Software services provided to Indian customers from India qualify as export of services under Rule 3(2)(a)

CESTAT Chandigarh allowed the appeal regarding export of services classification. The revenue department had confirmed demand arguing that services provided from India were consumed domestically by Indian customers, thus not qualifying as export of services under Rule 3(2)(a) of Export of Service Rules. The Tribunal relied on coordinate bench decisions in Orbit Research Associates case and larger bench ruling in Arcelor Mittal case, along with Bombay HC decision in A.T.E. Enterprises case, holding that the appellant's services qualified as export of services and were not liable for service tax under Business Auxiliary Service category. The impugned order was set aside.

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Issues Involved:
1. Whether the services provided from India and used outside India qualify as export of service.
2. Whether the demand for the period April 2006 to March 2007 is time-barred.
3. Whether the interest and penalties imposed are justified.

Summary:

1. Export of Services:
The appellant, a wholly-owned subsidiary of Carrier Corporation, USA, engaged in forwarding customer queries to overseas entities of the Carrier Group and receiving commissions in convertible foreign currency, was audited for the period 2003-2008. The audit observed that the appellant was providing Business Auxiliary Services (BAS) under Section 65(19)(iv) of the Finance Act and not discharging service tax by treating them as export of services. The Commissioner confirmed the demand of Rs. 13,83,43,721/- along with interest and penalties, arguing that the services were consumed in India and did not qualify as export of services due to non-fulfillment of Rule 3(2)(a) of Export of Service Rules.

The appellant contended that the services were provided to Carrier Overseas, and the benefit accrued to the overseas entities, thus qualifying as export of services under Rule 3(1)(iii). The appellant relied on various judicial precedents and Circular No. 111/5/2009-ST dated 24.02.2009, which clarified that the relevant factor is the location of the service receiver, not the place of performance.

The Tribunal, after considering the submissions and precedents, concluded that the services provided by the appellant qualify as export of services. The Tribunal referred to the Larger Bench decision in the case of M/s. Arcelor Mittal Stainless (I) P. Ltd., which established that services provided to a foreign entity, even if resulting in supplies to persons in India, qualify as export of services. The Tribunal also cited several High Court decisions supporting this view.

2. Time-Barred Demand:
The appellant argued that the demand for the period April 2006 to March 2007 is time-barred as there was no suppression of facts, and all amounts were shown in public documents. The Tribunal did not specifically address this issue in the judgment, focusing instead on the primary issue of export of services.

3. Interest and Penalties:
The appellant submitted that when service tax is not payable, the question of payment of interest under Section 75 and penalties under Sections 76, 77, and 78 does not arise. The Tribunal, having found that the services qualify as export of services, implicitly accepted this argument by setting aside the impugned order and allowing the appeal with consequential relief.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief, based on the finding that the services provided by the appellant qualify as export of services. The judgment emphasized the location of the service recipient as the determining factor for export of services, aligning with judicial precedents and departmental circulars.

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