2025 (7) TMI 1642 - AT - Service Tax

Scope of SCN - Classification of services - Management Maintenance or Repair Service or not - distribution and marketing of fans and related products in India and other specified territories - export of services - entire demand made on the basis of a superficial reading of the invoice descriptions without examining the distributorship agreement - invocation of extended period of limitation - Demand of interest and penalty. Classification of services - HELD THAT - On going through the various provisions of the distribution agreement it is found that the actual transaction as per the agreement is Distributorship and the amount received for the said service is clearly that of sales commission earned by the Appellant as an exclusive distributor. The appellant has received commission in foreign currency for the services rendered by them. The appellant claimed that the services rendered by them falls within the ambit of Export of Services and hence not liable to service tax. In this regard it is found that during the period prior to and after 01.07.2012 Service Tax is not chargeable on Export service subject to fulfilment of two essential conditions (i) the services are to be provided to a recipient located outside India and (ii) the payments are to be received in convertible foreign currency in respect of such services. The lower authorities has rejected the claim of export of service by the appellant on the ground that the appellant failed to produce the requisite documents viz. export bill contracts to show that the services were provided in a place located outside India in support of fulfilment of the conditions. In this regard it is found that the benefit of the distribution agreement is received by the foreign companies as it promoted their sales. Further from the Balance Sheet of the appellant it is found that that they had earned commission in foreign currency paid by foreign companies Ms Greystone Energy. Systems INC Canada and M/s. Eltafentech Asia SDN. BHD Malaysia. It is also found that the department has not produce any evidence to substantiate the claim that the services rendered by the appellant were partly received in Pune. This allegation in the impugned order is not supported by any evidence. Accordingly the appellant has fulfilled the conditions required for categorizing the services rendered as Export of Service . Accordingly the said services are exempted from payment of service tax. Scope of SCN - introduction of new issue of non receipt of payments in foreign currency - HELD THAT - It is found that this issue of non-payment in foreign currency was neither alleged in the Show Cause Notice nor considered or adjudicated upon in the Order-in-Original. The Show Cause Notice was issued on the allegation that the services rendered by the Appellant were taxable under the category of Management Maintenance or Repair Service . There was no allegation regarding the mode of payment or requirement of payment in foreign currency. Similarly the Order-in-Original confirmed the demand purely on the basis of the nature of services and did not deal with any issue relating to foreign currency payment. Thus the appellate authority has exceeded its jurisdiction by introducing a completely new ground that was not part of the original show cause notice. Extended period of limitation - suppression of facts or not - HELD THAT - There is no suppression of facts or intention to evade payment of service tax. All transactions were duly recorded in their books of accounts which were open to inspection by the department at any time - the impugned order has not provided any specific finding or evidence to establish that there was suppression of facts or intention to evade payment of service tax or connivance by the Appellant recipient. In the absence of such finding the confirmation of demand by invoking the extended period of limitation is not sustainable. Demand of interest and penalty - HELD THAT - As the demand of service tax is not sustained the question of demanding interest or imposing penalty does not arise. The impugend order is set aside - appeal allowed.

Summary

ISSUES:

Whether the services rendered by the appellant qualify as 'Export of Service' and are exempt from service tax under the Export of Service Rules, 2005 and Place of Provision Rules, 2012.Whether the appellate authority exceeded its jurisdiction by introducing a new ground regarding non-receipt of payment in foreign currency, which was not part of the original Show Cause Notice or adjudication.Whether the demand of service tax based on classification of services as "Management, Maintenance or Repair Service" is sustainable given the nature of the commercial arrangement as a distributorship earning sales commission.Whether invocation of the extended period of limitation for demanding service tax is justified in the absence of suppression of facts or intention to evade tax.Whether interest and penalty can be imposed when the primary demand of service tax is not sustained.

RULINGS / HOLDINGS:

On the issue of export of service, the Court held that the appellant satisfied both essential conditions for export of service: (i) services provided to a recipient located outside India, and (ii) payments received in convertible foreign currency; therefore, the services rendered qualify as 'Export of Service' and are exempt from service tax.The Court held that the appellate authority "has exceeded its jurisdiction by introducing a completely new ground" regarding non-receipt of payment in foreign currency, which was neither alleged in the Show Cause Notice nor considered in the Order-in-Original, thereby violating the principles of natural justice.The Court found that the demand was based on a "superficial reading of the invoice descriptions" without examining the distributorship agreement, which clearly established the nature of payment as "sales commission" earned by the appellant as an exclusive distributor, and thus the classification under "Management, Maintenance or Repair Service" was incorrect.Regarding limitation, the Court held that in the absence of any specific finding or evidence of suppression of facts or intention to evade payment of service tax, the invocation of the extended period of limitation is "not sustainable".Since the primary demand of service tax was not sustained, the Court held that the question of demanding interest or imposing penalty "does not arise".

RATIONALE:

The Court applied the Export of Service Rules, 2005 and Place of Provision Rules, 2012, which require that for a service to qualify as export of service, it must be provided to a recipient outside India and payment must be received in convertible foreign currency.The Court emphasized the principle of natural justice and the settled legal position that no adjudicating or appellate authority can travel beyond the "four corners of the Show Cause Notice" or introduce fresh grounds not originally alleged.The Court relied on the substance-over-form doctrine, examining the distributorship agreement to determine the true nature of the transaction as sales commission rather than a taxable management service, consistent with precedents that require examination of the actual commercial arrangement rather than invoice descriptions.The Court noted the absence of any evidence or finding of suppression or evasion, which is a prerequisite for invoking the extended period of limitation under the Finance Act, 1994.No dissent or doctrinal shift was indicated; the Court reaffirmed established legal principles regarding jurisdiction, export of service criteria, and limitation provisions.