2023 (10) TMI 998 - AT - Service Tax

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 ... Export of services or not - services rendered by the respondents are performed in India or not - providing Business Support Services and Manpower Recruitment and Supply Services to M/s SmithKline Beecham Plc. (SB Plc), U.K. as per an Agreement entered into between them - period January 2009 to September 2009 - demand of service tax alongwith interest and penalty - HELD THAT:- On the perusal of the Agreement, it appears that the respondents are rendering services with respect to clinical trials for the overseas company located in U.K. who undertake further research on the basis of the reports submitted by the respondent; therefore, it is not correct that the use of services is in India; it is evident that the services rendered by the respondents are used by the overseas company who are benefitted by the same. It cannot be said that service is not used outside India just because the payment is made to third-party i.e.M/s Glaxo SmithKline Services, Unlimited, UK. It has been clarified that the said third-party has been maintaining the accounts of M/s SB Plc, UK - It is found that as long as the service is enjoyed by the contracting party, routing of payment or consideration through a third-party does not alter the position. The services rendered by the respondents to M/s SB Plc, UK constitute export of service as the services are utilized by a company situated outside India and used outside India - the Department has not made out any case for intervening with the impugned order - Appeal of Revenue dismissed. 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 PartyThe 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 PenaltyThe 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)