2012 (11) TMI 250 - AT - Service Tax

Demand under the Head Scientific and Technical Consultancy Services - extended period of limitation Held that - Appellant was engaged in the Breeding and Development, in India, of the crop seeds received from the German Company and supplying the results to the said company, for which the appellant was receiving consideration in foreign currency - activity involves export of services, and therefore the appellant was not liable to pay service tax by virtue of the exemption available to export of services under the Export of Services Rules 2005 - technology owned by the German company might have been imported by the appellant into India, but that was an independent transaction - appellant paid Service tax on the royalty connected with the import of the technology in the reverse charge mechanism - stay granted

Issues:
1. Waiver and stay of demand for service tax and education cess.
2. Interpretation of the service agreement for Breeding and Product Development activities.
3. Exemption under the Export of Services Rules 2005.
4. Limitation period for the demand.

Issue 1: Waiver and Stay of Demand for Service Tax and Education Cess
The appellant sought waiver and stay for an amount of Rs. 3,77,26,883 demanded as service tax and education cess for the period from 2004-05 to 2008-2009. The demand was confirmed under the Head "Scientific and Technical Consultancy Services" after invoking an extended period of limitation. A portion of the demand amounting to Rs. 28,00,000 was already paid by the appellant. The remaining demand of Rs. 3.49 crores was in relation to services provided to a German Company for Breeding and Product Development activities. The appellant argued that these services were exported out of India, thus exempt from service tax under the Export of Services Rules 2005. The Tribunal, after considering the submissions, granted waiver of pre-deposit and stay of recovery for the demand related to Breeding and Development Services rendered to the German Company.

Issue 2: Interpretation of the Service Agreement for Breeding and Product Development Activities
The service agreement between the appellant and the German Company for Breeding and Product Development activities involved the provision of labor, personnel, and resources by the appellant for field studies related to various crops. The activities included Selection/Introgression, Breeding, Molecular Breeding, Product Placement, and others as specified in the agreement. The appellant conducted these activities in India using their own personnel and laborers, with the R&D results transmitted to the German Company. The consideration for these services was received in foreign currency. The Tribunal observed that the activities under the agreement prima facie involved the export of services, leading to the conclusion that the appellant was not liable to pay service tax under the exemption available in the Export of Services Rules 2005.

Issue 3: Exemption under the Export of Services Rules 2005
The appellant argued that the services provided to the German Company were exported out of India, thereby qualifying for exemption from service tax under the Export of Services Rules 2005. The Tribunal agreed with the appellant's interpretation of the agreement, noting that the activities involved in Breeding and Product Development services were conducted in India using seeds provided by the German Company, with the results supplied back to the foreign entity. This export of services aspect led to the Tribunal granting waiver of pre-deposit and stay of recovery for the demand related to these services.

Issue 4: Limitation Period for the Demand
The appellant raised a plea of limitation against the demand, emphasizing that the approximate amount of service tax within the normal period was Rs. 60,00,000 for the services claimed to have been exported. The Dy. Commissioner opposed this plea, citing a previous decision to contest the appellant's claim. However, the Tribunal, after considering the arguments and evidence presented, did not find any serious dispute regarding the payment of Rs. 28,00,000 and focused on the main demand amount of Rs. 3.49 crores related to the Breeding and Product Development services. Ultimately, the Tribunal granted waiver and stay for this main demand, considering the export nature of the services provided by the appellant.

This comprehensive analysis of the judgment highlights the key issues involved, the arguments presented by both parties, and the Tribunal's decision regarding waiver and stay of the service tax demand.

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