Commission Earned By Indenting Agent To Foreign Group Entities Qualifies As Export Of Services: CESTAT Mumbai Quashes ₹2.77 Crore Service Tax Demand
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai has ruled that commission earned by an assessee acting as an indenting agent for foreign group companies qualifies as “export of services” under Rule 3 of the Export of Service Rules, 2005, and therefore is not liable to service tax under the Finance Act, 1994. A Division Bench comprising Member (Judicial) S.K. Mohanty and Member (Technical) M.M. Parthiban set aside the service tax demand of ₹2.77 crore, along with interest and penalty, confirmed earlier by the Principal Commissioner of Central GST, Thane Rural.
The appeal was filed by Sojitz India Private Limited, a wholly owned subsidiary of Sojitz Asia Pte. Ltd., Singapore, engaged in providing facilitation and support services in relation to import of goods into India and export of goods from India to overseas group entities. The Revenue had contended that the assessee provided taxable Business Auxiliary Services (BAS) under Section 65(105)(zzb) of the Finance Act, 1994 and failed to discharge service tax on commission received from foreign entities. Accordingly, the adjudicating authority confirmed a demand of ₹2,77,79,088 along with interest and penalties for the period from October 2006 to February 2010.
Challenging the demand, the assessee submitted that it acted purely as an indenting agent for foreign group companies and received commission in convertible foreign exchange. It argued that the services were used and consumed outside India, and therefore qualified as export of services. The assessee relied on CBEC Circular No. 141/10/2011-TRU dated 13 May 2011, which clarifies that services qualify as export when the benefit of such services accrues outside India, irrespective of the place of performance. The assessee also cited the Larger Bench decision in Arcelor Mittal Stainless India Pvt. Ltd. v. Commissioner of Service Tax, Mumbai-II, which held that the place of consumption and location of the service recipient, not the place of performance, determines the export classification.
The Tribunal noted that the contractual arrangement between the assessee and the foreign entities did not confer authority on the assessee to negotiate prices, conclude contracts, or bind overseas entities in any manner. The assessee did not act as an intermediary for Indian customers but functioned only as an independent sub-agent facilitating activities for overseas clients. The Bench emphasized that the real beneficiary of the services was the foreign group entity and not customers in India, and therefore the commission received against such services constituted export of services.
While analysing CBEC’s clarification on the expression “used outside India” under Rule 3(2)(a) of the Export of Service Rules, the Bench reproduced and relied upon the text of Circular No. 141/10/2011-TRU visible on page 5 of the judgment, which states that the accrual of benefit outside India is the determining factor for export classification even when the services are performed from India. The Tribunal further referred to a series of judicial precedents from High Courts and coordinate benches holding that services rendered to foreign clients amount to export when the benefit is consumed outside India.
Significantly, the Tribunal found that the issue stood squarely covered by the Larger Bench ruling in Arcelor Mittal Stainless India Pvt. Ltd., where it was held that when an Indian entity renders BAS to a foreign entity, and consideration is received in convertible foreign exchange, the service is treated as export of service under Rule 3 of the Export of Service Rules, 2005. The Mumbai Bench noted that there was no justification for the Revenue to take a different stand in the present case where the factual matrix was identical.
Holding that the commission received by Sojitz India Pvt. Ltd. for acting as indenting agent to its foreign group entities constitutes export of services, the Tribunal ruled that no service tax liability arises under the Finance Act, 1994. Accordingly, the CESTAT set aside the order dated 08.04.2019 passed by the Principal Commissioner, CGST Thane Rural, along with the service tax demand of ₹2.77 crore, interest, and penalties, and allowed the appeal in favour of the assessee.
Appearance
Appearance for the Appellant: Shri Bharat Raichandani
Appearance for the Respondent: Shri S.K. Yadav, Authorized Representative for the Respondent
Cause Title: Sojitz India private limited Vs. Pr. Commissioner of Central GST & Central Excise
Case No: Service Tax Appeal No. 87356 of 2019
Coram: Member (Judicial) S.K. Mohanty, Member (Technical) M.M. Parthiban
