Export of services principle shields India-based maintenance and business support work for foreign clients from service tax liability.

Maintenance, repair and related business support services performed in India for foreign clients were treated as export of services because the effective recipients were outside India, the benefit was consumed abroad, and consideration was received in convertible foreign exchange. Applying the destination-based character of service tax and the Export of Taxable Service Rules, 2005, the text states that such cross-border services fall within the export category and are not liable to service tax. On that basis, the accompanying penalties also could not survive.

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Issues: Whether maintenance, repair and related business support services performed in India on behalf of foreign clients and paid for in foreign exchange constituted export of services and were therefore not liable to service tax.

Analysis: The services were rendered for foreign clients located outside India, who received the benefit of the services and used them in their business abroad. The Tribunal applied the principle that service tax is a destination-based consumption tax, and relied on the Export of Taxable Service Rules, 2005 and the earlier CBEC circular clarifying that export of services is not taxable. The reasoning also followed the view that where services are performed in India but consumed by a recipient outside India, the transaction is treated as export of service. The Tribunal held that the appellant's activities of providing maintenance and repair and business support to foreign clients on behalf of those clients fell within the export category.

Conclusion: The services were export of services and no service tax was payable; the penalties also could not survive.

Ratio Decidendi: Services performed in India are not liable to service tax when, on the facts, the effective recipient and consumer of the service is located outside India and the consideration is received in convertible foreign exchange, making the activity an export of service.

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