ERP Services to Overseas Client Held Export: CESTAT Quashes Service Tax Demand on Limitation Grounds [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the service tax demand raised on ERP development services provided to a foreign entity was not maintainable as the entire demand was barred by limitation.

South Nests Software Solutions Pvt. Ltd., the appellant, is a software company based in Chennai. It provided ERP development services to its associated enterprise, Executive Ship Management Pte. Ltd., located in Singapore. The appellant had declared these services as exports in its ST-3 returns and received payment in foreign currency.

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The Directorate General of GST Intelligence initiated an investigation and issued a show cause notice demanding Rs. 69,12,601 in service tax for the period from October 2014 to June 2017. The department argued that the appellant was acting as an intermediary, not an exporter, and that the services were rendered within the taxable territory. It also claimed that both the appellant and the foreign client were merely different establishments of the same persons and thus not distinct legal entities under Rule 6A of the Service Tax Rules.

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The appellant’s counsel argued that the services were exported and not intermediary in nature. It is submitted that the ERP services were provided directly to the overseas entity, without acting on behalf of any third party.

They explained that it charged a cost-plus fee and operated on a principal-to-principal basis. It also pointed out that similar services had been treated as exports under the GST regime, and refund claims were regularly granted by GST authorities. They argued that all relevant service details were declared in the ST-3 returns filed during the disputed period.

The revenue counsel countered that the appellant and the foreign company had common directors and therefore constituted establishments of the same person under service tax law. It further argued that the services facilitated the business of the foreign company, making them an intermediary in nature. The department claimed the extended period of limitation was correctly invoked due to suppression of facts.

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The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the appellant had declared the services as exports in its statutory returns, and there was no evidence of fraud or suppression. It held that the jurisdictional officers had the responsibility to scrutinize the returns, and their failure to do so could not justify invoking the extended limitation period.

The tribunal explained that when facts are already disclosed in official filings, the longer five-year limitation period cannot be applied without clear evidence of intent to evade tax. Since the show cause notice was issued beyond the normal 30-month period from the date of filing the last return, the entire demand was time-barred.

The tribunal did not go into the merits of the taxability question, stating that once the demand is barred by limitation, it is unnecessary and improper to decide the case on substantive grounds. The appeal was allowed, and the demand, along with interest and penalties, was set aside.

To Read the full text of the Order CLICK HERE

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