TaxTMI 
TaxTMI 
2025 (7) TMI 562
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....h connect the freelancers with overseas clients that require their services in a particular field. It is the case of the Appellant that since they were engaged in export of services, they were under the bona fide belief that no service tax is payable and hence did not register themselves with the Service Tax Department. Consequently, the Appellant neither charged any amount of service tax from their clients nor deposited the same with the Department. The Appellant disclosed the nature of services alongwith receipts thereof in the Returns furnished under the Income Tax Act, 1961. Since the Appellant was compulsorily required to get its accounts audited under the provisions of the Income Tax Act, hence the Appellant also got its accounts audited and furnished the audit report in Form No.3CD alongwith its Income Tax Returns. That on the basis of third party information provided by the Income Tax Department, the Service Tax Department initiated an enquiry against the Appellant and on the basis of the aforesaid information, a letter dated 14.07.2021 was issued requesting the Appellant to furnish documents for verification of their service tax liability. A reply dated 22.07.2021 was file....
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....e Act readwith the Service Tax Rules, 1994 [ST Rules] and the Place of Provision of Service Rules, 2012 [POPS Rules]. It is also submitted that the overseas clients used to pay the Appellant in foreign currency which would then be transferred to the bank account of the Appellant vide Upwork or Freelancer. The transaction history of the Appellant on Freelancer during the relevant period also shows that the overseas clients used to pay the Appellant in convertible foreign exchange. Copies of the Bank statements for the period April, 2016 to March, 2017 and the transaction history of the Appellant on Freelancer are part of the appeal paper book. It is further submitted that the services provided by the Appellant fulfill all the conditions provided under Rule 6A of the ST Rules and thus qualify as 'export of services' on which no service tax can be charged. Reliance has been placed on the decision of the Tribunal in the case of Mitsubishi Heavy Industries India Pvt. Ltd. 2017 (9) TMI 358-CESTAT New Delhi, wherein it was held that the condition of Rule 6A of the Service Tax Rules for payment in convertible foreign exchange, shall stand satisfied if the service recipient transfers the mo....
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....rt of services' is as follows:- i. Service provider is located in the taxable territory (i.e. India); ii. Service recipient is located outside India; iii. Service provided is a service other than in the negative list; iv. Place of provision of the service is outside India; v. Payment is received in convertible foreign exchange; vi. Service provider and the service recipient are not merely a branch and head office of the same person. 10. In view of the above legal provisions the services provided to overseas clients qualify as export of services. It is also observed that:- i. The registered address of the Appellant is at Lucknow, India and the Appellant is located within the taxable territory of India; ii. The service recipients of the Appellant are all overseas clients who are based out of India and thus the location of the service recipient is outside India; iii. The services provided by the Appellant were not covered by the list of negative services; iv. The Appellant received payment in convertible foreign exchange; v. In terms of Rule 3 of the POPS Rules which is the general ru....
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....on will determine whether the service is leviable to tax in the taxable territory. The principal effect of the Main Rule is that:- A. Where the location of receiver of a service is in the taxable territory, such service will be deemed to be provided in the taxable territory and service tax will be payable. B. However if the receiver is located outside the taxable territory, no service tax will be payable on the said service." 12. I find that Circular No.209/1/2018-Service Tax dated 04.05.2018, provides that in the case of services pertaining to software development, the place of provision of service is the location of the service recipient. Relevant portion of the Circular dated 04.05.2018 is reproduced as follows:- "3. Applying the definition of "declared services" in section 66E(d) of the Finance Act, 1994, and the provisions of POPS, to the specific cases of services of development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software, the conclusions which can be drawn are as follows : 3.1 in the case of services where data, instructions etc. are provided so as....
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....(S.C.) held as under:- "7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country." From the above, it is clear that service tax is levied only on transactions where the place of provision of taxable service is in India. The charging provision does not extend the levy on service exported and consumed outside the taxable bounds of India. Therefore, the inescapable conclusion is that where the place of provision and consumption of service is outside India, the same would not be taxable in India. As discussed above, since Rule 3 of POPS Rules apply to the provision of services by the Appellant, the said services would not be taxable in India as their place of provision would be outside India. 14. I find that the Adjudicating Authority fails to understand that in demanding service tax, the twin conditions i.e. identification of the particular service rendered and the payment received for such services, either before,....