2016 (4) TMI 152 - AT - Service Tax

Tribunal rules in favor of Balaji Telefilms Ltd., services classified as exports under Rule 3(2)

The Tribunal dismissed the Revenue's appeal, finding that the services provided by M/s Balaji Telefilms Ltd. were considered exports under Rule 3(2) of ... Taxable service as 'programme production service' - export of service - usage outside India - export of service - payment in convertible foreign exchange - distinction between production and broadcasting services - interpretation of Rule 3(2) of Export of Service Rules, 2005Taxable service as 'programme production service' - export of service - usage outside India - distinction between production and broadcasting services - interpretation of Rule 3(2) of Export of Service Rules, 2005 - Whether the programmes produced by the assessee for an overseas entity qualify as export of service under Rule 3(2) by virtue of being provided from India and used outside India, notwithstanding subsequent broadcasting of those programmes back to India by the overseas recipient. - HELD THAT: - The Tribunal held that the taxable activity is the service specifically listed in the Finance Act, 1994 (programme production) and that the inquiry must be confined to whether that service was provided to an entity outside India. The fact that the overseas recipient subsequently disseminates or broadcasts the programme is a separate taxable activity (broadcasting) and does not negate that the programme production service was delivered or provided from India to an overseas entity. Reliance on prior decisions emphasising delivery/provision to an overseas recipient supports that completion of the contracted service to the foreign entity satisfies the 'used outside India' leg for export purposes; the ultimate use by the recipient is therefore immaterial to the assessee's status as exporter of the programme production service. [Paras 11, 13]The services rendered by the respondent as a programme producer were provided from India to an overseas entity and satisfy the 'used outside India' requirement; the subsequent broadcasting by the overseas entity does not defeat export treatment of the production service.Export of service - payment in convertible foreign exchange - interpretation of Rule 3(2) of Export of Service Rules, 2005 - Whether the condition of receipt of payment in convertible foreign exchange is satisfied where the contract is denominated in Indian rupees but inward remittance was evidenced as foreign currency through banking channels. - HELD THAT: - The Tribunal accepted the assessee's explanation that commercial practice may dictate denomination in Indian rupees to avoid currency fluctuation risk, and found the certificate from the overseas bank (Hongkong and Shanghai Banking Corporation Ltd.) indicating inward remittance in convertible foreign currency probative of compliance. It observed that because Indian rupee is not freely convertible, a contract in rupees would not preclude inward remittance in convertible foreign currency through banking channels; hence there was no basis to doubt that the consideration was received in convertible foreign exchange as required by Rule 3(2). [Paras 14, 15, 16]The condition of receipt of payment in convertible foreign exchange was satisfied despite contractual denomination in Indian rupees, on the evidence of inward remittance in convertible foreign currency.Final Conclusion: Both conditions of Rule 3(2) of the Export of Service Rules, 2005 were held to be satisfied - the programme production service was provided from India to an overseas entity and payment was received in convertible foreign exchange - and the Revenue's appeal was dismissed; the original order dropping the demand was affirmed and the review/CO disposed of. Issues Involved:1. Taxability of services provided by the assessee under the Finance Act, 1994.2. Compliance with Export of Service Rules, 2005.3. Conditions for treating services as exports.4. Receipt of consideration in convertible foreign currency.Detailed Analysis:1. Taxability of Services:The core issue revolves around whether the services provided by the assessee, M/s Balaji Telefilms Ltd., fall under the taxable category as per section 65(105)(zzu) of the Finance Act, 1994. The assessee produced television programs for M/s SGL Entertainment Ltd., Hong Kong, which were intended for further distribution. The Revenue contended that these services were taxable under the Finance Act, 1994. However, the assessee argued that these services were exports and thus not taxable under Indian law.2. Compliance with Export of Service Rules, 2005:The Export of Service Rules, 2005, underwent an amendment effective from 1st March 2007. The rules stipulated that for a service to be considered as an export, it must be provided from India and used outside India, and the payment for such service must be received in convertible foreign exchange. The Revenue argued that the services did not qualify as exports because the programs were in Hindi and intended for Indian viewers, and the payment was designated in Indian rupees.3. Conditions for Treating Services as Exports:The adjudicating authority held that the services rendered by the assessee were different from those rendered by the overseas entity, M/s SGL Entertainment Ltd., which was engaged in broadcasting. It was concluded that the destination of the service exported from India was not ultimately India. The Tribunal noted that the focus should be on the service provided by the assessee, which was 'programme production service,' and not on the subsequent broadcasting by the overseas entity. The Tribunal referred to previous decisions where the delivery of outcomes to the overseas entity and receipt of consideration from the overseas entity were sufficient to conclude that the services had been delivered outside India.4. Receipt of Consideration in Convertible Foreign Currency:The second condition for treating services as exports was the receipt of consideration in convertible foreign currency. Although the contract designated the consideration in Indian rupees, the respondent produced a certificate from their bank indicating that inward remittance was in convertible foreign currency. The Tribunal found this justification logical and acceptable, noting that the Indian rupee is not a freely convertible currency, and thus, the inward remittances were indeed in convertible foreign currency.Conclusion:The Tribunal dismissed the Revenue's appeal, finding that both conditions for export under Rule 3(2) of the Export of Service Rules, 2005, had been complied with by the assessee. The services were provided from India and used outside India, and the consideration was received in convertible foreign currency. The appeal of the Revenue was without merit and was accordingly dismissed.