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, and demands premised on intermediary classification are set aside. Payment of service tax, interest and fifteen percent penalty during investigations satisfied the proviso to Section 78 of the Finance Act 1994, resulting in proceedings being deemed concluded to the extent of such payments; amounts beyond those payments were cancelled. The adjudicating authority's appropriation of the deposited sums is noted and the Department may verify interest computation; the appeal is allowed in part accordingly.

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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.

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