Case Law Details
Bajaj Herbals Pvt Ltd Vs C.S.T.-Service Tax (CESTAT Ahmedabad)
Introduction: In a significant legal battle between Bajaj Herbals Pvt Ltd and the Central Excise and Service Tax Appellate Tribunal (CESTAT) in Ahmedabad, a crucial decision was reached regarding the applicability of service tax on advertising agency services provided by foreign-based service providers for marketing. This article delves into the details of the case, examining the arguments presented by both parties, the findings of the CESTAT Ahmedabad, and the implications of this ruling.
Detailed Analysis: The case revolves around Bajaj Herbals Pvt Ltd, a company engaged in the manufacturing of hair oil, hair cream, toothpaste, and other products. The company held both Central Excise and Service Tax registrations under the category of Goods Transport Agency (GTA) service. The controversy arose when the authorities audited the company’s records, revealing payments made by Bajaj Herbals to various foreign-based service providers for Exhibition expenses, Sales Promotion expenses, and Advertisement expenses in foreign currency.
The department contended that these services fell under the categories of ‘Business Exhibition Services,’ ‘Business Auxiliary Services,’ and ‘Advertising Agency Services.’ As a result, Bajaj Herbals, as the recipient of these services, was considered liable to pay service tax under Section 66A of the Finance Act, 1994, using the reverse charge mechanism. Consequently, a show-cause notice was issued to Bajaj Herbals on March 15, 2013.
The Adjudicating Authority, in its Order-in-Original, confirmed the following service tax demands:
1. Service Tax of Rs. 70,512/- on the taxable value of Rs. 6,41,000/- paid as commission income in foreign currency under the category of ‘Business Exhibition Services’ for the year 2007-08.
2. Service Tax of Rs. 85,295/- on the taxable value of Rs. 7,75,354/- paid as commission income in foreign currency under the category of ‘Business Exhibition Services’ for the year 2008-09.
3. Service Tax of Rs. 25,090/- on the taxable value of Rs. 2,28,091/- towards Sales Promotion expenses in foreign currency under the category of ‘Business Auxiliary Service’ for the year 2008-09.
4. Service Tax of Rs. 35,98,876/- on the taxable value of Rs. 3,83,79,235/- towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services’ for the year 2008-09 to September 2010.
5. Service Tax of Rs. 2,23,358/- on the taxable value of Rs. 23,91,875/- towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services’ for the period October 2010 to November 2011.
Additionally, interest and late fees/penalties were imposed under Sections 70, 76, 77 & 78 of the Finance Act, 1994.
1.1 Dissatisfied with the Order-in-Original, Bajaj Herbals filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) upheld the demand for certain categories but dropped the demands related to ‘Business Exhibition Services’ and ‘Business Auxiliary Service.’
1.2 However, the appeal was rejected concerning the demand for Service Tax of Rs. 35,98,876/- and Rs. 2,23,358/- towards Advertising Agency Services received from foreign-based service providers, as these services were provided in India to an India-based service recipient.
In response, Shri R R Dave, the Learned Consultant representing Bajaj Herbals, argued that the demand for service tax on advertising agency services was unjustified since these services were provided by foreign-based providers outside India. According to Dave, when a service is performed outside India, beyond the taxable territory, it should not be liable for service tax in India. To support his argument, he cited specific judgments:
1. Final order No A/11222/2023 dated 09.06.2023 in the case of Aegis Limited Vs. Commissioner of Central Excise & ST, Surat-I passed by this Tribunal.
2. Final order No. 86143/2023 dated 19.07.2023 in the case of M/s. Sharda Cropchem Ltd. Vs. Commissioner of CGST & CE, Mumbai West passed by this Tribunal.
On the other hand, Shri Anoop Kumar Mudvel, Learned Superintendent (AR) representing the revenue, reiterated the findings of the impugned order.
After considering both parties’ submissions and reviewing the records, the CESTAT Ahmedabad addressed the central issue of whether the advertising agency service was taxable in India. The tribunal noted that the Service Tax demand had been upheld on the grounds that, even though the service was provided outside India, it was received by Bajaj Herbals in India, and this service was directly related to the company’s business and commerce.
The CESTAT disagreed with this reasoning, emphasizing that the recipient’s location in India should not solely determine whether the service was received in India. Bajaj Herbals argued that the foreign-based service provider offered advertising agency services in connection with the marketing and sales promotion of the company’s goods in foreign countries only. However, this crucial aspect had not been adequately considered by the lower authorities.
The CESTAT observed that if the service provided in a foreign country was neither received nor used in India, Bajaj Herbals should not be liable for Service Tax. Therefore, the CESTAT decided that a conclusive determination on the liability for service tax required a thorough examination of whether the advertising agency service was received and used in India for marketing and sales promotion. Accordingly, the matter was remanded to the Adjudicating Authority for a fresh order.
Conclusion: The case of Bajaj Herbals Pvt Ltd vs. C.S.T.-Service Tax (CESTAT Ahmedabad) highlights the intricate complexities of service tax liability concerning foreign-based advertising agency services. The ruling by CESTAT Ahmedabad indicates that the mere location of the recipient in India does not automatically make a foreign-based service taxable in India. Instead, the crucial factor is whether the service was received and used in India for the specific purpose of marketing and sales promotion. This decision provides relief to Bajaj Herbals and underscores the importance of thoroughly assessing the facts and circumstances surrounding service tax liabilities. The case serves as a reminder of the need for precise analysis and documentation when dealing with cross-border service transactions in the context of Indian taxation laws.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant are engaged in the manufacture of Hair oil, Hair Cream, Toothpaste etc. and holding a Central Excise registration as well as Service Tax registration under the category of GTA service. From the audit of the records, it was revealed that the appellant had made payments to various parties towards Exhibition expenses, Sales Promotion expenses and Advertisement expenses in foreign currency to the foreign based service providers. It was contended by the department that these services being classifiable under the category of ‘Business Exhibition Services’, ‘Business Auxiliary Services’ and ‘Advertising Agency Services’ and the appellant being the recipient of the said services, person liable to pay Service Tax under the provision of Section 66A of the Finance Act, 1994, on reverse charge mechanism. Accordingly, a show cause notice dated 15.03.2013 was issued to the appellant. The Adjudicating Authority vide Order-in-Original confirmed the, i) Service Tax of Rs. 70,512/- on the taxable value of Rs. 6,41,000/- paid as commission income in foreign currency under the category ‘Business Exhibition Services’ for the year 2007-08. ii) Service Tax of Rs.85,295/- on the taxable value of Rs. 7,75,354/- paid as commission income in foreign currency under the category of ‘Business Exhibition Services’ for the year 2008-09. iii) Service Tax of Rs. 25,090/- on the taxable value of Rs. 2,28,091/- towards Sales Promotion expense in foreign currency under category of ‘Business Auxiliary Service’ for the year 2008-09. iv) Service Tax of Rs. 35,98,876/- on the taxable value of Rs. 3,83,79,235/- towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services’ for the year 2008-09 to September 2010 and v) Service Tax of Rs. 2,23,358/-on the taxable value of Rs. 23,91,875/- towards Advertisement expenses incurred in foreign currency under the category of ‘Advertising Agency Services’ for the period October, 2010 to November, 2011, along with interest and also imposed late fees/penalties under Sections 70,76,77 & 78 under the Finance Act, 1994.
1.1 Being aggrieved by the Order-in-Original the appellant filled appeal before Commissioner(Appeals). The Learned Commissioner(Appeals) out of total demand confirmed by the Adjudicating Authority dropped the following demands:
i) 70,512/-&Rs. 85,295/- on ‘Business Exhibition Services’
ii) 25,090/- on ‘Business Auxiliary Service’.
1.2 As the same was provided in India to India based service recipient, the Learned Commissioner (Appeals) rejected the appeal to the extent it relates the demand of Service Tax of Rs. 35,98,876/- and Rs. 2,23,358/- towards Advertising Agency Service received from foreign based service providers. Being aggrieved by the Order-in-Appeal the appellant filed the present appeal.
Shri R R Dave, Learned Consultant appearing on behalf of the appellant submits that the demand was confirmed on advertising agency service on the reverse charge mechanisms on the appellant despite the fact that advertising agency service was provided by the foreign based service provider outside India. Therefore, when the service was performed outside India, which is out of the taxable territory the same is not liable to service tax in India. He place reliance on the following Judgments:
- Final order No A/11222/2023 dated 09.06.2023 in the case of Aegis Limited Vs. Commissioner of Central Excise & ST, Surat-I passed by this Tribunal
- Final order No. 86143/2023 dated 19.07.2023 in the case of M/s. Sharda Cropchem Ltd. Vs. Commissioner of CGST & CE, Mumbai West passed by this Tribunal
3. Shri Anoop kumar Mudvel, Learned Superintendent (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. On careful consideration of the submission made by both the sides and perusal of record, we find that in the present appeal, the issue involved is taxability of Service Tax on the ‘Advertising Agency Service’ and whether same was performed in India or outside and whether the same was received by the appellant in India.
4.1 On perusal of the Learned Commissioner (Appeals) order, we find that the Service Tax demand was upheld on the ground that even though the service was provided outside India but the same was received by the appellant in India and such advertising agency service is undisputedly in relation to business or commerce of the appellant. Therefore, the same is liable to service tax in the hand of the appellant.
4.2 We find that merely because the recipient is located in India that is not the deciding factor that the service was received in India. As per the submission of the appellant the service of advertising agency service was provided by foreign based service provider in relation to the marketing and sales promotion of appellant’s goods in foreign country only. However, this aspect was not properly considered by both the lower Authorities. As per the facts available in record, we find that if the service so provided in foreign country admittedly is not received in India and not used in India, the appellant are primafacie not liable for Service Tax. However, whether the advertising agency service was received in India for use in relation to the marketing and sales promotion of goods in India, without ascertaining this fact cannot be concluded that the appellant is liable for payment of service tax. In this position we are of the view that the matter needs to be reconsidered in the light of our above observation.
5. Accordingly, we allow the appeal filed by the appellant by way of remand to the Adjudicating Authority for passing a fresh order.
(Pronounced in the open court on 22.09.2023)
