By TIOL News Service

MUMBAI, NOV 05, 2014: THE appellant is a part of the Reuters Group worldwide. They are registered with the department under the category of 'On-Line Information and Database Access and/or Retrieval Services'.

During the course of audit, it was noticed that the appellant had received 'data and edit fees' in convertible foreign exchange from M/s. Reuters Ltd., U.K., a sister-concern. It was also noticed that the appellant had purchased equipment from Reuters Ltd., U.K. and maintained communication lines for providing Reuter's services in India.

The department is of the view that the services rendered of maintenance of communication lines is classifiable as 'Maintenance or Repair Services'. It was further observed that the appellant had received 'marketing fees' from Reuters Transmission Services Ltd., U.K., for providing marketing and other support services in relation to Reuters' products distributed by the appellant in India and the said activity appeared to merit classification under 'Business Auxiliary Services'.

Accordingly, SCNs were issued for the period 2003-04 to 2006-07, 2007-08 to 2008-09, 2009-10 and 2010-11 demanding service tax of 43,88,75,968/-. Of the above amount, 43,51,43,874/- was towards "edit and data fee services" and 57,79,342/- was towards "marketing and other support services".

The CCE, Thane-II confirmed a demand of 43,09,23,218/- along with interest & penalties and so the appellant is before the CESTAT.

Finding a strong prima facie case in favour, the CESTAT had granted waiver of pre-deposit and stayed the recovery. We reported this order as - 2013-TIOL-1386-CESTAT-MUM.

The appeal was heard recently.

The appellant submitted that the service rendered by the appellant to their sister-concern is more appropriately classifiable under 'Business Support Services' and, therefore, the classification proposed in the impugned order under the category of 'Management, Maintenance or Repair Service' is patently incorrect.It is further contended that 'Business Support Service' became taxable only from 01/05/2006 and under the Export of Service Rules, 2005, the same was falling under category (iii); that since for the services rendered, the appellant had received the consideration in convertible foreign exchange, the services rendered by the appellant to the foreign entity will qualify as exports and hence not liable to service tax in view ofdecision in Paul Merchants Ltd. vs. Commissioner of Central Excise, Chandigarh - 2012-TIOL-1877-CESTAT-DEL-LB; theconclusion by the adjudicating authority that since appellant had declared dividends they would not eligible for the benefit of exports services since repatriation of dividends would amount to repatriation of export proceeds is not sustainable in view of decision in Maersk India Pvt. Ltd. - 2007-TIOL-885-CESTAT-MUM. In the matter of the demand made under BAS, as the appellant had received consideration in convertible foreign exchange the same would qualify as exports and would not be liable to service tax.

The AR justified the order of the adjudicating authority.

The Bench after perusing the agreement entered into by the appellants with Reuters Ltd., UK observed –

++ As per the agreement, Reuters Limited, U.K. are engaged in producing news and financial information and related products compiled by the Reuters Group situated all over the world and the appellant, the Indian entity, is required to collect and provide data for inclusion in the Reuters products. For the services rendered, Reuters Ltd., UK has agreed to compensate the appellant for performing such activities and for the related financial risks.

++ As per the agreement, the service-rendered is one of collecting, collating, verifying data and transmission of the same to the foreign-sister concern of the appellant. The information has to be transmitted either electronically or otherwise and the consideration is paid on cost plus basis. Thus, the services rendered by the appellant does not seem to be of the nature of any 'management or repair services' as alleged in the show cause notices and as concluded in the impugned order. The data furnished by the appellant is used by the foreign entity for inclusion in their products for dissemination to the customers situated worldwide. In other words, the activity of the appellant supports the business undertaken by the foreign entity abroad. Thus, we find there is merit in the argument of the appellant that the activities undertaken by them, merits classification under 'Business Support Services'.

++ It is also a fact that the appellant has received consideration for the services rendered in convertible foreign exchange. 'Business Support Services' merit classification under Rule 3(i)(iii) of the Export of Service Rules and if the services were rendered from India and consideration is received in convertible foreign exchange, then the transaction would amount to exports. In the present case, there is no dispute that the appellant has rendered the services from India and the appellant has received the consideration in convertible foreign exchange. In view of the above factual position, the services rendered by the appellant would merit classification as 'export of services' from India. On export of services, service tax liability is not attracted. The argument of the department that the appellant has repatriated the export proceedings by declaring dividends is unsustainable in law for the reason that declaration of dividends is out of the profits made by the appellant and has nothing to do with the exports undertaken by the appellant. This Tribunal in the case of Maersk India Pvt. Ltd., cited supra, has held that declaration of dividends is not equivalent to repatriation of the consideration for the export of services.

++ From the balance sheets it is evident that during the periods i.e. 2003-04 to 2011-12, the appellant had not declared any dividend whatsoever. Thus, factually also the impugned order is incorrect inasmuch as no dividends have been declared by the appellant during the impugned period and therefore the question of repatriation would not arise at all. Thus, the impugned orders lack merits.

The orders were set aside and the appeals were allowed with consequential relief.

In passing: A cursory glance at the stay order and the final order would make one appreciate the power of the Microsoft Word copy paste feature!

(See 2014-TIOL-2184-CESTAT-MUM)