2019 (6) TMI 686 - AT - Service Tax

Export of services or not - providing of Business Auxiliary Service to the service recipient which is based / located outside India - liability of service tax - HELD THAT - The activity undertaken by the appellant fulfill the condition of Rule 3(2) of the Export of Service Rules, 2005 and therefore, they are not legally required to pay any service tax under the category of Business Auxiliary Service. The matter is no longer res integra and it has already been settled by this Tribunal in IBM INDIA PRIVATE LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX AND COMMISSIONER OF SERVICE TAX, LTU BANGALORE 2016 (3) TMI 528 - CESTAT BANGALORE and M/S. MICROSOFT CORPORATION (I) (P) LTD. VERSUS CST. NEW DELHI. 2014 (10) TMI 200 - CESTAT NEW DELHI (LB) . Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the services provided by the appellant to their foreign-based parent company qualify as export of services under the Export of Services Rules, 2005.
2. Whether the appellant is liable to pay service tax on the commission received from the foreign-based parent company.

Issue-wise Detailed Analysis:

1. Export of Services Qualification:
The appellant, a subsidiary of a foreign-based company, provided Business Auxiliary Services (BAS) to its parent company, which included market research, sales promotion, and marketing in India. The appellant contended that these services qualify as export of services under the Export of Services Rules, 2005, as they were provided to a recipient located outside India and the payment was received in convertible foreign exchange. The appellant argued that both conditions under Rule 3(2) of the Export of Services Rules, 2005, were met, thus exempting them from service tax liability.

2. Service Tax Liability:
The primary contention was whether the services provided by the appellant to their foreign principal, which were performed in India, could be considered as export of services. The appellant cited several tribunal decisions, including GAP International Sourcing (India) P Ltd., Microsoft Corporation (I) (P) Ltd., Paul Merchants Ltd., IBM India Pvt. Ltd., and Accent Overseas P. Ltd., which supported their position that such services are considered export of services and are not liable for service tax.

The Tribunal examined these precedents and found that the issue was well-settled in favor of the appellant. Specifically, in the case of IBM India Pvt. Ltd., it was held that services provided in India for a foreign principal, if paid in convertible foreign exchange, qualify as export of services. Similarly, in Microsoft Corporation (I) Pvt. Ltd., it was determined that promoting a foreign principal's market in India amounts to export of services, and such services are not subject to service tax.

The Tribunal also referred to CBEC Circular No. 111/5/2009-ST, which clarified that for Category III services under Rule 3(1)(iii) of the Export of Services Rules, 2005, the relevant factor is the location of the service recipient and not the place of performance. The benefit of the service should accrue outside India, and the services provided by the appellant to their foreign principal met this criterion.

Conclusion:
The Tribunal concluded that the appellant's activities fulfilled the conditions of Rule 3(2) of the Export of Service Rules, 2005. Therefore, the appellant was not legally required to pay any service tax under the category of Business Auxiliary Service. The impugned order was set aside, and the appeal was allowed, granting the appellant relief from the service tax demand.

Operative Order:
The Tribunal pronounced the operative part of the order in the open court, setting aside the impugned order and allowing the appeal in favor of the appellant.

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