Export of services classification and 'used outside India' test: benefit accruing abroad qualifies services as export, relieving service tax liability.

Interpretation of 'used outside India' under the Export of Service Rules: the benefit of a service must accrue outside India even if all activities occur in India. The second proviso to the relevant rule supplements, not replaces, the first proviso by treating services delivered to goods or property located abroad via electronic networks as performed outside India; that exception was inapplicable here. Applying these principles, technical testing and analysis services commissioned and utilised abroad qualify as export of service and are not taxable as service tax. The impugned assessment was set aside and the appeal allowed.

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Issues: Whether service tax is leviable on bio-equivalence/bio-availability (BE/BA) studies provided by the appellant to overseas clients; specifically, (i) classification of the service as Technical Testing and Analysis Service (TTAS) or Scientific or Technical Consultancy Service (STCS), and (ii) whether such services qualify as export of service under the Export of Service Rules, 2005.

Analysis: The services consist of comparative testing and statistical analysis conducted in India with reports, data and in some cases pilot products delivered to clients abroad; payment was received in convertible foreign exchange. TTAS is within the scope of the Export of Service Rules and Rule 3(2) treats a taxable service as performed outside India if the service is provided from India and is used outside India. The proviso added by Notification No.05/2008-ST (01.03.2008) expands treatment where services relate to goods/materials situated outside India and are provided through electronic means, but does not restrict the operation of the original proviso addressing delivery/usage outside India. CBIC clarification that 'used outside India' means the benefit of the service should accrue outside India supports treating services commissioned and utilized abroad as exported even if performed in India. Coordinate decisions applying the same reasoning on testing/analysis services reinforce that provision of reports/data and use outside India constitutes part performance outside India under Rule 3(2). Once treated as export and payment is in convertible foreign exchange, sub-rule 4 exempts such services from service tax liability.

Conclusion: The BE/BA studies provided to foreign clients are to be treated as export of service under Rule 3(2) of the Export of Service Rules, 2005 and therefore not leviable to service tax; the impugned adjudication demanding service tax and penalty is set aside in favour of the assessee.

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