2018 (5) TMI 322 - AT - Service Tax

Rebate claim - Site Transfer Activity - due to an inadvertent error the service tax registration was taken under the category of Technical Testing and Analysis Service and service tax liability was also discharged under the said category - case of appellant is that rebate claim cannot be rejected on the ground of procedural lapses such as non-payment under correct category, filing of ST-3 return under another category and not mentioning export under claim for rebate as there is substitution complied and the procedural lapses are condonable - Held that - the activity of Site Transfer involves production or processing of goods not amounting to manufacture and therefore the same were taxable under the category of Business Auxiliary Service - the appellants have paid the service tax including the education cess vide TR-6 challan dated 29.03.2007. Since we have considered that the activity of the appellant does not fall in the category of Technical Testing and Analysis Service, the service is appropriately classifiable under Business Auxiliary Service . In view of the definition of Export of Service and the fact that Site Transfer activity fall in the definition of Business Auxiliary Service , we are of the considered opinion that the impugned order rejecting the rebate claim on the ground of technical violation is not sustainable in law - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the service provided by the appellant.
2. Eligibility for rebate under the Export of Service Rules, 2005.
3. Procedural lapses and their impact on rebate claims.

Issue-wise Detailed Analysis:

1. Classification of the Service Provided by the Appellant:
The appellant, a subsidiary of Watson Laboratories Inc., USA, engaged in site transfer activities, was initially classified under "Technical Testing and Analysis Service" and paid service tax accordingly. However, the appellant contended that their activities should be classified under "Business Auxiliary Service" as they involve production or processing of goods not amounting to manufacture. The Tribunal found that the site transfer activities, which include developing products based on technology packs, producing trial and exhibit batches, and testing for quality and stability, align more closely with "Business Auxiliary Service" as defined under Section 65(19) in Clause (v), which covers services of production or processing of goods for or on behalf of the client. The Tribunal concluded that the appellant's activities do not possess the characteristics of testing services and are therefore appropriately classifiable under "Business Auxiliary Service."

2. Eligibility for Rebate under the Export of Service Rules, 2005:
The appellant argued that even if their services were classified under "Technical Testing and Analysis Service," they should still qualify as an export of service. According to Rule 3 of the Export of Service Rules, 2005, services can be considered as export if they are performed outside India or if the recipient is located outside India and the services are related to business or commerce. The Tribunal noted that the performance of the service is not complete until the testing analysis report is delivered to the client, which in this case was Watson USA. Citing the case of BA Research India Ltd., the Tribunal emphasized that the delivery of the report to the client outside India constitutes an essential part of the service, thus satisfying the conditions for export of service. Consequently, the appellant's services met the criteria for export under Rule 3(1)(ii) and were eligible for rebate.

3. Procedural Lapses and Their Impact on Rebate Claims:
The appellant faced rejection of their rebate claim due to procedural lapses, such as incorrect classification and filing under "Technical Testing and Analysis Service." The Tribunal acknowledged these lapses but emphasized that procedural errors should not negate substantive compliance. The Tribunal referenced several decisions, including M/S. Madhav Steel vs. UOI and Mangalore Chemicals & Fertilizers Ltd., to support the view that procedural lapses are condonable. The Tribunal held that the rebate claim could not be rejected solely on technical grounds when the substantive conditions for export of service were met.

Conclusion:
The Tribunal concluded that the appellant's site transfer activities are classifiable under "Business Auxiliary Service" and qualify as an export of service under the Export of Service Rules, 2005. The procedural lapses cited by the authorities were deemed insufficient grounds for rejecting the rebate claim. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.