2026-VIL-1677-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of commission earned on export of Business Auxiliary Service - Appellant, under contract with a foreign principal for soliciting orders and promoting sale of its goods, earned commission based on sales made directly by the foreign principal to customers in India and neighbouring countries, and did not pay service tax treating the activity as export of service - Whether such commission earned for procuring orders for a foreign entity qualifies as export of service under the Export of Services Rules, 2005 and the Place of Provision of Services Rules, 2012, and is accordingly not liable to service tax - HELD - Business Auxiliary Services were classified under Rule 3(1)(iii) of the Export of Services Rules, 2005 and qualified as export if provided to a recipient located outside India - Since the foreign principal is the recipient of the service and is located outside India, and consideration is received in foreign exchange, the service qualified as export under the Export of Services Rules, 2005 up to 30.06.2012, and under Rule 3 of the Place of Provision of Services Rules, 2012 thereafter, the place of provision being based on the location of the recipient - The service of procuring orders for the foreign entity qualifies as export and the Appellant is not liable to pay service tax on the commission earned - The demand of service tax under Business Auxiliary Services is set aside – The appeal is allowed - Taxability under 'Supply of Tangible Goods' service where effective control and possession of rented equipment is transferred to the customer and VAT is discharged as a deemed sale - Appellant entered into agreements for renting out equipment, transferring possession, custody and effective control of the equipment to customers during the rental period, and discharged VAT on the transaction as a deemed sale - Whether service tax is additionally payable under 'Supply of Tangible Goods' service where VAT has already been discharged on the transaction - HELD - The terms of the agreement establish that the equipment was under the control, custody and possession of the customer during the tenure of the agreement, with the customer liable to pay VAT/CST and other statutory levies, and the appellant did not use or withdraw the equipment during the currency of the agreement - Such transfer of effective control, possession and custody takes the transaction out of the ambit of a taxable service and into the nature of a deemed sale - The issue stands covered by earlier decisions in the Appellant's own case setting aside the demand of service tax on rental income where VAT has been discharged thereon - The service tax demand under 'Supply of Tangible Goods' service is not sustainable and is set aside - Invocation of extended period of limitation for demand under reverse charge mechanism on import of software, based solely on balance sheet figures - Demand under RCM for import of software was confirmed solely on the basis of figures available in the balance sheet, which are public records, without any evidence of suppression or wilful misstatement - Whether the extended period of limitation is invocable where the demand is based solely on the assessee's balance sheet/profit and loss account or on records maintained in the usual course of business, and whether the demand is in any event revenue-neutral - HELD - Where the demand is based solely on balance sheet or profit and loss account figures or on records made in the usual course of business, without evidence of suppression or wilful misstatement, the extended period of limitation is not invocable - Had the Appellant discharged service tax under RCM on import of the services, it would undisputedly have been eligible to avail Cenvat credit thereon in light of the wide definition of 'input service', rendering the exercise revenue-neutral, and on this ground also the demand raised by invoking the extended period is time-barred - The demand confirmed under RCM for import of software is set aside - CENVAT Credit - Denial of credit carried forward in opening balance upon demerger under Rule 10 of the CENVAT Credit Rules, 2004 - Appellant, on demerger from its parent company pursuant to an order of the High Court, took credit of the parent's Cenvat balance in its opening balance for the return filed for April 2010 to September 2010 under Rule 10, duly intimating the fact to the Department - Whether the demand disallowing such credit, raised by a Show Cause Notice issued on 19.04.2016 in respect of credit availed in the return for April 2010 to September 2010, is barred by limitation, and whether the credit was in any event validly availed under Rule 10 - HELD - Raising a demand for the period April 2010 to September 2010 by a Show Cause Notice issued on 19.04.2016 is beyond even the extended period of limitation of five years, and the demand is liable to be set aside on this ground alone - In any event, as a result of the demerger, the Appellant was eligible to carry forward the closing balance of Cenvat credit under Rule 10, and in the absence of a specific column for availing such credit, correctly added it to its opening balance, a fact duly intimated to the Department - The disallowance of the credit availed under Rule 10 upon demerger is set aside - Denial of credit for want of documents where invoices and reconciliation statements were furnished but not considered - Cenvat credit was denied on the ground of non-submission of documents, though the Appellant had submitted the list of invoices, the input service tax register, sample invoices and a reconciliation statement of the Cenvat credit register with the ST-3 return along with its reply to the Show Cause Notice - Whether denial of credit on the ground of want of documents is sustainable where such documents were in fact furnished but were not considered by the adjudicating authority - HELD - The documents furnished by the Appellant, establishing the eligibility of Cenvat credit on the input services in question, were blatantly ignored, and the Department failed to consider the documents submitted along with the reply to the SCN, denying credit solely on the ground of non-submission - Given the undisputed eligibility of Cenvat credit on such input services, the Appellant cannot be denied the credit, and the denial of Cenvat credit for want of documents is legally not sustainable and is set aside.
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