Paramount Dyes and Chemicals Pvt. Ltd. Wins Appeal Against Service Tax Demand

CESTAT Mumbai Bench Rules Indenting Agent Services as Export, Exempts from Service Tax

In a significant judgment, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Mumbai Regional Bench has ruled in favor of Paramount Dyes and Chemicals Pvt. Ltd., setting aside a service tax demand of Rs.10,89,916. The Tribunal held that the company's services as an indenting agent for foreign suppliers qualify as export of services under Rule 3 of the Export of Service Rules, 2005, exempting them from service tax liability.

The case, filed under Service Tax Appeal No. 85305 of 2017, revolved around the classification of services provided by Paramount Dyes and Chemicals Pvt. Ltd. to foreign suppliers, including entities like M/s Rohm and Haas Singapore Pvt. Ltd., M/s Honeywell International Inc., USA, and M/s Marubenni Chemicals Asia Pacific Private Limited, Singapore. The company's role involved selling goods on a high seas sale basis and acting as an indenting agent, earning commissions on these transactions.

The Commissioner of Service Tax-I, Mumbai, had previously upheld a demand for service tax on these services, categorizing them under 'Business Auxiliary Service' as per Section 65(105)(zzb) of the Finance Act, 1994. Paramount Dyes and Chemicals Pvt. Ltd. challenged this decision, arguing that their services did not constitute taxable services within India as the benefits accrued outside the country, and therefore, should be considered as export of services.

The Tribunal, comprising Mr. S.K. Mohanty, Member (Judicial), and Mr. M.M. Parthiban, Member (Technical), found that there was no evidence of the company acting as an intermediary with authority to bind foreign entities in contractual obligations. Relying on judicial precedents and CBEC circulars, the Tribunal determined that the services rendered qualify as export, given that the benefit of such services accrued outside India.

The Tribunal's judgment also referenced Circular No. 141/10/2011-TRU, which clarified that services performed in India are considered export if the benefit accrues outside the country. The Tribunal emphasized that the crucial factor for export classification is the accrual of benefit and its use outside India, aligning with the Central Board of Excise & Customs' guidelines.

This decision is a relief for entities engaged in similar indenting services, reinforcing the interpretation of export of services under the Export of Service Rules, 2005, and potentially influencing future cases involving service tax demands on cross-border service transactions.

Bottom Line:

Services rendered by an Indian entity as an indenting agent to foreign suppliers, for which commission is received, qualify as export of services under Rule 3 of the Export of Service Rules, 2005, and are not liable to service tax.

Statutory provision(s): Rule 3 of the Export of Service Rules, 2005, Section 65(105)(zzb) of the Finance Act, 1994, Sections 73(1), 76, 77, 78 of the Finance Act, 1994

Paramount Dyes and Chemicals Pvt. Ltd. v. Commissioner of Service Tax-I, Mumbai, (CESTAT)(Mumbai Regional Bench) : Law Finder Doc Id # 2820987