2018 (9) TMI 584 - HC - Service Tax

Export of service - Place of provision of service - Whether in the facts and circumstances of the case, the CESTAT was right in holding that the custodial services provided by the assessee to Foreign Institutional Clients (FII s) amounts export of service as provided under Rule 3 of Export of Service Rules, 2005, for the period from May, 2006 to December, 2007? Held that - The custodial services provided, would be clearly covered by sub-clause (iii) of Rule 3 of the Export Services Rules, 2005 and the Respondent would be entitled to its benefit - In fact, the Central Board of Excise & Customs has on 24th February, 2009 has issued a clarificatory Circular No.111/ 2009, clarifying that in respect of services following under category/ clause (c) above i.e. Rule 3(I)(iii) of the Export of Services Rules 2005, the relevant factor is the location of the Services recipient and not the place of performance. It also clarified that the phrase used outside India , is to mean that the benefits of the service is to accrue outside India. This Circular which is binding on the Revenue, also concludes the issue in favour of the Respondent. Appeal dismissed.

Summary

Issues:
- Interpretation of Export of Service Rules, 2005 for custodial services provided to Foreign Institutional Clients (FII's) from May 2006 to December 2007.

Analysis:
The appellant challenged an order by the Tribunal regarding the classification of custodial services provided to Foreign Institutional Clients (FII's) as export of service under Rule 3 of the Export of Service Rules, 2005. The respondent, registered under Banking and Financial Services, claimed a rebate of service tax under the said Rules, which was rejected by authorities citing that the services were performed in India for Indian investments. However, the Tribunal allowed the appeal, stating that the services were provided to a recipient abroad, relying on a previous decision. The appellant argued that all services were performed in India for Indian investments, thus not constituting an export of services. The court examined Rule 3 of the Export Service Rules, which classifies taxable services into three categories and found that custodial services fell under the category of services related to business or commerce provided to a recipient outside India, as per sub-clause (iii) of the Rule. The court also referenced a clarificatory Circular by the Central Board of Excise & Customs, which emphasized the location of the service recipient over the place of performance, supporting the respondent's position.

The court concluded that the custodial services provided by the respondent to Foreign Institutional Clients (FII's) were covered under sub-clause (iii) of Rule 3 of the Export Services Rules, 2005, entitling the respondent to the benefits claimed. The court noted that a binding Circular by the Central Board of Excise & Customs further supported the respondent's position, emphasizing the location of the service recipient for services falling under the relevant category. As the issue was clarified by the Circular and no substantial question of law arose, the court dismissed the appeal, affirming the Tribunal's decision in favor of the respondent.