By TIOL News Service

MUMBAI, APR 28, 2014: THE short question is whether the services viz. "Technical Inspection and Certification Services" and "Technical testing and Analysis Services" rendered by the assessee during the period of dispute (1.7.2003 to 19.11.2003) were liable to be charged to service tax.

Brief facts of the case go thus - The appellant-company was engaged by foreign importers who imported certain goods from Indian exporters. The foreign parties wanted the appellant to inspect/test/analyse samples of the goods in India and provide certificates to enable them to ascertain the quality of the goods before importation. Accordingly, the appellant inspected/tested/analyzed samples of the goods and sent certificates to their foreign clients and the latter, having been satisfied of the import-worthiness of the goods, placed orders for the goods, which were exported by the Indian exporters. The consideration for the services provided by the appellant was paid in convertible foreign exchange. The department demanded service tax on this consideration paid by the foreign parties to the appellant.

In adjudication, the Commissioner of Service Tax, Mumbai confirmed the demand of Rs.82,16,553/- along with interest and imposed penalties.

Before the CESTAT the appellant inter alia submitted -

++ the service rendered by them was utilized by their clients abroad and, therefore, the transaction involved export of service and hence exempt from payment of service tax.

++ Reliance is placed on the Finance Minister's speech dated 25.4.2003, the Board's Circular no. 56/6/2003-ST dated 25.4.2003 and the Supreme Court's judgment in All India Federation of Tax Practitioners vs. Union of India - 2007-TIOL-149-SC-ST.

++ Without prejudice it is submitted that notification no. 21/2003-ST dated 20.11.2003 is textually identical to Notification no. 6/1999-ST dated 9.4.99 and further that, as the later notification was issued for granting exemption for payment of service tax on the taxable services in respect of which payment was received in India in convertible foreign exchange, as a measure of relief to the service sector which had been encountering difficulties on account of having to pay service tax on export of services, it (Notification no. 21/2003-ST) should be held to be clarificatory in nature and should be given retrospective effect.

++ Reliance is also placed on the decisions in Commissioner vs. B.A.Research India Ltd. - 2010-TIOL-509-CESTAT-AHM and KSH International Pvt. Ltd. vs. Commissioner - 2010-TIOL-805-CESTAT-MUM and Board Circular no. 111/5/09-ST dated 24.2.2009 to fortify their stand.

The following were the Revenue submissions -

++ the activity undertaken by the appellant was a performance within India, falling in category (II) mentioned in the Board's Circular no. 111/5/2009-ST dated 24.2.2009, and, therefore, it will be erroneous to hold that any service was exported.

++ Inasmuch as service tax is a 'value added tax' leviable only on services provided within the country and the appellant was providing services within India by inspecting, testing and analyzing samples of the goods in India.

++ that export of services was exempted from payment of service tax for the first time with the promulgation of Export of Services Rules, 2005 and, therefore, the appellant cannot claim such exemption for any prior period.

++ admittedly, there was no exemption notification in force during the period of dispute granting exemption from payment of service tax on any taxable service rendered against payment of convertible foreign exchange and, therefore, the appellant has to pay service tax for such period.

The CESTAT after considering the Board Circulars & case laws cited concluded -

++ In the instant case, the services rendered by the appellant were consumed abroad where the appellant's clients used the service of inspection/test/analysis to decide whether the goods intended to be imported by them from India conformed to the requisite specifications and standards. In other words, the benefit of the service accrued to the foreign clients outside the Indian territory. By no stretch of imagination can it be said that there was no export of service. The services, in question, were exported. Export of service has ever been tax-free as observed by the CBEC. This exemption has never been affected by Notification no. 6/99-ST or its recession. Ultimately, therefore, we hold that no service tax was leviable from the appellant.

Inasmuch as the order of Commissioner of Service Tax, Mumbai was set aside and the appeal was allowed. We reported this order as - 2011-TIOL-666-CESTAT-MUM.

As expected, the CST, Mumbai went in appeal before the Bombay High Court, all the more because it was a DGCEI case.

And the High Court held -

"…The Tribunal relied upon the circulars issued and prior thereto the view taken by it in the case of   KSH International Pvt.Ltd Vs. Commissioner and B.A. Research India Ltd. The case of the present respondent was said to be covered by orders in these two cases. To our mind, once the Hon'ble Supreme Court has taken the view that service tax is a value added tax which in turn is destination based consumption tax in the sense that it taxes non-commercial activities and is not a charge on the business, but on the consumer, then, it is leviable only on services provided within the country. It is this finding and conclusion of the Hon'ble Supreme Court which has been applied by the Tribunal in the facts and circumstances of the present case."

Holding that the view taken by the Tribunal cannot be said to be perverse or vitiated by an error of law apparent on the face of the record, the High Court dismissed the Revenue appeal as being devoid of merits.

(See 2014-TIOL-580-HC-MUM-ST)