2011 (2) TMI 54 - AT - Service Tax

Export of services - Technical Inspection and Certification Service and Technical Testing and Analysis Service - services rendered by the appellant were consumed abroad where the appellant s clients used the service of inspection/test/analysis to decide whether the goods intended to be imported by them from India conform to the requisite specifications and standards - benefit of the service accrued to the foreign clients outside the Indian territory - services, in question, were exported Export of service has ever been tax-free as observed by the CBEC Appeal allowed

Issues Involved:
1. Taxability of "Technical Inspection and Certification Services" and "Technical Testing and Analysis Services."
2. Determination of whether the services provided by the appellant qualify as export services and are thus exempt from service tax.
3. Applicability of various notifications and circulars regarding the exemption of service tax on exported services.
4. Retrospective application of clarificatory notifications.
5. Interpretation of service tax as a destination-based consumption tax.

Detailed Analysis:

1. Taxability of "Technical Inspection and Certification Services" and "Technical Testing and Analysis Services":
The primary issue was whether the services rendered by the appellant between 1.7.2003 and 19.11.2003 were subject to service tax. The appellant provided inspection, testing, and analysis services to foreign importers, who used these services to ascertain the quality of goods before importation into their countries. The department demanded service tax on the consideration received in convertible foreign exchange.

2. Determination of Whether the Services Provided by the Appellant Qualify as Export Services:
The appellant argued that the services were utilized by clients abroad, constituting an export of services exempt from service tax. The appellant relied on the Finance Minister's speech, Board's Circular No. 56/6/2003-ST, and the Supreme Court's judgment in All India Federation of Tax Practitioners v. Union of India, which clarified that service tax is location-based and not applicable to exported services. The Tribunal agreed, noting that the benefit of the services accrued outside India, thus qualifying as export services.

3. Applicability of Various Notifications and Circulars:
The appellant contended that Notification No. 21/2003-ST, which granted exemption for services paid in foreign exchange, should be considered clarificatory and retrospective. The Tribunal referenced the Supreme Court's judgment in W.P.I.L. Ltd v. Commissioner, which held that clarificatory notifications could have retrospective effect. The Tribunal also considered Circular No. 111/5/09-ST, which stated that the benefit of services should accrue outside India for them to be considered exported.

4. Retrospective Application of Clarificatory Notifications:
The Tribunal held that Circular No. 111/5/2009-ST was clarificatory and thus had retrospective operation. This circular clarified that the phrase "used outside India" meant that the benefit of the service should accrue outside India. The Tribunal found that the appellant's services were completed when the reports were delivered to foreign clients, thus constituting an export of services.

5. Interpretation of Service Tax as a Destination-Based Consumption Tax:
The Tribunal reiterated the Supreme Court's view that service tax is a destination-based consumption tax, applicable only to services consumed within the country. Since the services provided by the appellant were consumed abroad, they were not subject to service tax. The Tribunal emphasized that the services rendered by the appellant were consumed by foreign clients, who used the inspection and testing reports to make import decisions.

Conclusion:
The Tribunal concluded that the services provided by the appellant were indeed export services and thus exempt from service tax. The demand for service tax, penalties, and interest was set aside. The judgment highlighted that export of services has always been tax-free, and this principle was not affected by the withdrawal or issuance of specific notifications. The appeal was allowed, and the impugned order was set aside.

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