2024 (9) TMI 1075 - AT - Service Tax

Taxability - services rendered by the appellant as Consulting Engineer - export or not - period 01.04.2006 to 24.02.2009 - Rule 3 of Export of Service Rules, 2005 - liability of appellant to pay service tax on Club or Association Service and other services received by them during the period 2006-07 to 2010-11 - invocation of extended period of limitation. Whether the services rendered by the appellant as Consulting Engineer qualified as export during the period 01.04.2006 to 24.02.2009 under Rule 3 of Export of Service Rules, 2005? - HELD THAT - The appellants are engaged in the provision of Consulting Engineers Service under contracts entered into with their foreign principals; the appellants prepare the drawings and designs as required for the specific projects, send it to their principals for modifications and approvals and on approval upload the same in the Central Repository of the overseas entity through a dedicated WAN; the foreign entities of the appellant, who in turn entered into agreements with projects executed in India, supply designs, drawings etc. relating to the projects. The appellants have thus submitted the drawings and designs in respect of projects like Jamnagar Export Project, KG-D6, Dabhol Project etc. - The case of the appellants is that the drawings and designs though prepared by them are whetted and improved upon by their overseas principals and only after their final approval, the same is uploaded in the Central Repository; they are preparing the designs as per the direction of their overseas entities under a contract; they are receiving the consideration thereof from their overseas entities and they have no communication, whatever, between them and the Indian companies who are using such drawings. It is found that learned Commissioner observes that during the period under consideration, export of service is also subject to the condition that the service is delivered outside India and is used outside India or service provided from India and is used outside India as the case may be ; as the services rendered by the appellant are tailor made to the Indian companies, they cannot be used outside India and therefore, to that extent, the services are not used outside India - CBEC Circular dated 13.05.2011 cites as an example that it is possible to obtain a consultancy report from a service provider in India, which may be used either in the location of the customer or in any other place outside India or even in India; in a situation where the consultancy, though paid by client located outside India is actually used in respect of a project or an activity in India, the service cannot be used outside India. In respect of the exemption claimed by the appellants towards the supplies claimed to have been rendered to M/s JERP Project, Jamnagar, learned Commissioner himself finds that the exemption contained under Notification No.09/2009 or 15/2009 is not applicable as in this case, the services have been provided by the assessee to the aforesaid overseas group company by electronic media in connection with M/s JERP Project of Reliance Group in India - There is nothing on record to show that there has been any communication between the appellants and the Indian projects leaving alone any agreement between them - the services rendered by the appellants to their overseas entities constitute export of services during the impugned period and accordingly, the demand on this issue cannot survive. Whether the appellant is liable to pay service tax on Club or Association Service and other services received during the period 2006-07 to 2010-11? - HELD THAT - The payment made was towards the use of professional associations and clubs abroad which were utilized by the officers or employees of the company when they visited abroad for their professional work. Department could not produce any evidence to show that the said service is enjoyed in India. The service being rendered and utilized abroad, the taxability of the same in India does not arise. As regards the demand on other services, we find that the appellants have accepted their liability and paid duty with interest before the issuance of Show Cause Notice. In view of the facts and circumstances of the case, no case for levy of penalty has been made. Demand of Service Tax to the extent of Rs.5,29,728/- and interest of Rs.1,58,833/-, which is already paid by the appellant, is confirmed; rest of the demand is set aside - All the penalties are, however, set aside - Appeal allowed in part.

Issues Involved:
1. Whether the services rendered by the appellant as "Consulting Engineer" qualified as export during the period 01.04.2006 to 24.02.2009 under Rule 3 of Export of Service Rules, 2005.
2. Whether the appellant is liable to pay service tax on "Club or Association Service" and "other services" received during the period 2006-07 to 2010-11.
3. Whether the extended period is invocable in this case.

Issue-wise Detailed Analysis:

1. Export of Services:
The appellants, M/s Bechtel India Pvt. Ltd., argued that their services, which involved preparing drawings and designs for foreign principals, should be considered as export of services. The appellants contended that these services were used outside India, as the final deliverables were approved and uploaded in a Central Repository managed by their overseas entities. The Department, however, argued that the services were consumed in India and thus did not qualify as exports. The Tribunal relied on precedents, including the Larger Bench decision in M/s Arcelor Mittal Stainless India Pvt. Ltd., which emphasized that the location of the service recipient determines where the service is used. The Tribunal concluded that the services rendered by the appellants to their overseas entities constituted export of services during the impugned period, as the benefit of the services accrued outside India. Consequently, the demand on this issue was set aside.

2. Club or Association Service and Other Services:
The appellants contended that the "Club or Association Service" was availed abroad, with payments made in foreign currency, and thus should not be taxed in India. The Tribunal found that these services were indeed utilized abroad, and no evidence was provided by the Department to suggest otherwise. Therefore, the taxability of these services in India did not arise. Regarding other services, the appellants accepted their liability and paid the service tax along with interest before the issuance of the Show Cause Notice. The Tribunal confirmed the demand of Rs.5,29,728/- and interest of Rs.1,58,833/- already paid by the appellants.

3. Invocation of Extended Period:
The appellants argued that the extended period should not be invoked as they had a bona fide belief that the services rendered to overseas entities were not taxable. They relied on CBEC Circulars, particularly the one dated 24.02.2009, which clarified that if the recipient of the services is abroad, it would be accepted that the services are used abroad. The Tribunal noted that the Department itself had issued multiple circulars to clarify the position, indicating a lack of clarity. Therefore, it was unfair to allege suppression or willful misstatement on the part of the appellants. Consequently, the Tribunal set aside all penalties.

Conclusion:
The appeal was partly allowed. The Tribunal confirmed the demand of service tax and interest already paid by the appellants but set aside the rest of the demand and all penalties. The order was pronounced in open court on 06/09/2024.

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