2009 (12) TMI 462 - AT - Service Tax

Export of taxable service - Assessee was engaged in marketing/sales/procurement of order to promote sale of computer systems and peripherals of a foreign company. It receive commission for this activity. Thus the service tax demanded service tax under the category of Business Auxiliary Services along with interest and penalty. Held that - since the recipient of service was located outside India and paid consideration in convertible foreign exchange as per Circular No. 111/05/2009 dated 24.02.2009 service involve was to be treated as export. Thus the assessee was not liable to pay service tax and interest thereon and penalty imposed on it thus the pre deposit waived.

Summary

Issues Involved:
1. Liability for service tax and penalties.
2. Classification of services as 'Business Auxiliary Services' (BAS).
3. Determination of whether services rendered qualify as 'export of service'.
4. Applicability of CBEC Circular No. 111/05/2009 ST.
5. Precedents supporting the claim of 'export of service'.

Detailed Analysis:

1. Liability for Service Tax and Penalties:
The impugned order confirmed a liability against the appellants for:
- Service Tax of Rs. 15,11,26,201.
- Applicable interest under section 75 of the Finance Act, 1994.
- Penalty under section 76 at the rate of Rs. 200 per day or 2% of such tax per month, whichever is higher.
- Penalty of Rs. 15,11,26,201 under section 78 of the Act.

2. Classification of Services as 'Business Auxiliary Services' (BAS):
The appellants were engaged by IBM, USA for marketing, sales, and procurement of orders to promote the sale of computer systems and peripherals in India. They also rendered call center services. The appellants received commissions for these activities, which were classified under 'Business Auxiliary Services' (BAS) as defined in section 65(19) of the Finance Act, 1994. The material period under consideration was from October 2006 to March 2007.

3. Determination of Whether Services Rendered Qualify as 'Export of Service':
The appellants argued that the services rendered should be considered as 'export of service' and thus not subject to service tax. The criteria for determining 'export of service' varied across three different periods:
- 15-3-2005 to 18-4-2006: Services were considered export if provided and used in commerce or industry, and the recipient was located outside India. Additional conditions included the recipient not having any establishment in India, the order being made from outside India, the service being delivered and used outside India, and payment being received in convertible foreign exchange.
- 19-4-2006 to 1-3-2007: Services were considered export if delivered and used outside India, and payment was received in convertible foreign exchange.
- From 1-3-2007: Services were considered export if provided from India and used outside India, with payment received in convertible foreign exchange.

4. Applicability of CBEC Circular No. 111/05/2009 ST:
The CBEC Circular No. 111/05/2009 ST clarified that for services falling under Category III (which includes BAS), the relevant factor is the location of the service receiver and not the place of performance. The benefit of the service should accrue outside India. Thus, even if all activities were performed in India, as long as the benefit accrued to a foreign recipient, the services would be considered as export.

5. Precedents Supporting the Claim of 'Export of Service':
The appellants cited several decisions to support their claim that the services rendered were 'export of service':
- Blue Star Ltd. v. CCE
- ABS India Ltd. v. CST
- Lenovo India (P.) Ltd. v. CCE
- Worldspace India (P.) Ltd. v. CST

Conclusion:
The Tribunal observed that the services rendered by the appellants met the criteria for 'export of service' during the relevant periods. The recipient, IBM USA, was located outside India and paid in convertible foreign exchange. The benefit of the services accrued to IBM USA, aligning with the CBEC Circular's clarification. Consequently, the Tribunal held that the impugned services were exported, and the appellants were not liable for service tax, interest, or penalties. The Tribunal ordered a waiver of pre-deposit and stayed the recovery of dues pending the appeal decision.