Tribunal Confirms Services as "Export of Services" Under Rule 3(1)(c), Dismisses Department's Appeal, No Penalty Imposed

The Tribunal upheld the Commissioner's decision, concluding that the services provided by the respondents to SB Plc, U.K., qualified as "export of services" under Rule 3(1)(c) of the Export of Service Rules, 2005. The services were deemed to be used outside India, and the payments routed through a third party did not affect this qualification. The Tribunal found no basis for the extended period for demand or penalty, as the respondents acted in good faith and regularly filed returns. The Department's appeal was dismissed, and the original order was deemed proper and legally sustainable.

---

---

Issues Involved:
1. Whether the services rendered by the respondents qualify as "export of services" under Rule 3(1)(c) of Export of Service Rules, 2005.
2. Whether the condition of "used outside India" is satisfied.
3. Whether the payments made to a third party affect the qualification as "export of services."
4. Whether the extended period for demand and penalty is applicable.

Summary:

Issue 1: Qualification as "Export of Services"
The respondents, M/s Glaxo SmithKline Asia Private Limited, provided "Business Support Services" and "Manpower Recruitment and Supply Services" to M/s SmithKline Beecham Plc. (SB Plc), U.K. Revenue contended that these services did not qualify as "export of services" under Rule 3(1)(c) of Export of Service Rules, 2005, and issued a show-cause notice demanding service tax. The Commissioner of Central Excise, New Delhi, dropped the proceedings, leading Revenue to appeal.

Issue 2: Condition of "Used Outside India"
The Department argued that the condition of "used outside India" was not satisfied as the services were performed in India. They relied on Board's Circular No.141/10/2011-TRU dated 13.05.2011, stating that the benefit accrued outside India did not fulfill the requirement of being "used outside India." The respondents countered that the services were used by SB Plc, U.K., and the benefit accrued outside India, supported by Board's Circular No.111/5/2009-ST dated 24.02.2009 and several judicial precedents.

Issue 3: Payments to Third Party
The Department claimed that payments made to a third party indicated that services were consumed in India. The respondents clarified that payments routed through M/s Glaxo SmithKline Services, Unlimited, UK, did not alter the fact that services were used by SB Plc, U.K. The Tribunal agreed, noting that the contractual agreement and the submission of clinical trial reports to SB Plc, U.K., demonstrated that services were used outside India.

Issue 4: Extended Period and Penalty
The respondents argued that the extended period for demand could not be invoked as they regularly filed ST-3 Returns and believed in good faith that their services qualified as exports. The Tribunal found no grounds for extended demand or penalty since the services were deemed to be export services.

Conclusion:
The Tribunal concluded that the services rendered by the respondents to SB Plc, U.K., constituted export of services as they were utilized by a company situated outside India and used outside India. The Tribunal upheld the Commissioner's order, dismissing the Department's appeal. The impugned order was found to be proper and legally sustainable.

(Pronounced on 20/10/2023)

---