[2008] 12 STT 170 (BANG. - CESTAT)

CESTAT, BANGALORE BENCH

TNT India (P.) Ltd.

v.

Commissioner of Service Tax, Bangalore

Dr. S.L. Peeran, Judicial Member

and T.K. Jayaraman, Technical Member

Final Order No. 560/2007

in Appeal No. ST/332/2006

May 7, 2007

EXPORT OF SERVICES

Rule 4, read with rule 3, of the Export of Services Rules, 2005 - Export without payment of service tax - Period from 15-3-2005 to 15-6-2005 - Whether in case of international courier service, consignment has to be delivered abroad and in light of rule 3(2), such service is to be considered as performed outside India and, thus, there cannot be any service tax liability in terms of rule 4, as such a service is deemed to be exported - Held, yes - Whether fact that service provider and service recipient are in India is not relevant while considering whether there is export of service in light of deeming provision in rule 3(2) - Held, yes [Para 4]

Rule 3 of the Export of Services Rules, 2005 - Export of taxable service - Whether clarification dated 3-10-2005 issued by Ministry with regard to international courier agency is contrary to rule 3(2) - Held, yes [Para 4]

Section 76, read with section 78, of the Finance Act, 1994 - Penalty - For failure to pay service tax - Whether where assessee did not discharge service tax liability on bona fide understanding of law, there was absolutely no justification for imposing penalty, which was equal to twice duty involved - Held, yes [Para 4.1]

Circulars and Notification : CBEC Clarification dated 3-10-2005

>> Facts

The assessee was providing taxable service under category of ‘Courier agency service’. The revenue proceeded against the assessee on the ground that it had not paid service tax for the period from 15-3-2005 to 15-6-2005 on international consignments. The assessee contended that the international consignments during the relevant period were exempted under rule 4. However, the Commissioner held that in the instant case, the service provider, viz., the assessee was in India and the service receiver who hand over the consignment, was also in India and, in such circumstances, there was no question of any export of service. Accordingly, he confirmed the demand along with interest and also imposed penalties.

On appeal :

>> Held

From rule 3, it is clear that if taxable services specified in sub-rule (2) of rule 3 are partly performed outside India, such services 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. The 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 recipient 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, and the fact that transportation is merely incidental in providing courier service are not at all relevant in the light of rule 3(2). The clarification dated 3-10-2005 issued by the Ministry with regard to international courier agency is contrary to rule 3(2). (Para 4)

The adjudicating authority had imposed a penalty of Rs. 4.5 crores, which was a very savage one, to say the least. The assessee did not discharge the service tax liability on a bona fide understanding of the law. In such a case, there was absolutely no justification for imposing penalty, which was equal to twice the duty involved. It was also noted that with effect from 15-6-2005, rule 3(2) has been amended by insertion of second proviso. In terms of the above rule with effect from 15-6-2005, the assessee 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  assessee should be deemed to have been performed outside India and, therefore, the assessee would not be liable for payment of service tax during that relevant period in terms of rule 4. In view of these observations, the impugned order had no merits. The same was to be set aside and the appeal was to be allowed. [Para 4.1]