2011 (1) TMI 1063 - AT - Service Tax

Waiver of pre-deposit of service tax - business auxiliary service - The dispute is in respect of activity of procuring orders on behalf of the foreign company - contention of assessee that as the service is provided outside India, therefore, the appellants are not liable for service tax on this activity - Held that - Board s Circular wherein it has been clarified that in case the benefits of these services accrue outside India, it is to be treated as exports of service. Pre-deposit of service tax and penalties is waived and recovery of the same is stayed during pendency of the appeal. Stay petition is allowed.

Summary

Issues:
1. Whether the appellants are liable for service tax on the activity of procuring orders for a foreign company.
2. Interpretation of the term "used outside India" in the context of service tax liability.
3. Applicability of exemptions under Notification No. 9/2005-Service Tax and Notification No. 13/2006-Service Tax.

Issue 1: Liability for Service Tax on Procuring Orders
The appellants sought waiver of pre-deposit of service tax and penalties amounting to Rs. 41,11,398/-, contending that while providing maintenance services, they were not liable for service tax on the activity of procuring orders for M/s. IXIA Technologies Pvt. Ltd., USA. The dispute centered on whether the benefits of the service accrued outside India, thereby qualifying as an export of service. The appellants cited Circular No. 111/05/2009-S.T. to support their position, emphasizing that despite activities taking place in India, if the benefits accrued outside India, it should be considered an export of service. They also referenced a Tribunal decision and other cases where similar demands were waived in comparable situations.

Issue 2: Interpretation of "Used Outside India"
The Revenue argued that since the service of procuring orders was provided within India, the appellants were indeed liable for service tax on this activity. However, the Board's Circular No. 111/05/2009-S.T. clarified that the term "used outside India" should be interpreted based on the benefits accruing outside India. The Circular provided examples to illustrate this interpretation, emphasizing that for certain services, even if activities occur in India, if the benefits accrue outside the country, it qualifies as an export of service. This clarification supported the appellants' position that they were not liable for service tax on the activity in question.

Issue 3: Exemptions under Notifications
The Tribunal noted that during the relevant period of 15-3-2005 to 28-2-2007, Notification No. 9/2005-Service Tax and Notification No. 13/2006-Service Tax exempted the export of services from payment of service tax. Considering these notifications along with the Board's Circular, which emphasized the importance of benefits accruing outside India for determining export of service, the Tribunal found that the appellants had a strong case in their favor. Consequently, the Tribunal waived the pre-deposit of service tax and penalties, staying the recovery during the appeal's pendency based on the interpretation of the term "used outside India" and the relevant notifications.

In conclusion, the judgment by the Appellate Tribunal CESTAT, Kolkata highlighted the significance of where the benefits of a service accrue in determining the liability for service tax, especially in the context of export of services. The analysis of the Board's Circular and relevant notifications played a crucial role in the decision to waive the pre-deposit and penalties in favor of the appellants.