2014 (3) TMI 696 - AT - Service Tax

Export of services or not - place of provision of services - location of recipient - receipt in foreign exchange - business auxiliary service - services in relation to export of goods - giving recommendation about the product integrity, inspecting export consignments and issuing inspection certificates, screening the vendor s suitability in terms of child labour norms and pollution control norms and recommending the teams to be engaged in logistic work like transportation, clearing and forwarding etc. for export of the purchased products out of India - Export of Service Rules, 2005 - Held that - the arguments of the department are absurd as the DR has not mentioned as to who is the consumer of the services in India, if the services, in question, provided in India by the appellant have not been used and consumed by their principal in U.S.A. It would be absurd to say that the recipient and user of these services are the persons in India and not M/s GAP, U.S.A. for whom all these services provided by the appellant are meant, who have used these services for their business and have made payment for these service in convertible foreign exchange. The Export of Service Rules, 2005 and Taxation of Service (provided from outside India and received in India) Rules, 2006, readwith Section 66A of the Finance Act, 1994 are fully in accordance with the law laid down by the Apex Court in case of All India Federation of Tax Practitioners 2007 (8) TMI 1 - Supreme Court and Association of Leasing and Financial Service Companies (supra) that service tax is a value added tax, which, in turn, is a destination based consumption tax in the sense that it is not a charge on business but is a charge on the consumer. Therefore what constitutes export of service has to be decided strictly in accordance with the provisions of Export of Service Rules, 2005 and for this purpose, in case of services in relation to business or commerce covered by Rule 3 (1) (iii), the term service recipient has to be understood in the sense as explained in para 8.3. The performance of such service in India, would not make them received/consumed in India, if beneficiary user/recipient of said service provided in relation to business or commerce, who has paid for these service and has used the service in his business, is located abroad. - The position would be different if the company located abroad who has paid for the service, also has some branch/ project in India and the service provided in India is meant for that branch/project only in that case, the consumption of service would be in India and the service would be taxable in India. The Board s Circular No. 141/10/2011 dated 13/5/11 clarifying that for the period prior to 27/2/10, the condition regarding used outside India also needs to be independently satisfied for availing the benefit of export and that effective use of advertisement services shall be the place where the advertising material is disseminated to the audience though the actual benefit to my finally accrue to the buyer who is located at another place is not only not in accordance with the provisions of Rule 3 (1) of the Export of Service Rules, 2005, but is also contrary to the law laid down by the Apex Court in the case of All India Federation of Tax Practitioners 2007 (8) TMI 1 - Supreme Court and Association of Leasing and Financial Service Companies 2010 (10) TMI 4 - SUPREME COURT OF INDIA , as a service which has not been consumed in India, cannot be taxed in India. In any case, the issue involved in this case is identical to the issue involved in the case of Paul Merchant Ltd. and Ors. vs. CCE 2012 (12) TMI 424 - CESTAT, DELHI (LB) which stands decided in favour of the appellant. - order set-aside - Decided in favor of assessee.

Issues Involved:
1. Classification of services provided by the appellant.
2. Determination of whether the services qualify as export of services.
3. Applicability of service tax on the services provided.
4. Interpretation of the Export of Service Rules, 2005.
5. Consideration of relevant case law and circulars.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, a subsidiary of M/s GAP International Sourcing, Inc., U.S.A., entered into a service support agreement to provide various services related to procurement of goods. These services included recommending fabrics, vendors, inspecting export consignments, and ensuring compliance with child labor and pollution norms. The department classified these services as Business Auxiliary Services under Section 65 (105) (zzb) read with Section 65 (19) of the Finance Act, 1994.

2. Determination of Whether the Services Qualify as Export of Services:
The core issue was whether the services provided by the appellant qualify as export of services under the Export of Service Rules, 2005. The appellant argued that the services were provided to M/s GAP, U.S.A., located outside India, and payment was received in convertible foreign exchange. According to Rule 3 (1) (iii) read with Rule 3 (2) of the Export of Service Rules, 2005, services are considered exported if the recipient is located outside India, the service is delivered and used outside India, and payment is received in convertible foreign exchange.

3. Applicability of Service Tax on the Services Provided:
The department contended that since the services were performed in India, they were not exported and thus subject to service tax. The appellant countered that the services were used by M/s GAP, U.S.A. for their business abroad, and hence, should be treated as exported services.

4. Interpretation of the Export of Service Rules, 2005:
The tribunal examined the Export of Service Rules, 2005, particularly Rule 3 (1) (iii) and Rule 3 (2). The rules stipulate that for services related to business or commerce, the location of the service recipient is crucial. The tribunal noted that the services were provided to a recipient located outside India, for use in their business abroad, and payment was received in convertible foreign exchange. Thus, the services met the criteria for export of services.

5. Consideration of Relevant Case Law and Circulars:
The tribunal referenced the case of Paul Merchants Ltd. & Ors. vs. CCE, which had similar issues and was decided in favor of the appellant. Additionally, the tribunal reviewed Circular No. 111/5/09 and Circular No. 141/10/2011, which clarified that the benefit of services should accrue outside India for them to be considered exported. The tribunal found that the department's reliance on Circular No. 141/10/2011 was misplaced, as it contradicted the provisions of the Export of Service Rules and the principles laid down by the Supreme Court.

Conclusion:
The tribunal concluded that the services provided by the appellant were indeed exported services, as they were used by M/s GAP, U.S.A. for their business abroad. The impugned order by the commissioner was set aside, and the appeal was allowed, exempting the appellant from the service tax liability.

(Order pronounced in the open court on 28/02/2014.)

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