Atlas Copco (I) Ltd vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No.ST/88247/14

(Arising out of Order-in-Original No.PUN-EXCUS-001-COM-14-15 dated 11/04/2014 passed by Commissioner of Central Excise, Pune)

For approval and signature:

Honble Mr.M.V. Ravindran, Member (Judicial) Honble Mr. P.R. Chandrasekharan, Member (Technical)

1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy :Seen of the Order?

4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================

Atlas Copco (I) Ltd., Appellant Vs. Commissioner of Central Excise, Respondent Pune

Appearance: Shri.M.P. Baxi, Advocate for appellant Shri.D.V.Nagvenkar, Addl. Comm. (AR), for respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.R.Chandrasekharan, Member (Technical)

Date of Hearing : 12/02/2015 Date of Decision : 12/02/2015

ORDER NO

Per: P.R. Chandrasekharan

1. The appeal is directed against Order-in-Original No.PUN-EXCUS-001-COM-14-15 dated 11/04/2014 passed by Commissioner of Central Excise, Pune.

2. Vide the impugned order, the learned adjudicating authority has confirmed a service tax demand of Rs.9,12,11,220/- for the period 2008-09 & 2009-2010 by classifying the services rendered by the appellant, M/s.Atlas Copco (I) Ltd. to their parent organisation Atlas Copco Airpower, Belgium NV., under the category of Business Auxiliary Services (BAS in short) liable to be taxed in India along with interest thereon and equivalent amount of penalty has also been imposed under Section78 of the Finance Act, 1994, apart from a penalty of Rs.10,000/- under Section 77 of the said Finance Act. Aggrieved of the same, the appellant is before us.

3. The brief facts relating to the case are as follows:

3.1 During the audit of the records of the appellant, it was noticed that the appellant had entered into an agency agreement with their parent organisation in Belgium for promoting the sales of latters products in India by procuring orders from the buyers in India. For rendering the said services, the appellant received commission from their foreign based parent organisation. The department was of the view that since the orders have been procured from the buyers in India, it is a service rendered in India and therefore, the appellant is liable to pay service tax under the taxable service category of BAS. Accordingly, a show-cause notice dated 21/10/2013 was issued to the appellant proposing to classifying the services under BAS and demanding service tax thereon for an amount of Rs.9,12,11,220/-. The said notice was adjudicated upon vide the impugned order and demands were confirmed and the penalties imposed. Hence, the appellant is before us.

4. The learned Counsel for the appellant submits that the transaction undertaken by the appellant is one of exports and therefore, no service tax is payable. It is their contention that the activity of procuring orders for their foreign principals on commission basis amounts to export of services under Rule 3 (1) (iii) of the Export of Service Rules, 2005. Inasmuch as the service recipient is located in outside India, the service has been provided from India and used outside India and consideration in respect of the service has been received in convertible foreign exchange. It is their contention that since the benefit of these services rendered by them has accrued to a person situated outside India, the transaction falls within the definition of export of service under the Export of Service Rules, 2005. The appellant also relies on a number of decisions of this Tribunal, namely, Microsoft Corporation (I) (P) Ltd., Vs. CST, New Delhi  2014 (36) STR 766 (Tri-Delhi), Paul Merchants Ltd., Vs. CCE, Chandigarh  2013 (29) STR 257 (Tri-Del) and CST Delhi Vs. Menon Associates  2014 (34) STR 793 (Tri-Del) in support of their above contention. Accordingly, it is pleaded that the impugned demands are not sustainable and it is prayed that the appeal be allowed.

5. The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the adjudicating authority. He submits that the activity of the appellant of canvassing the purchase orders has taken place in India and the goods have been purchased by the buyers in India and therefore, the services should be construed as having been rendered in India. He placed reliance on an interim order passed by this Tribunal in the case of Life Care Medical Systems Vs. CST, Mumbai  2013 (29) STR 129 (Tri-Mumbai) wherein stay was granted by ordering part pre-deposit of the demands made. Accordingly, he pleads for upholding the impugned order and dismissing the appeal.

6. We have carefully considered the submissions made by both the sides.

6.1 We find that an identical issue arose for consideration before this Tribunal in the case of Microsoft Corporation (I) (P) Ltd. The question for consideration was whether the market development operations undertaken by the agent in India for the foreign principal would be liable to service tax under the category of BAS or not. In a majority decision, the Tribunal concluded that though the service was of sale of a product in India, it was an export of service as the recipient of the service was a foreign company and convertible foreign exchange has been received in India for the services rendered. The same view was taken in the case of Menon Associates wherein also marketing of products of overseas principals in India was involved for which commission was received in convertible foreign exchange and the said activity was sought to be taxed under BAS. This Tribunal held that the activity amounted to Export of Service and therefore, no service tax liability would accrue. In another case decided by this Tribunal in the case of Gap International Sourcing (India) Pvt. Ltd.  2014-TIOL-465-CESTAT-DEL, a question arose for consideration as to whether the services relating to procurement of goods, recommending fabrics to be used, recommending vendors from which raw materials to be procured, analyzing the reports of samples sent by the vendors, giving recommendations of product integrity on behalf of the foreign principal would amount to export of service or not and whether service tax is payable on the said service under the taxable service category of BAS.

After examining the various provisions and also keeping the decisions of the Tribunal in the case of Paul Merchants Ltd., this Tribunal concluded that the activity would amount to export of service under Export of Service Rules, 2005 and accordingly, it was held that service tax demand is not sustainable in law. In the present case also there is no dispute that the service recipient is situated abroad and the payments for the services rendered was received in convertible foreign exchange and the service has been delivered to a person situated abroad and such services were provided from India and used outside India. Thus all the conditions of export have been satisfied and therefore, we have no hesitation in concluding that the activity involved in the present case is one of exports which is not taxable. Even as per the place of Provision of Service Rules 2012, it is the place of service recipient which determines where the service has been rendered. In the present case, the service recipient is located outside India and therefore, the service has been rendered outside India. In other words, it is a export transaction.

7. In this view of the matter, we find that the decisions of this Tribunal in the case of Gap International Sourcing (India) Pvt. Ltd. Paul Merchants Ltd., Microsoft Corporation India Pvt. Ltd., etc. would squarely apply and therefore, it has to be held that transaction is one of exports which is not taxable. Accordingly, we set aside the impugned order and allow the appeal with consequential relief, if any.

(Operative part of the order pronounced in Court)

(M.V. Ravindran) Member (Judicial) (P.R. Chandrasekharan) Member (Technical)

pj

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