Whether Technical Inspection and Certification/ Technical testing and Analysis service provided prior to 16-08-2005 (the date of introduction of Export of Services Rules, 2005) are treated as export, if all activities are performed by Indian service provider in India, but a mere report is sent to a client located abroad and consideration is received in convertible foreign exchange? Held – Yes.
Facts:
The respondent provided Technical Inspection and Certification Agency Service and Technical Testing and Analysis Agency Service at different places in India in respect of goods imported by their customers located abroad. For such services, the respondent received consideration in convertible foreign exchange. The dispute pertains to the period 01-07-2003 to 19-11-2003 (i.e., prior to issue of Notification No.21/03-ST dated 20-11-2003 exempting all taxable services specified u/s. 65(105) of the Finance Act provided to any person in respect of which payment was received in India in convertible foreign exchange). The demand was confirmed on the ground that, services provided by the respondent were performed in India though test reports thereof were sent outside India and therefore Circular dated 25-04-2003 clarifying service tax on export of service was not applicable. The Tribunal decided in favour of the Assessee.
Before the High Court, Revenue contended that, in the present case, the exporter is in India. The importer is abroad. 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, the assesse is not entitled to exemption.
The Respondent contended that, value of services is taxable u/s. 66 of the Finance Act only if the taxable event occurs in India, i.e., only if the place of provision of service is in India. It was further submitted that, although there was no provision in the statute which laid down the place of provision of services, there were clear administrative guidelines to the effect that service tax will not be applicable if services are consumed outside India. It is submitted that in the absence of any statute or judicial pronouncement to the contrary, such administrative guidelines should be considered to be the applicable legal position in this regard. For this, respondent relied upon Circular dated 25-04-2003 and the FM’s Speech, emphasising that service tax being location-based or destination-based consumption tax, transaction was outside the purview of service tax net.
Held
The High Court noted that the Tribunal has observed that although the tests are conducted in India, certificates have been forwarded to the clients abroad. It is in such circumstances the Tribunal concluded that the facts in the case of CST vs. B.A. Research India Ltd. [2010] 25 STT 110 (Ahd. – CESTAT) which was followed by the Tribunal’s single member in the case of KSH International (P.) Ltd. vs. CCE [2010] 25 STT 307 (Mum. – CESTAT) are identical. The High Court further observed that, since the delivery of the report to the foreign client was considered to be an essential part of the service that the demand of service tax was set aside. It was held that, paragraph 4 of the April 2003 Circular has clarified the taxability of secondary services which are used by primary service provider for the export of services, and in these circumstances, the Tribunal has not committed any error in holding that the services provided by the respondent were not taxable. Since the benefit of the services accrued to the foreign clients outside India, it was termed as “export of service.” The High Court empathetically held that the Tribunal merely applied the principal laid down by Apex Court in the case of All India Federation of Tax Practitioner’s case to facts and circumstances of this case. In that case Apex Court was of the view that, service tax is a value added tax which in turn is destination based consumption tax. The Hon’ble Bombay High Court therefore held that, if the emphasis is on consumption of service then the order passed by the Tribunal does not raise any substantial question of law.
The High Court therefore dismissed the appeal on the ground that no substantial question of law arises and appeal is devoid of any merits.
Note: Readers may note that, this case pertains to period where Export of Service Rules, 2005 were not in place. In case of B.A. Research India Ltd.’s case (supra), the Tribunal decided the matter in the light of Rule 3(1)(ii) of the Export of Service Rules, 2005 and held that, delivery of the report is an essential part of their service and the service is not complete till they deliver the report. Further as reports were delivered to the clients outside India, it amounts to taxable service partly performed outside India. w.e.f. 01-07-2012, under the Place Of Provision Rules, 2012, place of provisions of such service shall be the place where performance on goods takes place. Further, Rule 7 of POPS Rules has done away with the benefit conferred by Rule 3 (1)(ii) of the Export Rules, and hence decision of B.A. Research would not be applicable w.e.f. 01-07-2012. The facts of this case may be distinguished from Goa Shipyard Ltd.’s case [2014] 45 taxmann.com 285 (GOI) wherein facts did not record any requirement for submission of report by the service provider abroad to the service receiver in India. On the contrary it provided that service receiver’s officers were to visit service provider’s facility abroad for witnessing the test carried out by the foreign entity. Accordingly, it was held that, no part of the service was performed by foreign service provider in India.
