Convertible foreign exchange exemption survives where dividend to a foreign shareholder is not treated as repatriation of export proceeds.

Service tax exemption for services received in convertible foreign exchange was not lost merely because dividend was later remitted to a foreign equity holder. The Tribunal held that the notification condition concerning non-repatriation of export proceeds could not be stretched to treat dividend distribution as repatriation of the specific amounts received for taxable services. Because the appellant's profits included multiple income streams and dividend was declared from accumulated profits after overall accounting, the dividend payment was not the same as returning export proceeds to the foreign shareholder. The exemption therefore remained available.

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Issues: Whether dividend remitted to a foreign equity holder could be treated as repatriation of export proceeds so as to deny exemption under the service tax notifications for services received in convertible foreign exchange.

Analysis: The appellant rendered steamer agent services and received consideration in convertible foreign exchange. The exemption notifications applied where the service consideration was so received, subject to the condition that export proceeds were not repatriated from India. The revenue's case rested on the fact that dividends were declared and remitted abroad to the foreign shareholder. The Tribunal noted that the appellant's income was not confined to steamer agent services alone but included several other service and non-service incomes as well. Dividend was declared only out of accumulated profits after accounting for all income and expenditure, and could not be equated with the specific export proceeds received for taxable services. The proviso to the notifications could not be extended to treat dividend distribution as repatriation of the amounts received for export services.

Conclusion: Dividend remitted to the foreign shareholder did not amount to repatriation of export proceeds, and the exemption under the notifications remained available to the appellant.

Ratio Decidendi: Amounts received in convertible foreign exchange for taxable services do not lose exemption merely because dividends are later paid out of profits to a foreign shareholder; dividend distribution is not the same as repatriation of export proceeds.

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