Service Tax On Commission Paid To Foreign Commission Agents Is Payable Under RCM From 18.04.2006: Bangalore CESTAT

The Banglore Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the service tax on commission paid to the foreign commission agents is payable under reverse charge only from April 18, 2006, and not from January 1, 2005.

The bench of P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) has observed that the appellant has discharged the service tax for the period from April 18, 2006, to December 27, 2008, and also intimated it to the Department to consider the intimation as an intimation under Section 73(3) of the Finance Act, 1994. The invocation of the penal provisions under Sections 77 and 78 of the Finance Act, 1994, is not tenable.

The assessees and appellants have appointed agents in foreign countries for the promotion and marketing of their finished goods, identifying the buyers for the finished goods, obtaining export orders, selling goods on behalf of the exporter, collecting sale proceeds, providing guarantees for payments for the finished goods exported, etc.

The appellants paid commissions to agents for the services rendered outside India. The appellants did not pay service tax on the commission paid to the agents outside India.

A show cause notice was issued alleging that the appellants had paid commission to the agents located in different countries for providing services. Hence, the services fall under the category of 'Business Auxiliary Services' as defined in Section 65(19) of the Act and are liable to service tax as of July 9, 2004. As per Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, if the service provider is a non-resident or from outside India and does not have any office in India, then the service tax has to be discharged by the service receiver. The appellant has not informed the Department of their activity of payment of commission and receiving taxable services until it was noticed by the Department. The extended period under 73(1) is invokable for the recovery of service tax, and Sections 76, 77, and 78 are invokable for the imposition of penalties.

The case was adjudicated, and the demand was confirmed with interest, and penalties were imposed as proposed.

The assessee contended that CBEC, vide Circular No. 36/4/2001 dated October 8, 2001, clarified that the levy of service tax extends to the whole of India except the State of Jammu and Kashmir and that services provided beyond the territorial waters of India are not liable to pay service tax.

The assessee contended that the order is patently in error, holding that the taxability of services received in India is from January 1, 2005. CBEC Circular No. 36/04/2001, dated January 8, 2001, clarified that services provided beyond the territorial waters of India are not liable to pay service tax; Section 66A is inserted in the Finance Act, 1994, through the Finance Act, 2006, w.e.f. April 18, 2006. Hence, the charging section for services provided outside India and imported into India was thus brought on by the statute on April 18, 2006. The Taxation of Services (provided from outside India and received in India) Rules, 2006, in exercise of powers conferred by Sections 93 and 94 read with Section 66A of the Finance Act, 1994, were brought into force on April 18, 2006.

The issue raised was whether service tax is leviable under reverse charge for the services provided by an agent residing outside India from 01.01.2005 or from 18.04.2006.

The tribunal, while allowing the appeal, held that the demand for the period 01.01.2005 to 18.04.2006 is not sustainable and the penalties imposed under Sections 77 and 78 are also not tenable.

Counsel For Appellant: Srividhya

Counsel For Respondent: Rajesh Shastry

Case Title: Hanuman Weaving Factory Versus Commissioner of Service Tax

Case No.: Service Tax Appeal No. 2238 of 2010

Click Here To Read The Order