CESTAT Says Foreign Suppliers Were DSS Image Tech’s Service Recipients, Setting Aside Service Tax on Commissions for Indian Orders

DSS Image Tech Pvt. Ltd. promoted and marketed foreign suppliers’ equipment in India, procured orders or enquiries from Indian customers, and passed them to the foreign suppliers. The suppliers sold and exported the goods directly to the Indian customers; DSS received commission in convertible foreign exchange.

The Department treated the commission-related activities as Business Auxiliary Services (BAS) and demanded service tax, including for July 2012 to March 2013, on the basis that the services were consumed in India. The adjudicating authority confirmed the demands arising from four show-cause notices, and DSS appealed.

DSS maintained that its service recipient was the foreign supplier and that the services qualified as exports; it also challenged the extended period of limitation.

Rule 6A of the Service Tax Rules, 1994 provides that a service is treated as an export where, among other conditions, the provider is located in the taxable territory, the recipient is outside India, the place of provision is outside India, and consideration is received in convertible foreign exchange. Under Rule 3 of the Place of Provision of Services Rules, 2012, the place of provision is generally the location of the service recipient.

The recipient is the person who requests or instructs the service, is liable to pay for it, and whose business need is met; the person affected by the performance of the service is not necessarily the recipient (Verizon Communication India Pvt. Ltd. v. Assistant Commissioner, Service Tax; Paul Merchants Ltd. v. C.C.E., Chandigarh). The Tribunal also relied on Study Overseas Global Pvt. Ltd. v. Commissioner of Service Tax concerning services provided to, and consumed by, foreign entities.

For limitation, extended limitation requires willful suppression or a positive act intended to evade tax; mere failure to declare is insufficient (Anand Nishikawa Co. Ltd. v. CCE, Meerut).

The Tribunal found that the foreign suppliers engaged DSS to procure orders and promote their products, and that DSS received commission from them in foreign exchange. The Indian customers were not shown to have instructed DSS, paid it, or otherwise been recipients of its services; nor was there evidence of any separate service relationship between DSS and those customers.

Accordingly, the foreign suppliers were the service recipients, and the location of the recipients placed the services outside India for the purpose of Rule 6A. The fact that DSS performed its activities in India or that the goods were sold to Indian customers did not establish that the services were consumed in India.

On limitation, DSS had filed returns and disclosed its activity as export of service, while the Department produced no evidence of a positive act of suppression intended to evade tax. The Tribunal therefore found the extended period was not available.

The impugned order was set aside and the appeal was allowed.