2015 (10) TMI 2221 - AT - Service Tax

Export of services or not - rendered or delivered outside India - Denial of rebate claim of service tax paid under Notification No.11/2005-ST on custodial services provided to Foreign Institutional Clients (FII s) located outside India compliance of condition of Rule 3 (ii) of the Export of Service Rules, 2005 - Receipt in convertible foreign exchange. Held That - Services rendered to Foreign Institutional Clients in respect of investments made by them in India - Services are for the companies situated abroad hence they are rendered or delivered outside India - Taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India as per Rule 3(ii). - ussue for the period May 2006 to February 2007 is covered in case of Nipuna Services Ltd. (supra) 2008 (11) TMI 148 - CESTAT Bangalore - Decided in favor of assessee. Rebate claim for the Month of March 2007 - there is a change in the provisions of Rule 3(ii) of the Export of Service with effect from 01.03.2007, which mandates the requirement of payment of the services provided, in convertible foreign exchange. - Matter remanded back for rebate claim relating to March 2007 Decided partly in favour of assessee.

Summary

Issues Involved:
1. Denial of rebate claim of service tax paid under Notification No. 11/2005-ST.
2. Classification of services as 'export of services' under Rule 3 of Export of Services Rules, 2005.
3. Compliance with conditions for export of services, including receipt of payment in convertible foreign exchange.
4. Applicability of amendments to Export of Services Rules, 2005.

Issue-wise Detailed Analysis:

1. Denial of Rebate Claim of Service Tax:
The primary issue in this case is the denial of the rebate claim of service tax paid under Notification No. 11/2005-ST for custodial services provided to Foreign Institutional Clients (FIIs) located outside India. The service tax liability was paid under the category of Banking and Financial Services for the period May 2006 to March 2007. Both lower authorities rejected the claim on grounds that the services were rendered and used in India, as the securities accounts were maintained on servers in India and the custody of shares was also done in India.

2. Classification of Services as 'Export of Services':
The appellant argued that the services provided to FIIs should be classified as 'export of services' under Rule 3 of the Export of Services Rules, 2005. They contended that until February 2007, the rules did not require the services to be delivered and used outside India, nor did they require the receipt of payment in convertible foreign exchange. The appellant cited the case of Nipuna Services Ltd. Vs. CCE Hyderabad, where similar services were considered as 'export of services.'

3. Compliance with Conditions for Export of Services:
The lower authorities held that the appellant did not comply with Rule 3(ii) of the Export of Services Rules, 2005, which required evidence that the services were delivered and used outside India, and that payment was received in convertible foreign exchange. The appellant contended that for the period before March 2007, these conditions were not applicable. For the period of March 2007, they requested a remand to the adjudicating authority to prove compliance with the new conditions.

4. Applicability of Amendments to Export of Services Rules, 2005:
The Tribunal examined the amendments made to the Export of Services Rules, 2005, particularly the changes brought by Notification No. 13/2006-ST and Notification No. 2/2007-ST. The Tribunal noted that the condition of receiving payment in foreign exchange was not applicable to services enumerated in Rule 3(1) before March 2007. Therefore, services provided before this period should be considered as 'export of services' without needing to meet this condition. For services provided in March 2007, the requirement of receiving payment in convertible foreign exchange became applicable, necessitating a remand to the adjudicating authority for verification.

Conclusion:
The Tribunal found that the services rendered by the appellant to FIIs situated outside India during May 2006 to February 2007 should be classified as 'export of services' and the rebate claim should be allowed. The impugned orders were set aside for this period. For the rebate claim for March 2007, the matter was remanded back to the adjudicating authority to reconsider the issue afresh, with the appellant needing to provide evidence of receiving payment in convertible foreign exchange. The appeals were disposed of accordingly.