Services rendered and received entirely outside India are not liable for service tax under reverse charge mechanism.

Per Mr. AJAYAN T.V.

Sundaram Fasteners Ltd., the appellant herein, has preferred these appeals, details of which are given below, aggrieved by the respective Orders in Appeal of the Commissioner Appeals:

2. The relevant facts are that the Appellant is a manufacturer of automative fasteners registered for providing Consulting Engineer Services, (CES), Business Auxiliary Services, (BAS), Testing Inspection and Certification Services (TICS) and Intellectual Property Services (IPS). During the scrutiny of the appellant records, it was found that the appellant had incurred expenses towards warehouse related services in USA and have also realized lease income for renting out their windmills to their group Company M/s. Sundaram Non-conventional Energy Systems Ltd. for use in their project for generation of power.

3. The Department asked the Appellant as to the nature of activity of the service providers abroad pertaining to the warehouse related services in USA. The Appellant clarified that the service providers abroad cleared the goods from the Customs, transported from the port of arrival to the Warehouse, stored, packed and delivered to the intended customers of the Appellant in that country. The Department formed an opinion that such services rendered to the Appellant by the said foreign agents are nothing but rendering of complete logistics service by the said foreign agents which is a taxable activity in India as "Business Support Services” with effect from 01.05.2006 in terms of Section 65 (105) (zzzq) of the Finance Act 1994. The Department was also of the opinion that in terms of Rule 3 (iii) of “Taxation of Services” (Provided from Outside India and Received from India”) Rules, 2006, the said services rendered by the foreign agents and received by the appellant qualified as an import of services and the appellant is liable to discharge the service tax liability on such expenditure in terms of Section 66 A of the ibid read with Rule 2 (1) (d) (iv) of the Service Tax Rules 2004.

4. As regards the leasing out of the windmills, the Department was of the opinion that the windmills put up by the Appellant is to be treated as a ‘factory’ since, it is considered as assets in their books of accounts. Such leasing of assets for generation of electricity is nothing but renting of immovable property use by the lessee in furtherance of their business. Department was therefore of the view that, since the renting of immovable property to their group Company for furtherance of their business or commerce, is a taxable activity as defined under Section 65 (105) (zzzz) of the Act, the income received for this activity is taxable. The Department issued Show Cause Notices for the respective periods raising the aforesaid allegations, which were denied by the appellants in their reply. After due process of law, the Service Tax demand under the aforesaid categories were confirmed and penalties were also imposed. Aggrieved by these Orders in Original, the Appellant had preferred appeals before the Appellate Authority which were rejected vide the Orders in Appeal impugned herein. Aggrieved and dissatisfied, the Appellant having preferred these appeals, are now before this forum.

5. Shri M Kannan, the Ld. Advocate appearing for the appellant contended that since the Show Cause Notice itself alleges that the service providers of the appellant abroad were rendering complete logistics services, the classification of such activities under business support services itself is incorrect, and if at all, it can only be classified