2009 (11) TMI 213 - AT - Service Tax

Technical testing and analysis- Notification No. 11/2007-ST, dated 1-3-2007- This appeal is preferred by Revenue against the impugned order setting aside the order of the Joint Commissioner confirming the service tax liability of Rs. 49,81,794 against the respondents towards service of technical testing and analysis along with interest and penalties under sections 76 and 78 of the Finance Act, 1994. The main contention of the Revenue is that the clinical report of the testing and analysis were conducted entirely in India and the reports of such testing and analysis have been sent abroad which is the secondary aspect. The main testing and analysis were performed by the service provider was only in India wholly performed in India and not even part of the services were performed outside India hence the service cannot be termed as export outside India . Revenue further alleged that they are at the best receiving the input service of the courier outside India and their service is not qualified by the exemption under Notification No. 11/2007-ST, dated 1-3-2007. Held that- the said services came under rule 3(1)(2) of the Rules. It is very much clear that the performance of the service is not complete until the testing and analysis report is delivered to its client. In the present case, when such reports were delivered to the clients outside India it amounts to taxable service partly performed outside India. The performance of testing and analyzing has no value unless and until it is delivered to its client and the service is to be completed when such report is delivered to its client. Thus, delivery of report to its client is an essential part of the service, report was delivered outside India and same was used outside India. This is not the disputed fact. We hold that the respondent satisfied the conditions of rule 3(2) and accordingly, the respondents are eligible for the exemption under Notification No. 11 /2007-ST, dated 1-3-2007. Thus, the impugned order is upheld and the appeal filed by the Revenue is rejected. Stay petition is also disposed of accordingly.

Summary

Issues:
1. Service tax liability on technical testing and analysis services provided by the respondents.
2. Interpretation of Export of Services Rules, 2005.
3. Eligibility for exemption under Notification No. 11/2007-ST.

Analysis:
1. The appeal was filed by the Revenue against the order setting aside the service tax liability of Rs. 49,81,794 on the respondents for technical testing and analysis services provided. The Revenue contended that the services were performed entirely in India, and sending reports abroad was secondary. The Revenue argued that the service did not qualify as 'export outside India.' The Revenue further stated that technical testing and analysis services fall under taxable service category. The service provider did not perform any part of the service outside India, only sending reports outside, and thus not eligible for the exemption under Notification No. 11/2007-ST.

2. The main issue was whether the services provided by the respondents, conducting clinical trials, were taxable under technical testing and analysis category. The Export of Services Rules, 2005, were crucial in determining if the services qualified as export services. The rules state that taxable services performed partly outside India are treated as performed outside India. The delivery of the service outside India and payment received in foreign exchange are essential conditions for service to be considered as export. The Tribunal found that when the reports were delivered outside India to clients and used there, it constituted taxable service partly performed outside India, making the service eligible for exemption under Notification No. 11/2007-ST.

3. The Tribunal held that the performance of the service was incomplete until the testing and analysis report was delivered to the client outside India. The delivery of the report outside India and its use there were crucial in determining the service as export service. The Tribunal concluded that the respondents satisfied the conditions of the Export of Services Rules and were eligible for exemption under Notification No. 11/2007-ST. The impugned order setting aside the service tax liability was upheld, and the appeal by the Revenue was rejected.