Commission Earned By Indenting Agent To Foreign Group Entities Is 'Export Of Services': CESTAT Mumbai Sets Aside ₹2.77 Crore Service Tax Demand

A Division Bench comprising Member (Judicial) S.K. Mohanty and Member (Technical) M.M. Parthiban set aside the ₹2.77 crore service tax demand (along with interest and penalty) confirmed by the Principal Commissioner, CGST Thane Rural. The bench stated held:

“it is abundantly clear that the services provided by the appellants to the overseas entities qualify as export in terms of Rule 3 of the Export of Service Rules, 2005 on the basis of the clarification issued by the Central Government.

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.”

The Assessee, Sojitz India Private limited, a wholly-owned subsidiary of Sojitz Asia Pte. Ltd., Singapore, was engaged in providing facilitation/support services with import of goods into India and export of certain goods outside India to its overseas group entities.

The Revenue observed that the assessee was providing taxable services of 'Business Auxiliary Service' (BAS) as per Section 65(105)(zzb) of the Finance Act, 1994, yet did not pay the requisite service tax to their foreign group companies.

Accordingly, the Adjudicating Authority raised a service tax demand of 2.77 crores with interest and penalties upon the assessee.

Assailing the order of adjudicating authority, the appeal was preferred by the assessee before the CESTAT seeking quashing of the Order of service tax demand.

The assessee argued that it was acting purely as an indentation agent for foreign suppliers and commission was received in convertible foreign exchange. The services were used and consumed outside India, and therefore, fell within Rule 3 of the Export of Services Rules, 2005.

Also, the assessee relied on the Larger Bench ruling in Arcelor Mittal Stainless India Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-II – 2023-TIOL-469-CESTAT-MUM- LB whereby the CESTAT reiterated that the place of consumption and location of service recipient not place of performance determine export classification.

The Bench considered that assessee did not negotiate prices, conclude contracts, or bind foreign entities, and therefore, was not an intermediary acting on behalf of foreign buyers in India.

Also stated that the real beneficiary of the services was the foreign group entity, not customers in India.

The Bench relied on CBEC Circular No. 141/10/2011-TRU (13.05.2011) clarifying that services qualify as export when the benefit is outside India, irrespective of where the services are performed and emphasised on Archelor Mittal Stainless India which squarely covered the issue in favour of the assessee.

In view of the above, the Appeal was allowed in favour of the assessee and quashing the service tax demand.

Case Title: Sojitz India private limited Vs. Pr. Commissioner of Central GST & Central Excise

Case No: Service Tax Appeal No. 87356 of 2019

Appearance for the Appellant: Shri Bharat Raichandani

Appearance for the Respondent: Shri S.K. Yadav, Authorized Representative for the Respondent

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