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TMI Blog2014 (5) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent received consideration in convertible foreign exchange. 4. The notification no.6/99-ST dated 9th April 1999, exempted service tax on services specified under section 65(48) of the Finance Act, 1994, provided to any person in respect of which payment was received in convertible foreign exchange. This notification was rescinded vide notification no.2/03-ST dated 1st March 2003. However, the Central Board of Excise and Customs issued a circular being Circular no.56/5/03-ST dated 25th April 2003, clarifying that the service tax is a destination based consumption tax and not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of notification no.6/99 dated 9th April 1999. It is also clarified that by notification no.21/03-ST dated 20th November 2003, the department exempted taxable services specified under section 65(105) of the Finance Act provided to any person in respect of which payment was received in India in convertible foreign exchange. Annexures A, A1 to A3 are the copies of the notifications referred by us hereinabove. 5. A show cause notice was issued by the Directorate General of Central Excise Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even after withdrawal of notification no.6/99 dated 9th April 1999 but, for service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed during the relevant time as intersectoral tax credit between services and goods are not allowed. Mr.Jetly submits that this paragraph of the circular at page 19 has application to the facts and circumstances of the present case. Mr.Jetly therefore submits that the findings of the Tribunal are contrary to this notification and law. In the present case, the exporter is in India. The importer is abroad. The importer has placed orders for certain goods on the exporter in India. The respondent renders services by testing the samples in India. The certification after such testing is in India. The origin of the goods is in India. Hence, Mr.Jetly submits that the respondent is not entitled to the benefit of the exemption notification. Once this clear position emerges and in the backdrop of the services rendered, then, the Tribunal was in error in allowing the Appeal. Therefore, the reframed question of law would arise for determination and consideration as it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by judges as part of the judgemade law of the hand, or by some legislative authority 9. Mr.Sridharan further submits that similar observations were made by Hon. Supreme Court in the case of 20th Century Finance Corporation Limited and Anr Vs. State of Maharashtra (2000) 119 STC 182 (SC) in the majority judgment delivered by Justice V.N.Khare as under The situs of sale can only be fixed wither by the appropriate legislature or by Judge made law, and there is no settled principles for determining the situs of sale 10. Mr.Sridharan submits that there was apprehension in the industry that export of services will become taxable because of the withdrawal of the aforementioned notification numbered 6/99 which granted exemption to taxable services for which payment was received in convertible foreign exchange. Therefore, CBEC issued a circular on 25th April 2003 to clarify the position with regard to the export of services. The CBEC clearly stated that service tax was a destination based consumption tax and therefore it was not applicable on export of services. The relevant extract of the circular to this effect is as under: The Central Government has issued Notification No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submits that the respondent is not contending that the Parliament is not constitutionally empowered to levy service tax on a transaction which is completed outside India. The respondent is aware that Hon. Supreme Court had rejected such a contention with respect to sales tax in the case of Popatlal Shah Vs. The State of Madras (1953) 4 STC 188 (SC). In that case the Madras State sought to levy sales tax on a transaction in which goods were dispatched from Madras to Calcutta. One of the contentions raised by the assessee was that the legislature was incompetent to levy tax on a sale which was concluded outside the Province. Although the appeal of the assessee was allowed on construction of the language of the Statute, the contention relating to competence of the legislature to tax a transaction which was concluded outside the Province was rejected by the Supreme Court by holding that the entry in the Constitution relating to tax on sale of goods did not suggest that a legislation imposing sales tax could be made only in respect of sales taking place within the boundaries of the Province. It was observed that although a Provincial legislature could not pass a taxation statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. 18. The Tribunal has found that the clients of the respondents are located abroad. The Tests Reports may have been prepared in India. The tests may have been conducted in India. However, the certificates have been forwarded to the clients of the respondent abroad. It is in such circumstances the Tribunal concluded that the facts in the case of Commissioner of Service Tax Ahmedabad Vs. M/ s.B.A . Research India Limited which is a Tribunal's decision and reported in (2010) 18 STR 439 (Tribunal Ahmedabad) which was followed by the Tribunal's single mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , irrespective whether the payment thereof is received in foreign exchange or not. Since representations were received by the Board with regard to the withdrawal of the notification no.6 of 1999, exports of service would be affected as it would be costlier in the international market, that the board clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed till April 2003 because intersectoral tax credit between service and goods are not allowed. Mr.Sridharan has placed reliance on clause (4) of the circular dated 25th April 2003. That is where it has been clarified that the question of taxability of secondary services which are used by primary service provider for the export of services. Thas been clarified in paragraph no.4 of its circular. It is in these circumstances that we are of the opinion that the Tribunal has not erred in law in holding that the services provided by the respondent were not taxable. This aspect once becomes more clear if one peruses the notification no.21/03-ST dated 20th November 2003. 23. We are of the opinion that the services rendered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent 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 Tribunal relied upon the circulars issued and prior thereto the view taken by it in the case of KSH International Pvt.Ltd Vs . Commissioner and B.A. Research India Ltd. The case of the present respondent was said to be covered by orders in these two cases. To our mind, once the Hon'ble Supreme Court has taken the view that service tax is a value added tax which in turn is destination based consumption tax in the sense that it taxes noncommerical activities and is not a charge on the business, but on the consumer, then, it is leviable only on services provided within the country. It is this finding and conclusion of the Hon'ble Supreme Court which has been applied by the Tribunal in the facts and circumstance ..... 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