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2016 (3) TMI 139 - CESTAT MUMBAI

2016 (3) TMI 139 - CESTAT MUMBAI - 2016 (42) S.T.R. 918 (Tri. - Mumbai) - Import of services - Advertising Agency services - Appellant manufactured pharmaceutical products and exported to Ukraine under an agreement for market promotion and publicity - Demand raised considering the services as advertising agency services taxable under Section 65 (105)(e) of Finance Act, 1994 - Held that: the goods are manufactured by the appellant and has deemed the services rendered in Ukraine to have been impor .....

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emanded in the impugned order is not on the consideration for a service received in India but a tax on the funds transferred in a cross-border transaction. Such a tax is not contemplated in Finance Act, 1994. Therefore, no Service tax can be demanded. - Decided in favour of appellant - Appeal No. ST/333/2010 - Final Order No. A/85647/2016-WZB/STB - Dated:- 10-2-2016 - M V Ravindran, Member (J) And C J Mathew, Member (T) For the Appellant : Shri Dayanand Kumar, CA For the Respondent : Shri KS Mis .....

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thereon and penalty under section 78 of Finance Act, 1994. The demand pertains to the period from 18th April 2006 to 31 st March 2008 as recipient of 'advertising agency service' and the provisions of section 66A of Finance Act, 1994 for discharge of tax liability on "reverse charge" basis has been invoked. 2. Appellant is a manufacturer of pharmaceutical products that are exported to Ukraine for which agreements were entered into with M/s Biogenetica Ltd, M/s Nicocardia Ltd a .....

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discharged on these amounts that were alleged to be consideration for having received 'advertising agency services' - a service taxable under section 65 (105)(e) of Finance Act, 1994 with effect from 1st November 1996. 3. In the impugned order the demand was restricted to the period after 18 th April 2006 as the taxable service was rendered by a provider based outside India and tax collection on 'reverse charge' basis under section 66A from recipient of service could be effected .....

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cating authority that the terms of the agreements make it clear that the three overseas entities were required to market and promote the sale and distribution of the products of the appellant and hence the payments effected for advertising and business promotion of the goods of the appellant were liable to tax under section (105) (e) of Finance Act, 1994. The impugned order records that M/s Selesta is expressly contracted to prepare advertising material for different media and the appellant has .....

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tax liability will not arise. The appellant reiterates the claims made before the original authority, along with the evidences of connected invoices, that these payments were in the nature of reimbursements for publicity material that were paid for, on their behalf, by the three entities. It is also claimed that the bulk of the payments made related to services rendered prior to 2006-07 and that ₹ 14,71,38,383 should have been excluded from the tax base of ₹ 21,77,51,826. Learned Ch .....

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n to business and commerce. He draws our attention to the agreement that appellant entered into with M/s Selesta Holdings Co Ltd to justify classification as 'advertising agency service.' Likewise the agreements entered into with M/s Biogenetica Ltd and M/s Nicocardia Ltd were also presented before us to show that these entities, being agents of the appellants who procure publicity material for the appellant, were not receiving the payments as reimbursements. The statements of the Manage .....

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fairly restricted the tax liability to the period after 18th April 2006 and the computation to the actual payment effected to the overseas service providers. As pointed out by the learned Authorized Representative, the present claim of the appellant for further deductions in the taxable value has no merit since the computation in the impugned order appears to be entirely based on details submitted by them. We have examined some of the invoices furnished to evince that payments effected to the o .....

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ted for not accepting the plea of the appellant for exclusion of those payments claimed to be reimbursements. 7. The payments that were subject to tax in the impugned order are the amounts recorded as paid to Cyprus-based entities who sub-contact the obligations to Ukranian entities for performance. That these payments are made for advertising and business promotion is not in doubt. The original authority has also accepted the segregation of the derived value of the service from the gross value .....

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ng as evidenced by their accounting records. Inclusion of a payment in the books of accounts under specific head that mirrors any of the taxable services in section 65 (105) may not, of itself, render that amount taxable under Finance Act, 1994. Neither can a contract be the basis for deciding on taxability. The statutory enumeration of taxable services should be the first determinant followed by computation of the value of the taxable service. In these proceedings, the second requirement appear .....

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dvertising consultant'. 10. While the person rendering the taxable service can be by any type of person, taxability requires that such person must be connected with making, preparation, display or exhibition of advertisement. From the word 'connected' therein, it can be inferred that these activities need not necessarily be executed directly by the person so engaged; sub-contracted as a whole or of a portion is a connect that will render such activity leviable to tax. The sample of i .....

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ted Fund of India. This normative responsibility is altered to transfer the onus on to the recipient of service when the service provider of a taxable service is outside India by section 66A of Finance Act, 1994. In the normal course of rendering a service in India or manufacturing goods in India, services provided from outside the country become taxable in the hands of the recipient to the extent that Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (colloqui .....

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e. The appellant is entitled to exemption of tax and duties on all imports effected for production of goods listed in the Letter of Permission issued by the Development Commissioner in accordance with the Foreign Trade Policy. Exporters can claim refund of tax paid on specified input services in accordance with notifications issued under section 93 of Finance Act, 1994. Services that are utilised in exports of goods or services are entitled to a rebate of tax paid on such input services under se .....

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romotion strategy of the country are the modes by which taxes on inputs/input services borne by the manufacturer or service provider catering to the international market place is refunded or exempted from taxes that are otherwise chargeable from the customer residing in the country. 13. To ensure that there is no undeserved availment of this privilege, duties on inputs or taxes on input services are refunded or rebated through these notifications and procedures. These are predicated upon the ine .....

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rough the legal fiction of crossing of national boundaries and subject to tax in the hands of the recipient of service. Exporters who avail of such taxable service for their manufacturing process are required to pay tax and use the rebate/refund mechanism; this is necessary because the service, being a requirement for manufacture, does not lend itself to disassociation from the place of manufacture. 15. Services that are not connected with manufacture or with the transport of goods till the cust .....

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n exercise in futility and is contrary to the objectives of and means devised for export promotion by the State. 16. The tax liability has been crystallized in the impugned order by recourse to Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 by deeming the provision of 'advertising agency service' by the three Cyprus-based entities to be an import of service into India. 17. Rule 3 of Taxation of Services (Provided from Outside India and .....

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