By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Promotion/marketing of goods for a foreign principal in India, can it be termed as export of services as the user of the service is located outside India? Held, it is not export of services.
Facts:
The appellants were engaged in promoting, marketing and distributing (installation and warranty) of various medical equipments for M/s. Viasys International Corporation, Pennsylvania, USA. The appellants discharged the service tax liability in respect of the installation and warranty services but did not pay service tax on advertising, promoting and marketing services under the category of business auxiliary as it was export of services. The appellants submitted that all the conditions as stipulated from time to time in relation to export of services were satisfied. The appellants relied on the CBEC Circular No. 111/5/2009-ST dated 24th February, 2009 which stated that in respect of service recipient based services, the relevant factor is the location of the service recipient and not the place of performance. The appellants also relied on a) Em Jay Engineers vs. CCE, Mumbai 2010 (20) STR 821 (Tri – Mum), (b) Lenovo (India) Pvt. Ltd. vs. CCE, Bangalore 2010 (20) STR 66 (Tri – Bang) and (c) SGS India Pvt. Ltd. vs. CST, Mumbai 2011 (24) STR 60 (Tri – Mumbai).
Held:
The Tribunal held that the appellants satisfied the conditions laid down for export of services for the period 1st July, 2003 to 19th November, 2003 as service tax is a destination based tax and the service recipient being located outside India, no service tax was leviable. For the period 15th March, 2005 till 18th April 2006, the Export of Services Rules, 2005 inserted the conditions that (a) service should be delivered outside India and (b) there should be receipt in foreign exchange. The condition of delivery outside India was not satisfied as the services were rendered in India and thus consumed in India. For the period from 19th April, 2006 to 5th December, 2007, the condition in relation to export of services was amended stating that (a) the services should be provided from India and used outside India; and (b) there should be receipt in foreign exchange. During the said period also, the services were not used outside India as the sales took place in India and thus, the services were provided and consumed without reverting to foreign principals for consumption abroad meant to have exhausted in India and hence not exported. The Tribunal also observed that since the appellants discharged the liability on installation and warranty services, they were aware of the levy of service tax. Moreover, the relevant clause of the agreement also stipulated the condition of reimbursement of tax from the foreign principal. Hence, plea of limitation was also disallowed and pre-deposit of Rs. 25 lakh was ordered.
Note: in the above case, the Tribunal distinguished the following cases:
• Em Jay Engineers vs. CCE, Mumbai 2010 (20) STR 821 (Tri – Mum)
• Lenovo (India) Pvt. Ltd. vs. CCE, Bangalore 2010 (20) STR 66 (Tri – Bang)
• SGS India Pvt. Ltd. vs. CST, Mumbai 2011 (24) STR 60 (Tri – Mumbai) and relied on:
• Microsoft Corporation (India) Pvt. Ltd. vs. CST, Delhi 2009-TIOL-601-HC-DEL-ST
• All India Federation of Tax practitioners 2007-TIOL-149-SC-ST
