2019 (1) TMI 975 - AT - Service Tax

Tribunal rules in favor of appellant, services to IBM USA qualify as export under Export of Service Rules

IBM India Private Limited Versus C.C.E. & S.T. -Bangalore-ltu

The Tribunal ruled in favor of the appellant, finding that the services provided to IBM USA qualified as export of services under the Export of Service ... Export of Service or not - Business Auxiliary Service - consideration of the marketing / sales promotion services provided in India - payment of commission to the assessee in freely convertible foreign currency - Held that:- Admittedly the appellants are providing the services to their foreign company situated outside India and their parent company does not have any commercial or industrial establishment or any office in India and the services by appellant are provided in relation to provision of service recipient i.e. IBM WTC. Further it is found that the appellant satisfied all the conditions that are required under the Export of Service Rules, 2005. Further, there is no condition under Export of Service Rules, 2005 that the services performed in India would not qualify as export of service. The rules only provide that recipient of service should be situated outside India and thus specifically acknowledges that export of service can be provided in India. Further the sales commission was received in India in freely convertible foreign currencies. Therefore the appellants have fulfilled all the conditions of export of services as provided under Rule 3(1)(iii) of Export of Service rules. Tribunal in the case of Microsoft Corporation (I) Pvt. Ltd. [2014 (10) TMI 200 - CESTAT NEW DELHI (LB)] after considering various decisions of the High Court and the Supreme Court has come to the conclusion that the BAS provided by the assessee to their Singapore parent company was delivered outside India as such was used there and is covered by the provisions of Export of Service Rules and are not liable to service tax. Appeal allowed - decided in favor of appellant. Issues Involved:1. Classification of services provided by the appellant.2. Applicability of Export of Service Rules, 2005.3. Liability to pay service tax on commissions received.4. Interpretation of 'used outside India' in the context of Export of Service Rules.5. Previous Tribunal and High Court decisions related to similar issues.Detailed Analysis:1. Classification of Services Provided by the Appellant:The appellants were engaged in providing services under the category of Business Auxiliary Service (BAS) as defined under Section 65(19) of the Finance Act, 1994. They had an agreement with IBM USA to promote and market IBM products in India, receiving commissions in foreign currency. The services included identifying customers, procuring orders, and providing marketing support, which were classifiable under BAS and taxable from 01/07/2003.2. Applicability of Export of Service Rules, 2005:The appellants argued that their services amounted to export of services under the Export of Service Rules, 2005. They claimed to meet all conditions for export of service:- Services related to commerce or industry.- Service recipient (IBM USA) located outside India.- Consideration received in convertible foreign exchange.- Services delivered and used outside India.The Tribunal noted that the Export of Service Rules did not require services to be performed outside India but mandated the recipient to be outside India, thereby acknowledging that services performed in India could qualify as export of services.3. Liability to Pay Service Tax on Commissions Received:The Department issued a show-cause notice demanding service tax on the commissions received by the appellant. The Commissioner confirmed the demand, but the Tribunal found that the appellant satisfied all conditions under Rule 3 of the Export of Service Rules, 2005, and thus, the services qualified as export of services. Consequently, the demand for service tax was not sustainable.4. Interpretation of 'Used Outside India':The Tribunal relied on the Board's Circular No. 111/05/2009-ST dated 24/02/2009, which clarified that for services under Category III [Rule 3(I)(iii)], the location of the service receiver, not the place of performance, was relevant. The phrase 'used outside India' meant that the benefit of the service should accrue outside India. The Tribunal concluded that the appellant's services promoted the business of IBM USA, accruing benefits outside India.5. Previous Tribunal and High Court Decisions:The Tribunal referred to several decisions supporting the appellant's stance:- Verizon Communication India Pvt. Ltd. v. Asst. Commissioner, ST: Held that services provided to a foreign recipient were export of services.- Microsoft Corporation (I) Pvt. Ltd. v. CST, New Delhi: Confirmed that services delivered outside India were covered under Export of Service Rules.- Paul Merchants Ltd. v. CCE, Chandigarh: Clarified that the service recipient is the person who pays and benefits from the service.The Tribunal also noted its previous decision in the appellant's own case (Final Order No.20066/2016 dated 20/01/2016), where it was held that the services rendered by the appellant were export of services and not liable to service tax.Conclusion:The Tribunal concluded that the appellant provided services to IBM USA, fulfilling all conditions under the Export of Service Rules, 2005. The services were deemed export of services, and the demand for service tax was set aside. The Tribunal allowed the appeals with consequential relief, reaffirming that the issue was settled in favor of the appellant based on various judicial precedents.