By TIOL News Service

MUMBAI, FEB 17, 2016: REVENUE has filed appeals against the orders passed by the Commissioner (A).

Vide the said orders the lower appellate authority has set aside the rejection of the refund claims by Dy.Commr. The short facts are that the respondent are registered as providers of 'Scientific and Technical consultancy service' to clients located outside India and also offer research and development expertise in new compounds of pharmaceutical products.

Unable to utilise the accumulated CENVAT credit, three refund claims for Rs.79,55,273/- for July 2012 to September 2012, Rs.73,39,010/- for October 2012 to December 2012 and Rs.96,57,578/- for April 2013 to June 2013 were filed.

The refund claims were rejected on the ground that in accordance with Rule 4 of Place of Provisions of Services Rules, 2012 performance of the service was within the country and hence the activities of the respondent did not amount to export of services.

The first appellate authority concluded that the two necessary conditions for classifying the place of provisions of service are that the goods are to be made available to the service provider and services are to be provided in respect of the goods. While acknowledging that some of the chemicals required for research and development are provided by the clients of the appellant and hence the condition that goods be made available by the service recipient has been complied with, the impugned order, holding that services are not rendered in relation to these materials, notes as below:

"The 'deliverables' by the Appellants are neither supplied or owned by the service receiver nor the Appellants are providing any service in respect of the deliverables. Synthesis of a new compound using various chemicals, solvents, reagents, compounds cannot be called as service in respect of the said chemicals, solvents, compounds. Further, the Appellants are formulating the process of the manufacture of the new compounds and the process is being sent to their clients/service receiver. It is seen from the detail service agreement that the Appellants are engaged into converting compound 120 into compound 129."

The AR referred to the Place of Provisions of Services Rules, 2012 and Note 5 of the Service Tax Education Guide and submitted that the order is not tenable inasmuch as refund is not admissible as the activities did not amount to 'export of services'.

The respondent placed reliance on the decision of the Tribunal in SGS India Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai - 2011-TIOL-666-CESTAT-MUM, as upheld by the Bombay High Court - 2014-TIOL-580-HC-MUM-ST, and the relevant finding therein:

"8. The view taken by the Central Board of excise & Customs vide Circular no. 66/2005-ST is that export of services would continue to remain tax-free even after withdrawal of Notification no. 6/94-ST dated 9.4.1999. The Board was examining the effect of withdrawal of Notification no. 6/99-ST. This Notification exempted the taxable service specified in section 65(48) of the Finance Act, 1994 provided to any person, in respect of which payment was received in India in convertible foreign exchange, from payment of service tax. The Notification, in a proviso, laid down that nothing contained in the notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered was repatriated from or sent outside India. It was this Notification which was rescinded by Central Government by issuing Notification no. 2/2003-ST dated 1.3.2003. The Board was called upon to consider representations received from service sector, wherein an apprehension was raised that export of service would be affected adversely in the international market on account of withdrawal of notification no. 6/99-ST. The Board dispelled this apprehension by clarifying that export of services would continue to remain tax-free even after withdrawal of notification no. 6/99-ST. This clarification is certainly binding on the Revenue. Consequently, it has to be held that the reinstatement of the above exemption through notification no. 21/2003-ST dated 20.11.2003 cannot detract from the correct legal position clarified by the Board. For this reason, we hold that there can be no demand of service tax on the appellant on the ground that exemption notification no. 6/99-ST was withdrawn in March 2003 and identical exemption was reintroduced in November 2003. As a matter of fact, none of then notifications referred to 'export of services'. Again, as a matter of fact, the Central Board of Excise & Customs held 'export of services' to be tax-free notwithstanding the notifications. The law which categorically exempted export of services from payment of service tax was brought into force for the first time through the Export of Services Rules, 2003. Undoubtedly, the period of demand, in the present case, is prior to 2005.

9. The view taken hereinbefore is supported by the judgment of the Hon'ble Supreme Court in All India Federation of Tax Practitioner's case (supra), wherein it was held that service tax was a destination-based consumption tax in the sense that it was on commercial activities and was not a charge on the business but on the consumer. The emphasis is on consumption of service. 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."

The Bench observed that in view of the 'principles emphasized time and again and reiterated as above', the appeal is devoid of merits.

The Revenue appeal was rejected.

(See 2016-TIOL-433-CESTAT-MUM)