Exported services paid in foreign exchange fell outside service tax, and the interregnum demand was unsustainable.

Service tax was not payable on steamer agent services rendered to a recipient outside India and paid for in convertible foreign exchange, even during the period after withdrawal of the earlier exemption notification and before its restoration. The Board circular treated export of services as outside the levy because service tax is a destination-based consumption tax, and that clarification was applied to the interregnum. Identical wording in the exemption notifications supported the same result. The demand and consequential liability were therefore unsustainable and were set aside.

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Issues: Whether service tax was payable on steamer agent services exported to a foreign recipient and paid for in convertible foreign exchange during the period when the earlier exemption notification had been withdrawn and before its restoration.

Analysis: The services were rendered to a recipient outside India and the consideration was received in convertible foreign exchange. Notifications exempting such services, namely Notification No. 6/99-S.T. and Notification No. 21/2003-S.T., were identically worded. The Board circular clarified that service tax is a destination-based consumption tax and is not applicable to export of services, and that export services would remain tax-free even after withdrawal of Notification No. 6/99-S.T. The circular was treated as clarificatory, and the earlier Tribunal decision on an identical issue was followed.

Conclusion: Service tax was not payable on the exported services, and the demand was unsustainable.

Final Conclusion: The demand and consequential liability were set aside, with the assessee obtaining relief on the export-of-service issue.

Ratio Decidendi: Exported services paid for in convertible foreign exchange were outside the levy of service tax, and the departmental circular clarified the position even for the interregnum after withdrawal of the earlier exemption notification.

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