Tnt India Private Limited Vs. Commissioner of Service Tax - Court Judgment

Excerpt:
1. this appeal has been filed against order-in-original no. 59/2006 dated 3-10-2006 passed by the commissioner of service tax, bangalore.2. the appellants are providing taxable services under the category of "courier agency services". revenue proceeded against them on the ground that they did not pay service tax for the period from 15-3-2005 to 15-6-2005 on international consignments. according to the appellants, the international consignments during the relevant period were exempted under rule 4 of export of services rules, 2005. the commissioner held that in the present case the service provider viz., the appellant is in india and the service receiver who hands over the consignment is also in india. in such circumstances there is no question of any export of service as held by the assessee. taking such a view, he confirmed a demand of rs. 2,97,10,762/- towards the service tax payable for the said period under section 73 of finance act, 1994. interest under section 75 of the finance act was also demanded. a penalty of rs. 200/- per day was imposed under section 76 of finance act, 1994 and penalty of rs. 4,50,00,000/- has been imposed under section 78 of the finance act, 1994. the appellants are highly aggrieved over the impugned order.3. s/shri k.s. ravi shankar and r. dakshinamurthy, learned advocates appeared for the appellants and shri anil kumar, learned jdr for the revenue.4. heard both sides. we reproduce rule 3 of the export of services rules, 2005. 3. export of taxable service - the export of taxable service shall mean - (1) in relation to taxable services specified in sub-clauses (d), (p), (q), (v) and (zzq) of clause (105) of section 65 of the act, such taxable services as are provided in relation to an immovable property which is situated outside india; (2) in relation to taxable services specified in sub-clauses (a), (f), (h), (i), (j), (1), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi),(zj),...(zzx) and (zzy) of clause (105) of section 65 of the act, such services are as performed outside india: provided that is such a taxable service is partly performed outside india, it shall be considered to have been performed outside india. (i) the taxable services specified in sub-clauses (a), (f), (h)... and (ii) the taxable service specified in sub-clause (d) as are provided in relation to an immovable property of clause (105) of section 65 of the act,- i. such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services are located outside india. ii. such taxable services which are provided and used other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside india at the time when such services are received.from the above rules, it is clear that if taxable services specified in sub rule (2) of rule 3 are partly performed outside india, such service shall be deemed to have been performed outside india. courier agency is one of the services specified in rule 3(2) as the said service falls under section 65(105)(f). in the case of international courier service, the consignment obviously has to be delivered abroad. in the light of rule 3(2) it is to be considered as performed outside india. when the service is performed outside india, there cannot be any service tax liability in terms of rule 4 as such a service is deemed to be exported. the performance of the service is completed only when the courier is delivered outside india to the consignee. it is not correct to say that the transportation is merely incidental in providing courier service as held by the adjudicating authority. in fact transportation is very crucial to the courier service and courier agency rendering taxable service is entitled to cenvat credit on the duty paid on motor vehicles. the adjudicating authority cannot go simply by the clarification of the ministry, which is contrary to law.ministry's clarification ignores rule 3(2), according to which when a service is partially performed outside india, it will be deemed to be performed outside india. the fact that the service provider and service receipt are in india is not relevant while considering whether there is export of service in the light of the deeming provision in rule 3(2).all the other points, such as contractual relationship between service provider and service recipient, the status of the person receiving the courier, the fact that transportation is merely incidental in providing courier service are not at all relevant in the light of rule 3(2). in our view, the clarification dated 3-10-2005 issued by the ministry with regard to international courier agency is contrary to rule 3(2) of export services rules, 2005.4.1. we also note that the adjudicating authority has imposed a penalty of rs. 4.5 crores, which is a very savage one, to say the least. the appellant did not discharge the service tax liability on a bona fide understanding of the law. in such a case, there is absolutely no justification for imposing penalty, which is equal to twice the duty involved. we also note that with effect from 15-6-2005, rule 3(2) of export services rules 2005 has been amended by insertion of 2nd proviso, which reads as follows: provided further that for the purposes of this sub-rule, any taxable services provided shall be treated as export of services only if- (a) such service is delivered outside india and used in business or for any other purpose outside india; and (b) payment for such service provided is received by the service provider in convertible foreign exchange.in terms of the above rule with effect from 15-6-2005, the appellant would be liable to pay the service tax, as the service would be considered as export of service only if payment is received in convertible foreign exchange. in any case for the relevant period in terms of rule 3(2), the services rendered by the appellant should to be deemed to have been performed outside india and therefore, the appellant will not be liable for payment of service tax during that relevant period in terms of rule 4. in view of our observations, the impugned order has no merits. we set aside the same and allow the appeal with consequential relief.(operative portion of this order was pronounced in open court on conclusion of hearing)

Judgment:
1. This appeal has been filed against Order-in-Original No. 59/2006 dated 3-10-2006 passed by the Commissioner of Service Tax, Bangalore.

2. The appellants are providing taxable services under the category of "Courier Agency Services". Revenue proceeded against them on the ground that they did not pay Service Tax for the period from 15-3-2005 to 15-6-2005 on international consignments. According to the appellants, the international consignments during the relevant period were exempted under Rule 4 of Export of Services Rules, 2005. The Commissioner held that in the present case the service provider viz., the appellant is in India and the service receiver who hands over the consignment is also in India. In such circumstances there is no question of any export of service as held by the assessee. Taking such a view, he confirmed a demand of Rs. 2,97,10,762/- towards the service tax payable for the said period under Section 73 of Finance Act, 1994. Interest under Section 75 of the Finance Act was also demanded. A penalty of Rs. 200/- per day was imposed under Section 76 of Finance Act, 1994 and penalty of Rs. 4,50,00,000/- has been imposed under Section 78 of the Finance Act, 1994. The appellants are highly aggrieved over the impugned order.

3. S/Shri K.S. Ravi Shankar and R. Dakshinamurthy, learned Advocates appeared for the appellants and Shri Anil Kumar, learned JDR for the Revenue.

4. Heard both sides. We reproduce Rule 3 of the Export of Services Rules, 2005.

3. Export of taxable Service - The export of taxable service shall mean - (1) in relation to taxable services specified in sub-clauses (d), (p), (q), (v) and (zzq) of Clause (105) of Section 65 of the Act, such taxable services as are provided in relation to an immovable property which is situated outside India; (2) in relation to taxable services specified in sub-clauses (a), (f), (h), (i), (j), (1), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi),(zj),...(zzx) and (zzy) of Clause (105) of Section 65 of the Act, such services are as performed outside India: Provided that is such a taxable service is partly performed outside India, it shall be considered to have been performed outside India.

(i) The taxable services specified in sub-clauses (a), (f), (h)...

and (ii) The taxable service specified in sub-clause (d) as are provided in relation to an immovable property of Clause (105) of Section 65 of the Act,- i. Such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services are located outside India.

ii. Such taxable services which are provided and used other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received.

From the above Rules, it is clear that if taxable services specified in Sub Rule (2) of Rule 3 are partly performed outside India, such service shall be deemed to have been performed outside India. Courier Agency is one of the services specified in Rule 3(2) as the said service falls under Section 65(105)(f). In the case of international courier service, the consignment obviously has to be delivered abroad. In the light of Rule 3(2) it is to be considered as performed outside India. When the service is performed outside India, there cannot be any Service Tax liability in terms of Rule 4 as such a Service is deemed to be exported. The performance of the service is completed only when the courier is delivered outside India to the consignee. It is not correct to say that the transportation is merely incidental in providing courier service as held by the Adjudicating Authority. In fact transportation is very crucial to the courier service and courier agency rendering taxable service is entitled to Cenvat credit on the duty paid on motor vehicles. The Adjudicating Authority cannot go simply by the clarification of the Ministry, which is contrary to law.

Ministry's clarification ignores Rule 3(2), according to which when a service is partially performed outside India, it will be deemed to be performed outside India. The fact that the service provider and service receipt are in India is not relevant while considering whether there is export of service in the light of the deeming provision in Rule 3(2).

All the other points, such as contractual relationship between service provider and service recipient, the status of the person receiving the courier, the fact that transportation is merely incidental in providing courier service are not at all relevant in the light of Rule 3(2). In our view, the clarification dated 3-10-2005 issued by the Ministry with regard to international courier agency is contrary to Rule 3(2) of Export Services Rules, 2005.

4.1. We also note that the Adjudicating Authority has imposed a penalty of Rs. 4.5 crores, which is a very savage one, to say the least. The appellant did not discharge the Service Tax liability on a bona fide understanding of the law. In such a case, there is absolutely no justification for imposing penalty, which is equal to twice the duty involved. We also note that with effect from 15-6-2005, Rule 3(2) of Export Services Rules 2005 has been amended by insertion of 2nd proviso, which reads as follows: Provided further that for the purposes of this sub-rule, any taxable services provided shall be treated as export of services only if- (a) Such service is delivered outside India and used in business or for any other purpose outside India; and (b) Payment for such service provided is received by the service provider in convertible foreign exchange.

In terms of the above Rule with effect from 15-6-2005, the appellant would be liable to pay the Service Tax, as the service would be considered as export of service only if payment is received in convertible foreign exchange. In any case for the relevant period in terms of Rule 3(2), the services rendered by the appellant should to be deemed to have been performed outside India and therefore, the appellant will not be liable for payment of Service Tax during that relevant period in terms of Rule 4. In view of our observations, the impugned order has no merits. We set aside the same and allow the appeal with consequential relief.

(Operative portion of this Order was pronounced in open Court on conclusion of hearing)