located outside India, and the benefits of such services accrued outside India. It rejected the contention that the services were taxable as Business Auxiliary Services because the service recipient was outside India and the services were used in the business of the foreign principal abroad.

The Tribunal also referred to amendments and clarifications in the Export of Services Rules, 2005, noting that conditions relating to delivery and use of services outside India were deleted as clarificatory amendments, reinforcing the principle that services rendered in India to foreign recipients for use outside India constitute export of services.

Key evidence and findings: The factual matrix established that:

• The appellant acted as a sourcing agent for foreign buyers, performing activities such as sourcing, negotiating, and placing purchase orders.
• The foreign buyer opened Letters of Credit in the appellant's name, which the appellant transferred to Indian exporters.
• The commission was included in the purchase price and was received by the appellant either in Indian rupees or convertible foreign exchange.
• The foreign principal was the ultimate recipient and beneficiary of the services rendered.

Application of law to facts: Applying the Export of Services Rules and relevant case law, the Tribunal concluded that the appellant's services qualified as export of services since:

• The service recipient was located outside India.
• The benefits of the service accrued outside India.
• The payment was received in convertible foreign exchange or Indian rupees attributable to foreign exchange earnings.
• The services were rendered in relation to business or commerce for the foreign principal's use abroad.

Treatment of competing arguments: The Revenue's argument that the services constituted taxable Business Auxiliary Services was considered but rejected. The Tribunal found that the services were not rendered to any Indian customer but to a foreign principal, and the marketing operations in India were at the behest of the foreign principal. The Tribunal also noted that the appellant's services may or may not result in sales in India, but the critical factor was the location and use of the service recipient.

Conclusions: The Tribunal held that the appellant's services fall within the scope of export of services and are not liable to service tax under the Business Auxiliary Services category.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpts:

"The services were being provided by the appellant to Singapore Recipient Company and to be used by them at Singapore, may be for the purpose of the sale of their product in India, have to be held as export of services."

"It is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India."

"If the recipient company located abroad, has no branch or project or establishment in India and the service covered by Rule 3(1)(iii) provided in India is meant for use in the business of the company located abroad, it would be export of service."

Core principles established include:

• Services rendered in India to a foreign principal located outside India qualify as export of services if the benefits accrue outside India.
• The receipt of payment in convertible foreign exchange or equivalent Indian rupees linked to foreign exchange earnings is a key condition for export of services.
• Marketing and business auxiliary services provided to foreign recipients without Indian establishments are not taxable under Business Auxiliary Services if they meet export of services criteria.
• Amendments to Export of Services Rules, 2005, deleting conditions related to delivery and use outside India, are clarificatory and reinforce the export of services classification.

Final determinations:

• The demands for service tax, interest, and penalty levied on the appellant for the disputed periods were set aside.
• The appellant's services were held to be export of services and thus exempt from service tax under the applicable law.
• The appeals were allowed with consequential relief as per law.