2024 (6) TMI 307 - AT - Service Tax

Export of services or not - services provided by the appellants to their overseas clients - Place of Provision of Services Rules 2012 (POPS). Whether the services provided by the appellants to their overseas clients is an export of services or not in terms of the Finance Act 1994 and Rules framed thereunder? - HELD THAT - The nature of services provided by the appellants in the present case prior to 01.07.2012 were specifically covered under taxable category under Section 65(105) (zi) ibid and after 01.07.2012 generally under the scope of services as these are do not fall outside the scope of taxability of services under Section 66B ibid read with definition clause under Section 65B(44) ibid. 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 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 service except in certain circumstances specified therein. These exceptions include performance based services situations where services have been provided relating to immovable property certain events such as celebration conference fair exhibition etc. and certain specific services. In such cases the place of provision of services is stated therein in the respective Rules. In the factual matrix of the present case Rule 4 ibid is relevant as it provides for the situation where the services are actually performed on the goods that are physically made available to the service provider to work upon thereon; or the service provider is given remote access through electronic means to work upon the goods though these could be situated at the service recipient s premises/place. In terms of Rule 4 ibid in respect of goods which are physically available with the service provider the place of provision of service would be the place where services are actually performed and this would be the premises of the appellant whereas in the case of goods where access is provided through electronic means then the place of provision of service would be the place where the goods are situated at the time of provision of service - 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. The services provided by the appellants in the present set of facts is export of services in terms of Sections 66B 66C of the Finance Act 1994 read with Rule 6A of Service Tax Rules 1994 and the first proviso to Rule 4 of the Place of Provision of Services Rules 2002. Therefore the impugned order is liable to be set aside to the extent it had confirmed the adjudged demands proposed in the SCN - the impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the services provided by the appellants to their overseas clients constitute an export of services under the Finance Act, 1994.
2. Whether service tax is liable to be paid on such services provided to overseas clients in terms of the Place of Provision of Services Rules, 2012 (POPS).

Summary:

Issue 1: Export of Services

The appellants, M/s FutureWorks Media Limited, are engaged in providing visual effects (VFX) services to film production and media houses in India and abroad. The Department contended that the services provided to overseas clients do not qualify as export of services and are subject to service tax. However, the appellants argued that the services provided to clients abroad, who are the sole users of the film after merging audio and video, cannot be treated as taxable under the Finance Act, 1994. The Tribunal examined the relevant provisions of the Finance Act, 1994, and the Place of Provision of Services Rules, 2012, and concluded that the services provided to overseas clients meet the criteria for export of services. The services were rendered to clients situated outside India, and the payment was received in convertible foreign exchange, fulfilling the conditions under Rule 6A of the Service Tax Rules, 1994.

Issue 2: Liability to Pay Service Tax

During an EA-2000 audit, the Department interpreted that the services provided to overseas clients should be considered as services performed on a product, falling within the scope of Rule 4(a) of POPS Rules, and thus liable to service tax. The appellants argued that the services are provided through remote access to servers located abroad, and the place of provision of service should be the location of the recipient of service. The Tribunal referred to the legal provisions and the CBIC Circular No. 209/1/2018-Service Tax dated 04.05.2018, which clarified that in cases involving intangible goods accessed through electronic means, the place of provision of service is the location of the recipient. The Tribunal also relied on the case of Prime Focus Ltd., where similar services were held to be export of services and not chargeable to service tax. The Hon'ble Supreme Court upheld this decision in Civil Appeal Diary No. 23042 of 2023.

Conclusion:

The Tribunal held that the services provided by the appellants to overseas clients qualify as export of services and are not liable to service tax. The impugned order dated 27.02.2021 was set aside, and the appeal was allowed in favor of the appellants.

Result:

The appeal is allowed in favor of the appellants.