2014 (5) TMI 105 - HC - Service Tax

Export of service or not - Technical Inspection and Certification Agency Service - Technical Testing and Analysis Agency Service at different places in India in respect of goods imported by their customers located abroad - Consideration received in convertible foreign exchange - Held that - respondent is a testing agency. The contract of service was with the overseas purchaser of goods. Thus, the privity of contract of the respondent is with the buyers of the goods who are located or situated outside India. Further, the argument was that this is a contract based tax. The contract is of services. There is no contract in this case with the manufacturer of goods in India. Further, there is no contract and no privity between the respondent and the exporter of the goods who is stated to be based in India. It is in these circumstances that the exemption notification though required to be strictly construed has rightly been construed in favour of the respondent assessee before us. If one refers to the allegations in the show cause cum demand notice, it is apparent that the same refers to the testing charges received by the respondent in convertible foreign currency in respect of services rendered by it in India to its foreign clients. Though the show cause notice refers to the circulars, what is apparent from the judgment of the Hon ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India, 2007 (8) TMI 1 - Supreme Court that service tax is a tax on each activity. When it comes to a service tax on professions, the services rendered are of advise and hence, the Hon ble Supreme Court with regard to the nature of the tax concluded that it is rendered by a Chartered Accountant, for example when he advises his client or audits his account. Similarly, a cost accountant charges his client for advise as well as doing his work of costing. Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. The goods were tested by the respondents in India. The goods were available or their samples were drawn for such testing and analysis in India. However, the report of such tests and analysis was sent abroad. The clients of the respondent were foreign clients, paid the respondent for such services rendered, in foreign convertible currency. It is in that sense that the Tribunal holds that the benefit of the services accrued to the foreign clients outside India. This is termed as export of service . In these circumstances, the Tribunal takes a view that if services were rendered to such foreign clients located abroad, then, the act can be termed as export of service . Such an act does not invite a service tax liability. The view taken by the Tribunal therefore, cannot be said to be perverse or vitiated by an error of law apparent on the face of the record. If the emphasis is on consumption of service then, the order passed by the Tribunal does not raise any substantial question of law - No substantial question of law arises - Decided against Revenue.

Issues Involved:
1. Applicability of service tax on export of services during the interregnum period (1st July 2003 to 19th November 2003).
2. Interpretation of exemption notifications and circulars regarding service tax.
3. Determination of the place of provision of services for tax purposes.
4. Whether the Tribunal's decision was in accordance with the law and statutory provisions.

Issue-wise Detailed Analysis:

1. Applicability of Service Tax on Export of Services During the Interregnum Period:
The primary issue revolves around whether the services provided by the respondent, which were technical inspection and certification services (TICA) and technical testing and analysis services (TTAA), were subject to service tax during the period from 1st July 2003 to 19th November 2003. The appellant argued that during this period, the exemption notification was rescinded, and thus, the services provided in India were taxable. The respondent countered that the services were exported, and as per the circular dated 25th April 2003, service tax was not applicable on export of services.

2. Interpretation of Exemption Notifications and Circulars Regarding Service Tax:
The judgment delves into the interpretation of various notifications and circulars, particularly notification no.6/99-ST dated 9th April 1999, which exempted services provided in exchange for convertible foreign exchange from service tax, and its subsequent rescission by notification no.2/03-ST dated 1st March 2003. The circular dated 25th April 2003 clarified that service tax is a destination-based consumption tax and not applicable on export of services. The Tribunal's decision relied on this circular and subsequent notification no.21/03-ST dated 20th November 2003, which reinstated the exemption.

3. Determination of the Place of Provision of Services for Tax Purposes:
The determination of the place where services were provided was crucial. The appellant contended that since the services were performed in India, they were taxable. However, the respondent argued, supported by the Tribunal's findings, that the services were consumed abroad as the test reports were sent to clients located outside India. The judgment referenced the Supreme Court's decisions, which emphasized that the place of provision of services should be determined based on legislative or judicial guidelines.

4. Whether the Tribunal's Decision Was in Accordance with the Law and Statutory Provisions:
The High Court reviewed the Tribunal's decision, which had set aside the order of the Commissioner of Central Excise, Mumbai, confirming the demand and penalty. The Tribunal found that the services provided by the respondent were exported, and thus, not taxable. The High Court upheld this view, stating that the Tribunal's decision was in line with the statutory provisions and the circulars issued by the Central Board of Excise and Customs (CBEC). The court noted that the services were rendered to foreign clients, paid in convertible foreign exchange, and the benefit of the services accrued outside India, qualifying as 'export of service'.

Conclusion:
The High Court concluded that the Tribunal's decision did not raise any substantial question of law and was consistent with the statutory provisions and CBEC circulars. The appeal was dismissed, affirming that the services provided by the respondent during the interregnum period were not subject to service tax as they were exported services. The judgment emphasized that service tax is a destination-based consumption tax, and services consumed outside India are not taxable.

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