Export of service, Cenvat credit and prospective tax amendments defeated Service Tax and interest claims on technical grounds.

Marketing and promotion services rendered under a cross-border arrangement to a foreign recipient were treated as exported services because the recipient and beneficiary were located outside India, so no Service Tax was payable under Business Auxiliary Service. Cenvat credit could not be denied merely because the premises from which input services were used were unregistered, as the objection was only technical and did not affect eligibility. Interest was not payable on delayed Service Tax in respect of book adjustments made before the prospective amendment recognising such adjustments, so no retrospective liability arose and the order was set aside.

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Issues: (i) whether marketing and promotion services rendered to a foreign recipient were export of service and not liable to Service Tax under Business Auxiliary Service; (ii) whether Cenvat credit could be denied only because the premises from which input services were used were unregistered; and (iii) whether interest was payable on delayed Service Tax payment in respect of book adjustments made before the amendment to Section 67 of the Finance Act, 1994.

Issue (i): whether marketing and promotion services rendered to a foreign recipient were export of service and not liable to Service Tax under Business Auxiliary Service.

Analysis: The services were rendered pursuant to the agreement with the foreign principal, the recipient and beneficiary was located outside India, and the consideration was received for such services. The governing principle for category III services was the location of the service recipient, and the facts were treated as materially similar to earlier decisions where services performed in India for a foreign recipient were held to be exported.

Conclusion: The services were export of service and no Service Tax was payable under Business Auxiliary Service.

Issue (ii): whether Cenvat credit could be denied only because the premises from which input services were used were unregistered.

Analysis: The denial rested on a technical objection and not on any substantive ineligibility of the input services. The cited authorities were applied to hold that registration of the particular premises was not a condition for denial of credit where the credit otherwise pertained to eligible input services used in the business.

Conclusion: Cenvat credit could not be denied on the ground of unregistered premises.

Issue (iii): whether interest was payable on delayed Service Tax payment in respect of book adjustments made before the amendment to Section 67 of the Finance Act, 1994.

Analysis: The amendment recognizing book adjustments as consideration was treated as prospective. Since the relevant book entries were already in existence prior to the amendment date, the amended provision could not be applied retrospectively to fasten interest liability on earlier adjustments.

Conclusion: No interest liability arose on the pre-amendment book adjustments.

Final Conclusion: The impugned order was unsustainable on all the disputed issues and was set aside, resulting in complete relief to the assessee.

Ratio Decidendi: Where services are rendered to and consumed by a foreign recipient under a cross-border arrangement, they are to be treated as exported services; technical defects such as unregistered premises cannot by themselves defeat otherwise eligible Cenvat credit; and a prospective statutory amendment cannot be applied to impose interest liability on book adjustments made before its commencement.

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