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TMI Blog2024 (6) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, as a corollary, are not liable to be pay service tax. Thus, it is clear that when any services are provided outside the taxable territory and when such services fulfil the specified conditions provided Rule 6A of Service Tax Rules, 2005 to qualify as export including the essential requirements that the recipient of service is located outside India, payment of service provided is received in convertible foreign exchange, this would be treated as export of services, and there is no levy of service tax thereon. In the present case, it is not disputed that the services were rendered to the clients situated abroad who are located outside India and the consideration were received in convertible foreign exchange as evidenced by purchase orders, invoices and Certificate of Foreign inward remittances provided by the City Union Bank Limited, International Banking Division, Chennai with which the appellants had held current account. Whether service tax is liable to be paid on such services provided by the appellants to their overseas clients, in terms of Place of Provision of Services Rules, 2012 (POPS)? - HELD THAT:- The place of provision shall in general be the location of recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UM/CGST/MW/COMMR/AK/56/2020-21 dated 27.02.2021 (hereinafter referred to, for short, as the impugned order ) passed by the Commissioner of CGST, Mumbai West, Mumbai. 2.1 The brief facts of the case are that the appellants herein are inter alia engaged in providing visual effects (VFX) services, imparting special effects and providing other post-production services to various film production and media houses located in India and outside India. For the purpose of discharge of service tax, the appellants were registered with jurisdictional CGST/Service Tax Commissionerate and was paying service tax under the taxable service category of video production agency, video tape production service, Supply of Tangible Goods for Use (STGU) service. The services provided by the appellants were in the nature of editing, cutting, colouring, dubbing, title printing, adding/modifying or deleting sound, imparting special effects etc. on the post-production of film shots, record of performance in film in order to make the movie fit for release. Some of the techniques used in such activities include (i) roto-scoping i.e., tracing over motion picture footage, frame by frame, to produce certain realistic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The SCN was adjudicated by the learned Commissioner in confirmation of the adjudged demands by issue of the impugned order. Feeling aggrieved with the above Order-in-Original dated 27.02.2021 the appellants have preferred this appeal before the Tribunal. 3.1 Learned Advocate has submitted that the appellants are engaged in providing post-production activities of editing, cutting, colouring, dubbing, title printing, adding/modifying or deleting sound, imparting special effects etc. by rendering Visual effects (VFX) on already shot film or recorded performance which are provided to the appellant as a mere frame i.e., without sound. Inasmuch as the services provided by the appellant are received by their clients abroad, who is the sole user of such film or movie after merging the audio and video part of the frames, and as these frames as provided to the appellants and their contents do not have any value to be used as intangible goods, such services worked upon by the appellant cannot be treated as taxable under the Finance Act, 1994. Further, all material provided by overseas clients are stored abroad in their servers and the appellant is only given user id password protected acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rseas clients is an export of services or not, in terms of the Finance Act, 1994 and Rules framed thereunder; and as a corollary to decide whether service tax is liable to be paid on such services provided by the appellants to their overseas clients, in terms of Place of Provision of Services Rules, 2012 (POPS). The services which are in dispute are visual effects (VFX) services, which were earlier covered under the specific category of taxable service viz. video tape production by video production agency services. 6.2 It can be seen from the factual matrix of the case that the appellants have rendered the services to both domestic film production and media houses located in India as well as to such clients located abroad. It is not in dispute that in respect of the services provided to the domestic clients, the appellants had duly discharged the service tax liability. The dispute is limited in respect of the services provided to overseas clients, which the Department had interpreted that it is not export of service in terms of Rule 4(a) of POPS Rules, inasmuch as the place of provision of service should be the location of performance of the service. 6.3 In order to address the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any law for the time being in force. Explanation 1. For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to, (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2. For the purposes of this clause, the expression transaction in money or actionable claim shall not include (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing power, such rules may provide for all or any of the following matters, namely : (hhh) the date for determination of rate of service tax and the place of provision of taxable service under section 66C. Place of Provision of Services Rules, 2012 Place of provision generally. Rule 3 . The place of provision of a service shall be the location of the recipient of service: Provided that in case Inserted by Notification No.46/2016-ST, dated 9-11-2016, w.e.f. 1-12-2016. [of services other than online information and database access or retrieval services, where] the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service. Place of provision of performance based services. Rule 4. The place of provision of following services shall be the location where the services are actually performed, namely: (a) services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service: Provided that when such services are provided from a rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provision of following services shall be the location of the service provider: (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (c) Intermediary services; (d) Service consisting of hiring of all means of transport other than, (i) aircrafts, and (ii) vessels except yachts, upto a period of one month . Service Tax Rules, 1994 Export of services. Rule 6A. (1) The provision of any service provided or agreed to be provided shall be treated as export of service when, (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act. (2) Where any service is exported, the Central Government may, by notification, grant rebate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, the charging provision under Section66B ibid specifically provided that all services other than those in the negative list, when provided in the taxable territory is liable to be pay service tax. In other words, the provision of services that were covered under the net of service tax were those services provided within the territory of India except the State of Jammu and Kashmir. Thus, services provided to any person situated outside taxable territory, as a corollary, are not liable to be pay service tax. Thus, it is clear that when any services are provided outside the taxable territory and when such services fulfil the specified conditions provided Rule 6A of Service Tax Rules, 2005 to qualify as export including the essential requirements that the recipient of service is located outside India, payment of service provided is received in convertible foreign exchange, this would be treated as export of services, and there is no levy of service tax thereon. In the present case, it is not disputed that the services were rendered to the clients situated abroad who are located outside India and the consideration were received in convertible foreign exchange as evidenced by purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service receiver. As the appellants have got limited access through electronic means, duly restricted through user id password, user access, and the goods remain with the service receiver situated abroad, the place of provision in this case is clearly proved to have been situated outside India. 7.1 We further find that the Central Board of Indirect Taxes and Customs (CBIC) had provided certain clarification in the matter of Place of Provision of Services Rules, 2012 vide Circular dated 04.05.2018, stating that in case where services on software involving testing, modification, customisation, adaptation, enhancement etc., then the place of provision of service is the location of recipient of such service. The relevant extract of the said CBIC Circular is extracted below: I am directed to draw your attention to the above subject and to explain the manner in which the place of provision has to be determined in case of development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software. 2. Software being intangible, does not have a unique existence and can exist on different servers at the same point in time. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above clarification issue by CBIC, and the factual details of the present case, it is clear that in case of intangible goods such as software or files or certain film/movie clippings which are accessed through different servers by the service provider for a limited purpose of working upon them, through restricted control or access, it is clearly proved that the service providers in India are providing the services to the service recipients situated abroad and they do not physically handle any goods in India, i.e., within the taxable territory. Hence, the above clarification is in support of appellants stand that the services provided are export of services, the location of services being the at service recipient situated abroad. 7.2 Further, under the scheme of Negative List regime, the essence of indirect taxation is that a service should be taxed in the jurisdiction of its consumption. This principle is more or less universally applied. In terms of this principle, exports are not charged to tax, as the consumption is elsewhere, and services pay tax on their importation into the taxable territory. 8.1 We find that the dispute in respect of determining the location export of serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 3 of Place of Provision of Services Rules, 2012, holds the service to have been rendered at the place of the recipient and other rules substitute in specific circumstances. It would not be consistent with the intent of tax if the location of the tangible object, on which service is contractually intended to be performed on, is ignored in favour of the default provision. Hence the deviation in rule 4(a) of Place of Provision of Services Rules, 2012 and, considering the specific circumstance of determination by tangible presence, it would not be amenable to stretching for coverage of 'deemed goods', if any, owing to that limitation of pinpointing 'service' which is of essence in the said Rule. 21. The judgments in re Bharat Sanchar Nigam Ltd. and in re Tata Consultancy Services, cited by Learned Authorized Representative, were rendered in disputes over attempted escapement from levy of tax on 'sale of goods' which, but for deeming provision in Article 366 6 of the Constitution, is restricted to physical goods and, in determining the scope of escapement, held so in specific context. That does not hold for specific tax on 'services' within the legis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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