Consulting engineering services to overseas principals qualify as export of services under Rule 3

CESTAT Chandigarh held that consulting engineering services rendered by appellant to overseas principals during 2006-2009 qualified as export of services under Rule 3 of Export of Service Rules, 2005. Despite services being tailored for Indian projects, appellant had no direct communication with Indian entities and received consideration from overseas principals who uploaded approved designs to central repository. Service tax demand on club/association services abroad was set aside as services were utilized outside India. Appellant's liability for other services totaling Rs.5,29,728 plus interest was confirmed as previously paid, but all penalties were set aside. Appeal allowed in part.

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Issues Involved:
1. Whether the services rendered by the appellant as "Consulting Engineer" qualified as export during the period 01.04.2006 to 24.02.2009 under Rule 3 of Export of Service Rules, 2005.
2. Whether the appellant is liable to pay service tax on "Club or Association Service" and "other services" received during the period 2006-07 to 2010-11.
3. Whether the extended period is invocable in this case.

Issue-wise Detailed Analysis:

1. Export of Services:
The appellants, M/s Bechtel India Pvt. Ltd., argued that their services, which involved preparing drawings and designs for foreign principals, should be considered as export of services. The appellants contended that these services were used outside India, as the final deliverables were approved and uploaded in a Central Repository managed by their overseas entities. The Department, however, argued that the services were consumed in India and thus did not qualify as exports. The Tribunal relied on precedents, including the Larger Bench decision in M/s Arcelor Mittal Stainless India Pvt. Ltd., which emphasized that the location of the service recipient determines where the service is used. The Tribunal concluded that the services rendered by the appellants to their overseas entities constituted export of services during the impugned period, as the benefit of the services accrued outside India. Consequently, the demand on this issue was set aside.

2. Club or Association Service and Other Services:
The appellants contended that the "Club or Association Service" was availed abroad, with payments made in foreign currency, and thus should not be taxed in India. The Tribunal found that these services were indeed utilized abroad, and no evidence was provided by the Department to suggest otherwise. Therefore, the taxability of these services in India did not arise. Regarding other services, the appellants accepted their liability and paid the service tax along with interest before the issuance of the Show Cause Notice. The Tribunal confirmed the demand of Rs.5,29,728/- and interest of Rs.1,58,833/- already paid by the appellants.

3. Invocation of Extended Period:
The appellants argued that the extended period should not be invoked as they had a bona fide belief that the services rendered to overseas entities were not taxable. They relied on CBEC Circulars, particularly the one dated 24.02.2009, which clarified that if the recipient of the services is abroad, it would be accepted that the services are used abroad. The Tribunal noted that the Department itself had issued multiple circulars to clarify the position, indicating a lack of clarity. Therefore, it was unfair to allege suppression or willful misstatement on the part of the appellants. Consequently, the Tribunal set aside all penalties.

Conclusion:
The appeal was partly allowed. The Tribunal confirmed the demand of service tax and interest already paid by the appellants but set aside the rest of the demand and all penalties. The order was pronounced in open court on 06/09/2024.

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