2026 (3) TMI 984 - AT - Service Tax

Export of services: supplies to foreign educational institutions treated as exports, and payments during probe can deem proceedings concluded.

Services supplied to foreign educational institutions for consideration in foreign exchange are treated as export of services, not intermediary services, ... Taxability of services - commission received from foreign universities/ institutions for arranging/ facilitating enrolment of students from India - export of services - intermediary services - demand of service tax and proposing to impose penalties by invoking the extended period. Services to foreign educational institutions - HELD THAT:- The issue, is no more res integra as this Tribunal in several decisions has held that the appellant was exporting its services, and does not act as an intermediary on behalf of any FEI. We draw support from the Delhi High Court in Commissioner of Central Tax, CGST Delhi East, Versus M/S T C Global India Pvt Ltd [2025 (10) TMI 371 - DELHI HIGH COURT], The High Court has held that the appellant’s services when rendered to foreign universities and the earnings being in foreign exchange would not constitute intermediary services. The taxability of the services provided within India is not in dispute. However, it has been submitted by the Ld Counsel that the appellant had deposited an amount of Rs. 4,18,02,719/- during the investigations. We note that this amount has been appropriated by the adjudicating authority in the impugned order. Ld Counsel has submitted that they have paid the service tax, interest and 15% penalty and has sought relief under section 78 of the Act. It is abundantly clear that if the service tax dues, interest thereon along with 15% as penalty has been paid within 30 days of the issuance of the show cause notice, then the proceedings are deemed to be concluded. As submitted by the Ld Counsel, this aspect has also been clarified by the Board in its Circular No. 137/46/2015-ST dated 18.8.2015. In the instant case, we note that the appellant had deposited certain amount towards service tax dues, interest thereon and 15% as penalty before the issuance of the said notice. Hence, in the light of the above statutory position, the proceedings are deemed to have concluded. Final Conclusion: The appeal was allowed in part: demands and penalties based on the finding of intermediary services for supplies to foreign educational institutions were set aside, and the adjudication was held concluded to the extent that service tax, interest and 15% penalty had been paid before issuance of the show cause notice; the remainder of the impugned order stands affirmed subject to verification of interest. Issues: (i) Whether services provided to foreign educational institutions constitute intermediary services; (ii) Whether proceedings stood concluded under the second proviso to Section 78 of the Finance Act, 1994 on payment of service tax, interest and 15% penalty prior to issuance of the show cause notice.Issue (i): Whether services rendered to foreign educational institutions are intermediary services.Analysis: Coordinate decisions of the Tribunal and the Delhi High Court have held that services of the nature rendered to foreign universities, with consideration received in foreign exchange, do not constitute intermediary services but amount to export of services. The cited authorities and amendments to place of supply provisions support treating such services as exports rather than intermediary transactions.Conclusion: The impugned demand and penalty on the ground that the services were intermediary services are set aside in favour of the assessee.Issue (ii): Whether payment of service tax, interest and 15% penalty before issuance of show cause notice brings the case within the second proviso to Section 78 leading to deemed conclusion of proceedings.Analysis: Section 78 provides that payment of service tax, interest and fifteen per cent penalty within thirty days of the date of service of the notice under the proviso to section 73 results in proceedings being deemed concluded. The appellant deposited service tax, interest and 15% penalty during investigations and the amount was appropriated by the adjudicating authority. Board Circular No. 137/46/2015-ST dated 18.08.2015 and judicial precedents addressing the requirement for calculation and communication of interest and penalty are relevant to determine entitlement to the statutory benefit.Conclusion: Payment of service tax, interest and 15% penalty during investigations meets the condition in the second proviso to Section 78; proceedings are deemed concluded to the extent of such payment and the demand in excess thereof is set aside in favour of the assessee. The Department may verify payment of interest.Final Conclusion: The appeal is allowed in part: demands and penalties struck down to the extent covered by payments made by the assessee and the remainder of the impugned order is upheld.Ratio Decidendi: Where services rendered to foreign educational institutions are exports (consideration in foreign exchange) and not intermediary services, and where service tax, interest and fifteen per cent penalty are paid within the temporal conditions of the proviso to Section 78 of the Finance Act, 1994, proceedings stand deemed concluded and any demand beyond the amounts so paid must be set aside.