SNQS International Socks Private Limited Vs Commissioner of Central Excise and Service Tax (CESTAT Chennai)
CESTAT Chennai held that as appellant is providing main service i.e. business support service on his own account and is not acting as an intermediary i.e. the services were performed by the appellant on a principal-to-principal basis and at arm’s length basis.
Facts- The appellant are engaged in providing design and product development, evaluation and vendor development, quality monitoring and other related services to its foreign client in procurement of goods and receives remuneration for the above services as a percentage of the value of merchandise exported to the client by the vendors developed.
The appellant have filed a refund claim for Service Tax amount of Rs.27,32,953/- erroneously paid by them under ‘business auxiliary service’ during the period from October 2014 to November 2014. During verification of their claim, it was found that they had facilitated procurement and supply of goods to M/s. Primark, Dublin, Ireland from various persons. While facilitating such supply of goods, they had provided their own support services and a fee had been charged by them, which is evident from the service invoice submitted in support of the refund claim.
The assertion of the Revenue is that the appellant had acted as an intermediary between M/s. Primark, Ireland and various suppliers for a certain consideration and as such, liable to pay Service Tax on the consideration received as in the case of intermediary services and the place of provision of service is the location of the service provider in terms of Rule 9 of the Place of Provision of Services Rules, 2012, as amended. As such, it appeared to the Department that the Service Tax paid by them was proper and the refund claim filed by the appellant appeared to be unsustainable. Consequently, a Show Cause Notice No. 06/2015 dated 06.10.2015 came to be issued to the appellant.
After due process of law, the adjudicating authority vide OIO rejected their refund claim of Rs.27,32,953/- u/s. 11B of the Central Excise Act, 1944 made applicable to Service Tax matters in terms of Section 83 of the Finance Act, 1994. Commissioner (A) rejected the appeal filed by the appellant. Accordingly, being aggrieved, the present appeal is filed.
Conclusion- Held that the activities of the appellant will be coming under business support services and also would not be falling under intermediary services, the place of provision of the services applicable to the appellant, is the location of the service recipient, in terms of Rule 3 of the Place of Provision of Services Rules, 2012. Rule 9 is not applicable to the appellant as the services rendered by him in relation to procurement of goods to the foreign client are on his own account. The appellant is not said to be acting as an intermediary i.e., the services were performed by the appellant on a principal-to-principal basis and at arm’s length basis.
FULL TEXT OF THE CESTAT CHENNAI ORDER
M/s. SNQS International Socks Private Limited (Trading Division), Tirupur, the appellant herein, has challenged the Order-in-Appeal No. CMB-CEX-000-APP-186-16 dated 10.08.2016 passed by the Commissioner of Customs, Central Excise & Service Tax (Appeals-I), Coimbatore, who rejected their appeal against Order-in-Original Sl. No. 57/2015-ST dated 30.11.2015 passed by the Assistant Commissioner of Central Excise, Tirupur Division, Tirupur – 641 601 rejecting their refund claim filed for Rs.27,32,953/-.
Appeal No.: ST/41587/2016-DB
2.1 Briefly stated the facts in this appeal are that the appellant are engaged in providing design and product development, evaluation and vendor development, quality monitoring and other related services to its foreign client viz. M/s. Primark, P.O. Box No. 644, 47th Mary Street, Dublin, Ireland in procurement of goods and receives remuneration for the above services as a percentage of the value of merchandise exported to the client by the vendors developed.
2.2 The appellant have filed a refund claim for Service Tax amount of Rs.27,32,953/- erroneously paid by them under ‘business auxiliary service’ during the period from October 2014 to November 2014. During verification of their claim, it was found that they had facilitated procurement and supply of goods to M/s. Primark, Dublin, Ireland from various persons. While facilitating such supply of goods, they had provided their own support services and a fee had been charged by them, which is evident from the service invoice submitted in support of the refund claim.
2.3 The assertion of the Revenue is that the appellant had acted as an intermediary between M/s. Primark, Ireland and various suppliers for a certain consideration and as such, liable to pay Service Tax on the consideration received as in the case of intermediary services and the place of provision of service is the location of the service provider in terms of Rule 9 of the Place of Provision of Services Rules, 2012, as amended. As such, it appeared to the Department that the Service Tax paid by them was proper and the refund claim filed by the appellant appeared to be unsustainable. Consequently, a Show Cause Notice No. 06/2015 dated 06.10.2015 came to be issued to the appellant.
3. After due process of law, the adjudicating authority vide Order-in-Original Sl. No. 57/2015-ST dated 30.11.2015 rejected their refund claim of Rs.27,32,953/-under Section 11B of the Central Excise Act, 1944 made applicable to Service Tax matters in terms of Section 83 of the Finance Act, 1994.
4. On appeal being filed with the Commissioner of Customs, Central Excise and Service Tax (Appeals-I), Coimbatore, the same was rejected on the ground that the services rendered by the appellant were classifiable as that of an ‘intermediary’ and in respect of intermediary services, in terms of Rule 9 of the Place of Provision of Services Rules, 2012, the POP i.e., place of provision, shall be the location of the service provider.
5. Feeling aggrieved by the above order, the assessee has come in appeal before this forum.
6.1 The submissions put forth by the appellant are broadly summarized as under: –
(i) Their services rendered were in relation to the procurement of goods and so, could be called as auxiliary support services.
(ii) “Procurement” is a business process while “purchase” is a business activity, being one of the elements of the procurement process. Procurement involves preparation and processing of demand, which often involves purchase planning, determination of standards, specifications development, supplier research and selection, value analysis, financing, price negotiation, making purchase, supply contract administration, inventory control and stores, disposals and related functions. The process of procurement is often a part of the strategy of an organization whereas purchase is only one activity covered by the broader process of procurement and as such, the process of procurement cannot be treated as synonymous with “purchase”, which is confined to only one activity.
(iii) Some of its activities are covered under business auxiliary service under ‘procurement of goods for the client’, but not the services of a ‘commission agent’, which is only limited to transactions relating to purchase or sale of goods and would not cover the broader business process of procurement.
(iv) While the description of business auxiliary service describes certain activities of the appellant, it is submitted that they are also providing some other services that would fit into the description of “support services of business or commerce”.
6.2 Thus, the appellant argued that its services are covered under the description of both business auxiliary service and support services of business or commerce, as explained above, but more appropriately, fall under “support services of business or commerce”.
6.3.1 Reliance has been placed by the appellant on various judicial pronouncements in support, which are summarized below: –
