Testing and Analysis Services provided to Foreign Clients Qualify as 'Export of Services' under the FTDR Act: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Bench at Hyderabad allowed appeals by assessee against Order-in-Original dated 29.10.2012 October 29, 2012. They have appealed against the demand of excise duty under section 11AC of Central Excise Act, 1944 and against demand of customs duty with penalty.

The appellants, Laxai Avanti Life Sciences Pvt. Ltd., who are 100% EOU, are engaged in providing research and development for Biotechnology and Pharmaceutical products for export. They obtained Private Customs Bonded Warehouse licence under section 58 of Customs Act, 1962 and permission for in-Bond manufacturing under section 65 of Customs Act. They also have Central Excise registration for domestic operation and service tax registration for entering into services falling under Sections 65(105)(zz), 65(105)(k) and 65(105)(zzh).

The department noted that appellant had imported and procured certain capital goods and raw materials locally to avail exemptions, and secondly, in pursuance of duty free benefit they undertook export of service. As per department, they are not entitled for the benefit of notification since they have not exported service of TTA.

On adjudication, it was held that since no service or even part service had been performed outside India, and they did not engage in physical exports, benefit of the notification ought to be denied. Thereby confirming the demand and imposing a penalty.

B. Venugopal, representing the appellant, contested that the reliance placed on Export of Service Rules, 2006 is extraneous to the issue as the EOU is governed by Foreign Trade Policy (FTP) and the notifications issued by the department are meant for import or domestic procurement of capital goods and manufacture of goods or for rendering services.

He further added that the term ‘export’ used in these notifications has to be understood in terms of FTP and not in terms of Customs Act, etc.

The Bench, comprising of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member), took up both the appeals together due to the issues in both being same and the core issue was ascertained to be whether the appellants have exported their services or not.

It was noted that there is no definition of ‘export of service’ under the Customs Act or Central Excise Act, and in the absence of any specific provision in both the notifications as to how the term export of service is to be construed, the term has to be understood with respect to the FTDR Act, 1992 and not Finance Act, 1994 or Rules.

The bench ruled that because “these services have been exported or supplied to a recipient, who is located outside India, and consumed there and that remittance has been received in convertible foreign exchange by the Indian exporter i.e., 100% EOU” would make them eligible for the benefit of these notifications.

As a result, it was concluded that the reliance of adjudicating authority on Export of Service Rules is not tenable and hence, the impugned order was accordingly set aside.

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