2026 (3) TMI 1068 - AT - Service Tax

Export of Service: on-site employee secondment qualifies as export where recipient is abroad and benefit accrues outside India.

Assignment of employees to foreign group companies on an on-site basis qualifies as export of service where the recipient is located abroad and the ... Export of services - beneficiary-location test - commission received in convertible foreign exchange - business auxiliary services - applicability of export of service rule 3(1)(iii) read with Section 65(19) of the Finance Act, 1994 and relevant administrative guidance (Circular No. 111/5/2009-ST) - Whether the service rendered by the appellants to their oversees entities are used outside India. Export of services - used outside India - Services rendered by the appellant to its overseas group entities qualified as export of services because the beneficiary was located outside India and consideration was received in convertible foreign exchange - HELD THAT:- Since the beneficiary is located outside India and the consideration was received in foreign exchange, there should not be any doubt that the service provided by the appellant is used outside India. It is not the case of the department that the on-cite assignment of the employees was for concentration paid in Indian rupees. The mere fact that the services are rendered in India and in an office located in India cannot be a decisive factor in coming to a conclusion that the services were not exported. Other than alleging that the services were received in India, Revenue did not prove as to how the services were used in India and were not used outside India. Under the circumstances, the claim of the appellant cannot be brushed aside. We do not find any force in the argument of the revenue that the assignment of the employees being on-cite, it can be concluded that the services are used in India. We find that the phrase “on-cite” only indicates the place of working of the employees assigned by the appellants. It in no way conveys an understanding that the services rendered by the said assigned employees were used inside India. The Tribunal applied the beneficiary-location test under the Export of Services Rules and related Circulars, holding that the relevant factor is the location of the service recipient and where the benefit of the service accrues, not the physical place of performance. The appellants demonstrated that employees were assigned to overseas entities, invoices were raised, and consideration was received in convertible foreign exchange; revenue did not prove that the services were used within India. The Tribunal also relied on earlier decisions of the Bench to conclude that on-site performance in India does not negate export when the recipient/beneficiary is abroad and payment is in foreign exchange. In Glaxo Smithkline Asia Pvt Ltd [2023 (10) TMI 998 - CESTAT CHANDIGARH], to conclude that on-site performance in India does not negate export when the recipient/beneficiary is abroad and payment is in foreign exchange. [Paras 6, 7] The services were held to be exported and therefore not liable to service tax as charged by the department. Final Conclusion: The impugned order confirming service tax demand was set aside; the appeal is allowed as the services were held to be exports (recipient located abroad and payment in convertible foreign exchange) and the absence of a written agreement was immaterial. Consequential relief, if any, to follow as per law. Issues: Whether the services provided by the appellant (assignment of employees to foreign group companies on on-site basis) were 'used outside India' and therefore qualify as export of service under the Export of Service Rules, 2005.Analysis: The Court examined the applicability of export of service rule 3(1)(iii) read with Section 65(19) of the Finance Act, 1994 and relevant administrative guidance (Circular No. 111/5/2009-ST) and noted that the statutory scheme and the explanatory circular treat export status as determined by the location of the service recipient and the accrual of benefit to a recipient located outside India. The Court observed that the absence of a written agreement is not determinative and that an oral understanding, supporting invoices and receipt of consideration in convertible foreign exchange establish the contractual relationship. The Court found that mere physical performance of services in India or on-site working does not by itself show that services were used in India, and that Revenue failed to demonstrate that the services were consumed within India. The Bench relied on earlier Tribunal decisions involving identical facts including Glaxo Smithkline Asia Pvt Ltd and authorities emphasising that service tax is a destination-based consumption tax and that the critical factor is the recipient's location and where the benefit accrues.Conclusion: The services rendered by the appellant were used outside India and qualify as export of service; the impugned order confirming service tax is set aside and the appeal is allowed with consequential relief, in favour of the assessee.