Service Tax Exemption for Business Exhibitions Held Outside India: CESTAT

Service Tax Exemption for Business Exhibitions Held Outside India: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, recently has ruled in favor of Aksh Optifibre Ltd. in case related to service tax liability under the Reverse Charge Mechanism (RCM). The CESTAT set aside the tax demand of Rs. 1,93,968, along with interest and penalties, imposed by the Commissioner of Central Excise & CGST, Alwar.

Background of the Case

Aksh Optifibre Ltd., a manufacturer of optical fiber and optical fiber cables, department had issued a show cause notice alleging non-payment of service tax on payments made to foreign service providers. The tax authorities claimed that these payments were subject to service tax under Banking and Financial Services as per Rule 3 of the Taxation of Services Rules, 2006, read with Section 66A(1) of the Finance Act, 1994.

The demand covered the period from December 2012 to September 2013, with authorities alleging tax evasion on services related to Foreign Currency Convertible Bonds (FCCB) and Global Depository Receipts (GDRs). The order-in-original had initially confirmed the demand, which was upheld in the Commissioner (Appeals) order dated March 28, 2017.

Key Arguments Presented

Appellant’s Stand

1. Invalidity of Show Cause Notice: The appellant’s counsel, Ms. Jwaria Kainaat, argued that the demand was based on Sections 66 and 66A of the Finance Act, which were repealed post July 1, 2012. The demand should have been raised under Section 66B, making the notice defective.
2. Incorrect Classification of Service: The authorities initially proposed the demand under Business Exhibition Service but confirmed it under Banking and Financial Services, creating an inconsistency.
3. Place of Provision of Services Rules, 2012: According to Rule 6, the place of provision of services should be where the event is held. Since the exhibitions took place outside India, the transaction was outside the taxable territory.
4. Exemption Under Notification 25/2012: The services were covered under the mega exemption notification, which exempts business exhibitions held abroad.
5. Previous Rulings Ignored: The department had dropped similar demands in previous years under Notification No. 5/2011, but the current adjudication disregarded this precedent.

Revenue’s Counter

1. Taxability Under Reverse Charge: The Departmental Representative, Shri Aejaz Ahmad, argued that since Aksh Optifibre Ltd. received services from foreign service providers, it was liable to pay service tax under Reverse Charge Mechanism (RCM).
2. Ignorance of Law Not a Defense: The department contended that the appellant, being a registered service tax entity, could not claim a bona fide belief as an excuse for non-payment.

CESTAT’s Verdict

The Tribunal, comprising Hon’ble Dr. Rachna Gupta (Judicial Member) and Hon’ble Ms. Hemambika R. Priya (Technical Member), ruled in favor of the appellant based on the following findings:

1. Show Cause Notice Invalid: Since Sections 66 and 66A were repealed on July 1, 2012, any demand post that date under those provisions was legally untenable.
2. Place of Provision Rules Apply: As per Rule 6, services received for exhibitions held abroad fall outside the taxable territory, negating tax liability.
3. Exemption Notification Ignored: The Tribunal emphasized that Notification No. 25/2012 and 5/2011 clearly exempt such services, and the department had previously dropped similar demands.
4. Precedent and Consistency: Referring to Vishnu Traders v. State of Haryana, the Tribunal stressed that tax authorities must maintain uniformity in decisions unless substantial changes justify a deviation.
5. No Justification for Interest & Penalty: Since no tax liability existed, the interest and penalties imposed under Sections 75, 76, and 77 of the Finance Act were also dismissed.

Implications of the Ruling (Ashish Panday, Advocate)

This judgment reaffirms the importance of consistency in tax administration and the need for valid legal provisions when raising tax demands. Businesses engaged in cross-border transactions can take relief from the Tribunal’s stance on place of provision rules and exemptions applicable to foreign business exhibitions.

Also Read: Delhi High Court Rules in Favor of NRI: Personal Gold Jewellery Exempt from Confiscation Under Baggage Rules

Case: Aksh Optifibre Ltd. Versus Commissioner of Central Excise & CGST