CESTAT: No Service Tax Under Reverse Charge on Commission Paid to Foreign Agents for Services Rendered Abroad

March 24, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench, has held that no service tax is leviable under the reverse charge mechanism on commission paid to foreign agents where the services are rendered and received outside India. The Tribunal set aside the demand raised against M/s Trans Asian Shipping Services Pvt. Ltd., granting complete relief to the assessee.

The ruling came in Service Tax Appeal No. 20938 of 2016, arising from Order-in-Original dated 12.01.2016 passed by the Commissioner of Central Excise, Customs and Service Tax, Cochin. The Bench comprising P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) delivered the final order on 24.03.2026.

Background

The appellant, engaged in logistics and shipping operations including functioning as a multimodal transport operator, appointed foreign agents at overseas ports. These agents undertook port-related formalities, coordination, and delivery of containers to customers abroad. Commission for such services was paid in foreign currency.

The Department sought to classify these services as “Business Auxiliary Services” under Section 65(19) of the Finance Act, 1994 and invoked Section 66A to levy service tax under the reverse charge mechanism. The adjudicating authority confirmed the demand for the period 18.04.2006 to 31.03.2014, along with interest and penalties.

Tribunal’s Findings

The Tribunal noted that there was no dispute that the services were rendered abroad. It also observed that the Department had failed to justify the classification of such services as “Business Auxiliary Services.”

Interpreting Section 66A, the Bench held that service tax under reverse charge is attracted only when services are received in India from a service provider located outside India. The deeming fiction under Section 66A treats the recipient as a service provider only when the services are received within India.

In the present case, since the services were both rendered and received outside India, the essential condition for invoking Section 66A was not satisfied. Accordingly, no service tax liability could arise for the pre-2012 period.

For the period post 01.07.2012, governed by the Place of Provision of Services Rules, 2012, the Tribunal held that only services provided within the taxable territory are liable to service tax. As the services were performed outside India, they fell outside the taxable net.

Classification Aspect

The Tribunal also referred to earlier precedents, including Bhuvaneshwari Agencies Pvt. Ltd., and observed that such activities are more appropriately classifiable under “Steamer Agent Services” rather than “Business Auxiliary Services.”

Conclusion

Holding that the impugned demand was unsustainable in law, the Tribunal set aside the entire order, including interest and penalties, and allowed the appeal with consequential relief.

Cause Title: M/s Trans Asian Shipping Services Pvt. Ltd. v. Commissioner of Central Excise, Customs & Service Tax, Cochin
Case No.: Service Tax Appeal No. 20938 of 2016

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