Severability of composite services for tax purposes: offshore work may be excluded and only the taxable-territory component taxed.

For stay purposes, a composite service arrangement involving offshore data acquisition and partly onshore processing may be treated as severable so that only the consideration attributable to the taxable-territory component is brought to service tax. The Tribunal took a prima facie view that offshore activities were excludible and that tax exposure was confined to the inland processing element. On that basis, it granted interim protection against recovery subject to a limited pre-deposit and proportionate interest, leaving the appeal for final adjudication.

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Issues: (i) Whether, for the purpose of a stay application, services consisting of offshore data acquisition and partly onshore processing could be prima facie vivisected so that only the value attributable to activities within the taxable territory was liable to service tax. (ii) Whether the appellant was entitled to waiver of pre-deposit and stay of recovery pending appeal.

Issue (i): Whether, for the purpose of a stay application, services consisting of offshore data acquisition and partly onshore processing could be prima facie vivisected so that only the value attributable to activities within the taxable territory was liable to service tax.

Analysis: The composite agreements were alleged by Revenue to be integrated and indivisible, but the appellant asserted that the offshore acquisition and substantial offshore processing were outside the taxable territory, while only the inland processing at Mumbai could be taxed. The Tribunal treated the dispute, at the interlocutory stage, as governed by the principle that even composite transactions may be severed to isolate the taxable element and apportion the consideration accordingly. On that prima facie view, services rendered beyond the taxable territory were not to be brought to tax, and only the value attributable to the inland taxable component was susceptible to levy.

Conclusion: The Tribunal held, prima facie, that the offshore component was excludible and only the taxable-territory component of the services could be taxed.

Issue (ii): Whether the appellant was entitled to waiver of pre-deposit and stay of recovery pending appeal.

Analysis: In light of the prima facie view on apportionment, the Tribunal considered the disputed liability to warrant interim protection. It accepted, for the purpose of the stay application, the appellant's computation of the inland taxable component and required a limited deposit as a condition for suspension of recovery.

Conclusion: The Tribunal granted waiver of pre-deposit and stayed further recovery proceedings subject to deposit of Rs. 60 lakhs with proportionate interest within the stipulated time.

Final Conclusion: Interim relief was granted on a conditional basis, with the tax demand kept in abeyance to the extent protected by the stay and the appeal left for final adjudication.

Ratio Decidendi: For interim purposes, a composite service transaction may be treated as severable and only the consideration attributable to the taxable-territory component may be subjected to service tax.

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