Whether service provided by courier agency outside India leviable to service tax?

PJ/Case Law /2016-17/3298

Case:-FIRST FLIGHT COURIERS LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-II

Citation- 2016 (44) S.T.R. 474 (Tri. - Mumbai)

Brief Facts-M/s. First Flight Couriers Ltd. in an appeal against Order-in-Original No: 38/ST/SB/2011-12, dated 29th March, 2012 passed by the Commissioner (TAR), Mumbai, confirming tax of Rs. 2,02,44,508/- for 2008-09 and Rs. 1,49,71,666/- for 2009-10, along with interest, and imposing penalties under Sections 76 and 77 of Finance Act, 1994.
Appellant’s Contention- The appellant is registered as provider of ‘courier’ service and ‘air travel agency’ service. The case of Revenue is that the appellant has entered into memorandum of understanding with counterparts in Singapore, Europe, USA and with Al Niyadi Services Est. for ‘last mile’ delivery of packages booked by their customers in India. According to the appellant, the services received by them are not taxable as per Section 66A of the Finance Act, 1994 read with Rule 3 of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006. The appellant also submits that they have discharged the service tax on the entire consideration received from customers in India and that the payments to the overseas correspondents are expenses met from these receipts. Appellant contends that Rule 3 of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 requires payment of tax only when a service is either partly or fully performed in India whereas the services which are rendered by their overseas correspondents are performed entirely at the destination. Appellant relies on the decision of the Tribunal in Intas Pharmaceuticals Limited v. Commissioner of Service Tax, Ahmedabad [2009 (16) S.T.R. 748 (Tri.-Ahmd.)]. Further, the appellant claims that it is provider of a service to customers in India and not a deemed provider of service in relation to the overseas correspondents.
Respondent’s Contention- The learned Authorised Representative reiterates the contents of the impugned order.

The adjudicating authority has proceeded on the presumption that any service rendered by an overseas entity is liable to tax under Section 66A of Finance Act, 1994 :
“A plain reading of the above reveals that the Noticee and the receiving party [First Flight (Singapore) Pte. Ltd.] will make arrangements at their respective ends to release the load sent by the other party and arrange to deliver the consignments promptly. The payments will necessarily be required to be made by book adjustments and it is this sum which is reflected as ‘International service charges’. The Noticee is apparently trying to mislead the department by seeking shelter under the Taxation of Services (Provided from Outside India and Received in India) Rules by stating that no part of service stands rendered in India.”
Reasoning of Judgement- The issue in dispute lies within the narrow compass of applicability of Section 66A of Finance Act, 1994 to the payments made by the appellant to some overseas entities for services provided at the destination in relation to the packages booked by the customers of the appellant in India. Section 66A of Finance Act, 1994 is intended to place burden of tax on the recipient of the service in India in relation to the services that are taxable if rendered by an overseas service provider. The manner in which each of the taxable services are deemed to be received in India is laid down in the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006. Therefore, the leviability of a tax in the hands of recipient of a service will necessarily have to be in accordance to the provisions of the said Rules. Mere reliance on Section 66A of Finance Act, 1994 without reference to the relevant provisions of the Rules is not sufficient to sustain a demand for service tax. The original authority also appears to have treated the transfer of package from the Indian consignor to the overseas consignees to be the service that is liable to tax. The booking of package by customers in India is liable to tax under Section 65(105)(f). The tax on charges levied from customers is discharged by the appellant. In the course of rendering this service, appellant uses a service provider at the destination to complete the delivery. This is a separate service rendered to the Indian service provider outside the country and for which expenses are incurred by the appellant. The issue is whether that expense paid by the appellant is liable to tax under Finance Act, 1994. We find that the impugned order has not identified the service rendered to the appellant by the overseas entity. Rule 3 of the said Rules identifies and categorises the services as destination-based, performance-based or beneficiary-based. Without a categorisation of the service, it is well-nigh impossible to invoke Rule 3.

The services rendered by the overseas entities to the appellant is a performance-based service and, to become taxable, requires that at least some portion of that be rendered in India. The role of the overseas entities commences upon the landing of the packages at the airport of destination. From there, the overseas correspondents ensure delivery of such packages to the consignees. It is therefore, amply clear that the role of the overseas entity commences and ends beyond the border of India. It therefore, cannot be said to be in conformity with Rule 3 of the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006.

In view of the above, we find that the service rendered by the overseas entity is not liable to service tax under Section 66A of Finance Act, 1994. We therefore, allow the appeal with consequential relief, if any.

Decision- Appeal Allowed.

Comment- The crux of the case is that the courier services provided outside India is not leviable to service tax under reverse charge mechanism. This is for the reason that the service has been entirely performed outside India.

Prepared by- Akshit Bhandari

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PJ/Case Law /2016-17/3298

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