Recipient of Services located outside India & Payment received in Foreign Exchange; Services qualify as Exports, No Service Tax applies: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) ruled that services provided to recipients outside India, with payment received in foreign exchange, qualify as exports and are exempt from service tax. The decision marks a significant victory for businesses engaged in providing services to overseas clients.

The case revolved around Solvay Specialities India Pvt Ltd, a company based in Bharuch, Gujarat, which had provided Sales Promotion & Marketing services to entities situated outside India between April 2012 and March 2014.

The appellant had received commission payments in convertible foreign exchange for these services. However, the Commissioner of Central Excise and Service Tax-Bharuch raised a demand for service tax, contending that the services were utilised within India, thereby attracting service tax liability.

In response, Solvay Specialities India Pvt Ltd appealed the decision, arguing that the services were indeed provided to entities located outside India and hence qualified as exports under Rule 3(1) of the Export of Service Rules, 2005.

The appellant cited Circular No. 111/5/2009 ST issued by the Central Board of Excise and Customs ( CBEC ), which emphasised that the crucial factor in determining the tax liability is the location of the service recipient, not the place of performance.

Additionally, the appellant pointed out that it fulfilled all conditions prescribed under Rule 6A of the Service Tax Rules, 1994, including the absence of offices of the service recipients in India.

The appellant, represented by Shri Vinay Kansara cited various judgments, including the Tribunal’s previous ruling in the appellant’s own case.

The appellant argued that since the recipients of the services were situated outside India and payment was received in foreign exchange, the services fell squarely within the definition of exports and were therefore not liable for service tax.

The respondent revenue, Commissioner of C.E-Bharuch, represented by Shri Ashok Thanvi reiterated the findings of the order, asserting that the services were indeed utilised within India, thereby attracting service tax liability.

The two-member bench comprising Mr. Ramesh Nair (Judicial Member) and Mr. Raju (Technical Member) referred to its previous ruling in the appellant’s case, where it had held that services provided to recipients outside India and payment received in foreign exchange qualified as exports under Rule 3(1) of the Export of Service Rules, 2005, and were exempt from service tax.

In light of this precedent, the bench upheld the appellant’s contention and set aside the impugned order. The ruling provides clarity and relief to businesses engaged in providing services to clients located abroad, affirming that such transactions are not subject to service tax if the requisite conditions are met.

The decision of the CESTAT encourages cross-border trade and commerce without the burden of unnecessary taxation.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates