Tribunal Upholds Decision: Service Tax Dropped for US Subsidiary's Business Auxiliary Service

The Tribunal upheld the Commissioner's decision to drop the demand of service tax amounting to Rs. 23,07,36,138/- for Business Auxiliary Service provided by a subsidiary of a US-based company from 01/02/2006 to 31/03/2008. The services were considered as export of service under the Export of Service Rules, 2005, as they were delivered to the US-based parent company and used outside India. The Revenue's appeals challenging the dropping of the demand were dismissed, affirming that the services qualified as export of service and were not subject to service tax.

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Issues:
- Whether the demand of service tax amounting to Rs. 23,07,36,138/- in respect of Business Auxiliary Service for the period from 01/02/2006 to 31/03/2008 should be dropped based on the grounds of export of service.

Analysis:

Issue 1: Dropping of Demand of Service Tax
The appeals were filed against the impugned order passed by the Commissioner of Service Tax, Bangalore dropping the demand of service tax amounting to Rs. 23,07,36,138/- in respect of Business Auxiliary Service for the period from 01/02/2006 to 31/03/2008. The respondent, a subsidiary of a US-based company, provided promotion and marketing services but did not discharge appropriate service tax during the mentioned period. The Commissioner dropped the demand based on two main grounds: i. consideration received in convertible foreign currency fulfilling the condition of export of service under the Export of Service Tax Rules, 2005, and ii. Circular No.111/05/09-ST stating that services consumed within India but benefiting outside can be considered as export of service. The Revenue challenged the dropping of demand, arguing that the service did not amount to export of service. However, the Commissioner, after detailed reasoning, concluded that the services provided by the respondent fell within the definition of export of service as per the Export of Service Rules, 2005. The Commissioner's finding was based on the service being delivered to the US-based parent company and used outside India, fulfilling the conditions of export of service.

Issue 2: Adjudication Process
During the appeal hearing, only the learned AR for the Revenue appeared, while no representation was made on behalf of the respondent. As the respondent did not challenge the demand confirmed by the Commissioner and their appeals were dismissed for non-prosecution, the appeals were decided based on the material available on record and after hearing the learned AR. The Revenue argued that dropping the demand of service tax was not sustainable in law and referred to a case where an interim stay was granted, suggesting that the service did not amount to export. However, the Commissioner's detailed reasoning, reliance on relevant circulars, and the finding that the services provided by the respondent met the criteria for export of service led to the dismissal of the Revenue's appeals.

In conclusion, the Tribunal upheld the impugned order of the Commissioner, confirming that the services rendered by the respondent qualified as export of service and were not liable to service tax. The appeals filed by the Revenue were dismissed based on the clear findings and reasoning provided by the Commissioner.

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