Service Tax | Commission Earned From Foreign Suppliers Is 'Export Of Service': CESTAT Mumbai Sets Aside Demand Against Paramount Dyes
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has held that commission received in India for facilitating sales of goods for foreign suppliers amounts to “export of service” and cannot be taxed under the category of Business Auxiliary Service (BAS).A Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) allowed the appeal filed...
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has held that commission received in India for facilitating sales of goods for foreign suppliers amounts to “export of service” and cannot be taxed under the category of Business Auxiliary Service (BAS).
A Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) allowed the appeal filed by the assessee, setting aside the Service Tax demand, interest, and penalties relating to the period 2004–2009.
The Bench observed:
“We find that Ministry of Finance, Central Board of Excise & Customs (CBEC) in clarifying the expression 'used outside India' in Rule 3(2)(a) of Export of Service Rules, 2005 had stated that the accrual of benefit and their use outside India should be looked into for determining whether the services qualify as export even when they are performed from India. Further, it is not in doubt that the foreign inward remittances for such services have been received by the appellants and have also been duly accounted in the books of accounts maintained by them.”
The assessee, Paramount Dyes and Chemicals Pvt. Ltd. acted as an indentation agent for foreign companies such as Rohm & Haas Singapore, Honeywell International (USA) and others, facilitating sales of imported chemicals and waxes in India, for which the assessee received commission, including on high-seas sales.
The Revenue after audit alleged that these activities were taxable as Business Auxiliary Service (BAS) and issued a demand of ₹10.89 lakh with interest and penalties under Sections 76, 77, and 78 of the Finance Act.
The Commissioner (Appeals) upheld the demand, prompting the assessee to approach the Tribunal.
The assessee argued before the CESTAT that it only facilitated sales on behalf of the foreign suppliers, and the benefit of services accrued entirely outside India, fulfilling the definition of “export of services”. Also, argued that the assessee was not an intermediary, it had no authority to negotiate contracts or bind foreign suppliers.
The assessee relied on CBEC Circular No. 141/10/2011-TRU, which clarifies that if the benefit of a service accrues outside India, it qualifies as export.
The Department argued before the CESTAT that the commission income was taxable BAS since the services were performed in India and helped promote sales of foreign principals in the Indian market.
The CESTAT undertook a detailed review of the agreements, statutory provisions, and relevant case laws and observed that there was no evidence that the assessee had authority to enter contracts, negotiate prices, or bind foreign suppliers. The relationship was clearly that of an independent contractor, not an intermediary.
The Bench observed that the services helped foreign companies expand their sales, and the benefit accrued abroad, satisfying the test under Rule 3 of the Export of Service Rules, 2005.
Rule 3 says that a service is treated as “export of service” if it is provided in relation to property outside India, or it is performed outside India, or in all other cases, the recipient is outside India and the benefit accrues outside India. If these conditions are satisfied, the service is considered exported, and no service tax is payable.
The Bench reproduced and relied on CBEC Circular No. 141/10/2011, which states that services qualify as export if benefit flows to a foreign entity, regardless of location of performance.
“…accrual of benefit from the services provided by the appellants and their use for the benefit of foreign entity would qualify for export…”
The Bench relied on consistent judicial opinion holding that commission earned for promoting overseas products is export of service, including Life Care Medical Systems (Bom HC) [2018(18) G.S.T.L.587 (Bom)., A.T.E. Enterprises (Bom HC) [2018 (8) G.S.T.L. 123(Bom)], IBM India [2020(34) G.S.T.L. 123(Bom)], AVL India[2017(4) G.S.T.L. 59(Tri.Del.)
In view of the above, the Bench allowed the appeal of the assessee by setting aside the service tax demand .
Case Title: Paramount Dyes and Chemicals Pvt. Ltd. Vs. Commissioner of Service Tax-I, Mumbai
Case No: Service Tax Appeal No. 85305 of 2017
Appearance for Appellants: Shri Neerav Mainkar
Appearance for Respondnet: Shri C.S. Pavan