Business auxiliary services provided to foreign clients qualify as export of services and are exempt from service tax under Rule 3(i)(iii)

CESTAT Kolkata held that business auxiliary services provided to foreign clients qualify as export of services and are exempt from service tax. The assessee collected information for a UK-based company and supplied it directly to the foreign party. The tribunal applied Circular No. 111/05/2009-S.T., ruling that since the benefit of services accrued to the foreign principal rather than Indian customers, the services constituted export under Rule 3(i)(iii) of Export Service Rules. The service tax demand was set aside as the services were exempt being export of services.

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Issues:
Interpretation of 'export of service' under the Export of Services Rules, 2005 for services provided to foreign clients in convertible foreign exchange.
Applicability of Circular No. 111/05/2009-S.T. dated 24.02.2009 in determining the location of service receiver for 'business auxiliary services'.
Validity of demand for Service Tax on commission received from foreign clients.
Imposition of penalty under Section 78 of the Act for alleged evasion of Service Tax.

Analysis:
The case involved a dispute regarding the liability of Service Tax on the commission received by the Appellant for providing services to foreign clients. The Department contended that the commission received falls under 'business auxiliary service' and is taxable. The Appellant argued that services provided to foreign clients should be considered as 'export of service' under the Export of Services Rules, 2005, and hence exempt from Service Tax.

The Appellant relied on Circular No. 111/05/2009-S.T. dated 24.02.2009, which interpreted the phrase "used outside India" to mean that the benefit of the service should accrue outside India. They argued that since the foreign principals utilized the information provided by them outside India to negotiate directly with Indian customers, the services should be classified as 'export of service'. The Tribunal agreed with this interpretation and held that the services provided by the Appellant to foreign clients are exempt from Service Tax under the category of 'export of service'.

The Tribunal also noted that the Circular No. 141/10/2011-TRU dated 13.05.2011, relied upon by the Department, was issued after the period in question (2006-07 to 2010-11). Therefore, it held that the Circular dated 24.02.2009 is applicable in this case for interpreting the phrase "used outside India".

Furthermore, the Tribunal found that the Appellant had no role in the purchase of goods by Indian customers and that the benefit of the services accrued only to the foreign principal. Citing the Circular's interpretation that the location of the service receiver is crucial, the Tribunal concluded that the services rendered by the Appellant to foreign clients indeed qualify as 'export of service'.

Consequently, the Tribunal set aside the demand for Service Tax, ruling in favor of the Appellant. Since the demand itself was deemed unsustainable, the Tribunal held that there was no basis for demanding interest or imposing a penalty on the Appellant for alleged evasion of Service Tax. Thus, the appeal filed by the Appellant was allowed, and the impugned order was set aside.

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