2008 (1) TMI 103 - AT - Service Tax

Courier Agency Service provided partly outside India revenue contended that assessee has not received payment for such services in convertible foreign exchange as per Rule 3(2) of Export Services Rules amended w.e.f. 15.6.05 appellant would be liable to pay ST, as the service would be considered as export of service only if payment is received in convertible foreign exchange Disputed period is prior to this amendment so impugned service will be held as export of services appeal allowed

Summary

Issues:
Service Tax liability on services performed partly outside India; Applicability of Rule 3(2) of Export of Service Rules, 2005; Interpretation of Rule 3(2) in the context of Courier Agency services; Imposition of penalty for non-payment of Service Tax; Amendment to Rule 3(2) with effect from 15-6-2005.

Analysis:
The appeal concerned the confirmation of Service Tax on the appellants for providing "Courier Agency Service" partly outside India. The appellant argued that as the services were performed outside India, they should be treated as export and not liable for Service Tax. The Commissioner (A) rejected this plea, stating that the assessee did not receive payment in convertible foreign exchange for the services provided. The issue was whether Service Tax was applicable on services performed partly outside India.

In a previous judgment by the same Bench, it was held that services performed outside India are not liable for Service Tax under Rule 3(2) of Export of Service Rules, 2005. The appellant contended that the findings in the previous case applied to the present situation as the period in question was the same. The Bench analyzed Rule 3(2) and concluded that if taxable services are partly performed outside India, they are deemed to have been performed outside India. Courier Agency services fall under this rule, and when the service is performed outside India, there is no Service Tax liability as it is deemed to be exported.

The Bench emphasized that the transportation aspect is crucial to courier services and that the Ministry's clarification disregarded Rule 3(2). The imposition of a penalty of Rs. 4.5 crores was deemed unjustified as the appellant acted in good faith based on their understanding of the law. An amendment to Rule 3(2) with effect from 15-6-2005 required payment in convertible foreign exchange for services to be considered export. However, for the relevant period, the services rendered by the appellant were deemed to have been performed outside India, absolving them of Service Tax liability.

The Bench set aside the impugned order and allowed the appeal, citing the similarity of facts to the previous case. The judgment clarified the application of Rule 3(2) in the context of services performed partly outside India, emphasizing that when a service is partially performed outside India, it is deemed to be performed outside India, exempting it from Service Tax liability.

In conclusion, the judgment highlighted the importance of Rule 3(2) in determining the tax liability of services performed partly outside India and emphasized the need for payment in convertible foreign exchange for services to be considered export post the amendment. The appellant was granted relief based on the interpretation of the rules and the absence of justification for the penalty imposed.