MARCH 03, 2015

By P G James

WHY was Notfn. No 42/12-ST issued?

The avowed policy of the Government is to promote export by relieving the burden of taxes on the products exported and also on the products consumed in the manufacture of the goods exported. CBEC had undertaken several measures like introduction of Service Tax refund scheme, Service Tax exemptions, Drawback and so on to achieve this noble objective.

Service Tax exemption to services provided by a commission agent, located outside India, to act on behalf of the exporter, to cause sale of goods exported was brought in by virtue of Notification No 17/08-ST dated 1st April,2008. Subsequently, Not 17/09-ST dated 7 th July, 2009 was issued consolidating various 16 services which were notified for exemption by way of refund except for services of commission agent and GTA for which Not 18/09-ST dated 7 th July, 2009 provided exemption by way of filing half yearly Return under EXP-2 so as to avoid the requirement of paying Service Tax first and then claiming refund later on. The subject Notification was amended by Notfn. 42/2012-ST dated 29.06.12 and the so-called EXP-2 Return was renamed as EXP-4.

Being a conditional Notification, it was for the assesse to either opt for exemption or to pay Service Tax under reverse charge and avail Cenvat credit.

CBEC vide their Circular No  943/04/2011-CX , dated April 29, 2011 also clarified that credit of Business Auxiliary Service (BAS) on account of sales commission is admissible since activity of sales promotion is specifically allowed and on many occasions the remuneration for the same is linked to actual sale.

But credit taken on sales commission was disputed by Dept disregarding the inclusion of sales promotion in Rule 2 (l) of CENVAT Credit Rules and also reprobating the clarificatory Circular as sated above. Appeal filed by  M/s.Cadila Healthcare Ltd  against Hon Guj HC  (2013-TIOL-12-HC-AHM-ST)  before Hon'ble Supreme Court is admitted and is pending for disposal.

Notn No 14/2014-ST dated 10 th July, 2014 was issued to amend Place of Provision of Services Rules so as to include agent or broker who arranges or facilitates provision of supply of goods in the definition of 'intermediary'. Consequent to this, commission agent/consignment agent who assists in sales promotion and causes sale of goods in overseas market will be an intermediary and hence the place of provision of service will be the location of service provider, ie.outside India and hence Service Tax is not payable under reverse charge mechanism.

Why Notfn. No 42/12-ST is rescinded?

With effect from 1.10.14, Not 42/12-ST has become redundant inasmuch as place of provision of service of intermediary, who arranges supply of good between two or more persons, is the place of service provider, i.e., outside India and hence outside the ambit of Service Tax.

For the period from 1.10.14 to 28.02.15, two exemptions that are contradictory to each other were, therefore,in existence.

This matter was highlighted in the article 'Achhe Din aagaye' - CENVAT credit on Overseas Export commission ' dated 28th July, 14, as quoted below:

"Perhaps, Notification No 42/2012 dated 29.06.12 which provides for exemption of Service Tax by filing EXP-4 Returns on a half yearly basis for the services of commission agent situated overseas will be rescinded with effect from 1st Oct, 2014 when the amended Rule comes into play.”

By issuance of Notfn. No 3/15-ST dated 1.03.15,Notfn. 42/12-ST is rescinded.

Better late than never - it is a welcome step even though it took too long to correct the anomaly.