2023 (1) TMI 1142 - AT - Service Tax

Appeal dismissed: Prime Focus Ltd's services deemed exports, exempt from service tax.

Commissioner of Service Tax - IV Versus Prime Focus Ltd

The Tribunal dismissed the Revenue's appeal, upholding that services provided by M/s Prime Focus Ltd were exports and exempt from service tax under the ... Export of service - Place of performance / supply of service - Classification of services - Video Production Agency service or not - scope of Video Production Agency and Video-Tape Production - Palace of performance services on Goods - HELD THAT:- The inclusive leg of the definition pertains to the post-recording activity on video or transfer to another media by provider of service to qualify as ‘video-tape production’; there is no evidence that the material received by the respondent was recorded in video or that the respondent had, at any time, handled video as media. The definition of an element contained in a particular ‘taxable service’ is not to be drawn upon, as a lexicon may be, for stretching of another service beyond legislatively intended limits. Even if it could, it would be a leap of faith by service tax authorities to conclude that visual dissemination is always of a ‘programme’ and, therefore, on ‘video’ as media. No evidence is forthcoming either that such is the case in the present factual matrix. Export of services - Place of Provision of Service - HELD THAT:- It appears that service tax authorities have not appreciated the purpose, elucidated supra, and the context of Place of Provision of Service Rules, 2012. These Rules do not operate as a charging provision within the narrow field of taxing imports or exempting exports; they are intended for taxing all manner of services within the frame of section 66B of Finance Act, 1994. The Hon’ble Supreme Court, in ALL INDIA FEDERATION OF TAX PRACTITIONERS & ORS VERSUS UNION OF INDIA & ORS [2007 (8) TMI 1 - SUPREME COURT] has held levy under Finance Act, 1994 to be ‘destination-based consumption tax’ and, therefore, requiring consummation of the service to be linked to acknowledgement by recipient of the service. Consequently, by default, rule 3 of Place of Provision of Service Rules, 2012, holds the service to have been rendered at the place of the recipient and other rules substitute in specific circumstances. The deviation in rule 4(a) of Place of Provision of Service Rules, 2012 and, considering the specific circumstance of determination by tangible presence, it would not be amenable to stretching for coverage of ‘deemed goods’, if any, owing to that limitation of pinpointing ‘service’ which is of essence in the said Rule. The impugned order is sustained to the extent of determination that the respondent herein has exported services in accordance with Export of Service Rules, 2005 and rule 6A of Service Tax Rules, 1994 for the relevant periods - Appeal of Revenue dismissed. Issues Involved:1. Classification of services under Finance Act, 1994.2. Applicability of Export of Service Rules, 2005.3. Interpretation of Place of Provision of Service Rules, 2012.4. Taxability of services rendered partly outside India.5. Definition and scope of 'goods' under Place of Provision of Service Rules, 2012.Detailed Analysis:1. Classification of Services under Finance Act, 1994:The core dispute revolves around whether the services provided by the respondent, M/s Prime Focus Ltd, fall under the category of 'video-tape production' as per section 65(105)(zi) of the Finance Act, 1994, which would render them taxable. The appellant (Revenue) contended that the services, including conversion from 2D to 3D, imparting special effects, and digital restoration, should be classified as 'video-tape production'. However, the adjudicating authority and the Tribunal found that these activities do not involve recording any programme, event, or function on a magnetic tape or other media, which is essential for classification under 'video-tape production'. Thus, the services were not taxable under this category for the period prior to 1st July 2012.2. Applicability of Export of Service Rules, 2005:The respondent argued that their services qualify as exports under rule 3 of the Export of Service Rules, 2005, as they received payment in convertible foreign exchange and the recipient was located outside India. The adjudicating authority agreed, noting that partial rendering of services outside India sufficed for exemption. The Tribunal upheld this view, stating that the services met the criteria for exports and were thus exempt from service tax.3. Interpretation of Place of Provision of Service Rules, 2012:For the period after 1st July 2012, the Revenue invoked rule 4 of the Place of Provision of Service Rules, 2012, which shifts the place of provision to where the service is performed if it relates to 'goods'. The adjudicating authority held that this rule did not apply as the services did not involve tangible goods supplied by the recipient. The Tribunal supported this interpretation, emphasizing that the rule is intended for services performed on tangible goods, not intangible services like those provided by the respondent.4. Taxability of Services Rendered Partly Outside India:The Revenue argued that the adjudicating authority did not have sufficient evidence to conclude that part of the services was rendered outside India. However, the Tribunal found this argument academic, as the classification of services under 'video-tape production' was incorrect. Consequently, the services were exempt as exports, rendering the issue of partial performance outside India moot.5. Definition and Scope of 'Goods' under Place of Provision of Service Rules, 2012:The Revenue contended that 'goods' should include intangible items, relying on judicial decisions that expanded the definition of 'goods' to include software and intellectual property. However, the Tribunal held that the Place of Provision of Service Rules, 2012, specifically address services performed on tangible goods. The Tribunal concluded that the services provided by the respondent did not involve tangible goods and thus did not fall under rule 4(a).Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the adjudicating authority's decision that the services provided by M/s Prime Focus Ltd were exports and exempt from service tax under the Export of Service Rules, 2005, and rule 6A of the Service Tax Rules, 1994. The Tribunal also affirmed that the Place of Provision of Service Rules, 2012, did not apply to the respondent's services, as they did not involve tangible goods. The order was pronounced in the open court on 25/01/2023.