No Service Tax On Commission Paid To Foreign Agents For Services Outside India: CESTAT Bangalore

The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 24 March held that no service tax is payable under the reverse charge mechanism on commission paid to foreign agents where the services are rendered and received outside India.

A Bench comprising Judicial Member Mr. P.A. Augustian and Technical Member Mrs. R. Bhagya Devi observed:

“Since the services are rendered abroad and not received in India, the question of liability to pay service tax under Section 66A does not arise.”

The case arose from commission payments made by Trans Asian Shipping Services Pvt. Ltd. to foreign agents at overseas ports for handling port formalities and transportation. Payments were made in foreign currency. The Department sought to tax these payments under the reverse charge mechanism, classifying them as 'Business Auxiliary Services'.

The Revenue had confirmed service tax demand along with penalties for the period 2006 to 2014 under an Order-in-Original.

Before the Tribunal, Trans Asian Shipping contended that the services were more appropriately classifiable as 'Steamer Agent Services' and, in any case, were performed outside India. It argued that under both Section 66A (pre-2012 regime) and the Place of Provision of Services Rules, 2012 (post-2012 regime), tax liability arises only if services are received in India.

The Tribunal noted that there was no dispute that the services were rendered abroad and that the department had not provided adequate reasoning for classifying them as 'Business Auxiliary Services'.

It further held that even for the period post 1 July 2012, under the Place of Provision of Services Rules, 2012, services performed outside the taxable territory are not liable to service tax.

Accordingly, the Tribunal set aside the service tax demand, penalties, and allowed the appeal with consequential relief.

Appearance for the Appellant: Mr. Reuben Joseph and Mr. N. Vijayakumar, Advocates

Appearance for the Respondent: Mr. M. Sreekanth, Assistant Commissioner (AR)