After analysing the nature of the activity of the respondent-telecom service provider, in light of the parameters delineated in the proviso to sub-rule (3) of Rule 3 of the Export of Service Rules, 2005, the Supreme Court affirmed the decision of the CESTAT in granting the benefit of the exclusion from taxable services to the activities of the respondent as being an activity of export of services. What has been determined by the CESTAT are purely findings of fact, and there is no perversity in the determination of the said findings. Therefore, the Court refused to interfere with the orders of the CESTAT and the High Court.
The Division Bench comprising Justice B V Nagarathna and Justice Satish Chandra Sharma observed that the clients/customers of the respondent with whom the contract of service has been entered into and from whom payment in convertible foreign currency is received by the respondent, are all located outside India. As per the CESTAT, the services have indeed been delivered outside India to the customers located outside India, and therefore, based on the performance test, the Bench answered in favour of the taxpayer and dismissed the Revenue’s appeal.
The Bench accepted the contention of the respondent that the actual services that have been rendered by them are Business auxiliary services, Telecommunication services, and Management, maintenance, and repair services. Since one of the points of controversy revolves around the interpretation of the expressions “delivered outside India and used outside India” and “provided from India and used outside India” in Rule 3 of the Export of Service Rules, 2005, the Bench rejected the Department’s counsel that even if the contractual customer is located outside India, they do not fall within the scope of the exemption.
The Bench rejected the submissions of the Department for the reason that service tax is a contract-based levy and therefore, it is the contract that determines the relationship between a service provider and a service recipient. Even if certain beneficiaries may be located in India, the service provider has no contractual relationship with such beneficiaries, and there is no privity of contract between the beneficiary and the service provider. Therefore, the mere fact that the beneficiary of the service is located in India would not be a determining factor for the levy of service tax under the Rules, as the service is provided to a recipient located outside India.
The Bench also accepted the submissions of the respondent that various preparatory activities, such as sourcing vendors, identifying customers, etc., may occur in India, but such activities alone would not mean that the service has not been exported to a party located overseas. Even if the customer has requested some service within India, what is of significance is to whom the service is provided and where the recipient of the service is located, and secondly, from whom the payment in convertible foreign exchange is received, and whether the recipient is located outside India.
Briefly, during the period from the year 1999 to 2003, any taxable service for which payment was received in convertible foreign exchange was exempted from payment of service tax, and Notification in this regard was issued vide Notification No.6/99-S.T., whereby exemption was made in respect of the taxable services specified in sub-section (48) of Section 65 of the Finance Act, 1994. This Notification was however, rescinded vide Notification No.2/2003-Service Tax, the reason being that the exemption would be of no consequence, as whatever service was exported out of India was in any case outside the scope of levy of service tax, because service tax is location-based and whatever service is exported abroad, is outside the scope of service tax. Consequently, Circular No.56/5/2003-S.T. was issued, clarifying that since service tax is a destination-based consumption tax, no such tax was leviable on export of services. Subsequently, Notification No.21/2003-S.T. was issued, providing exemption from payment of service tax on export of services in terms of sub-section (105) of Section 65 of the Finance Act, 1994, provided taxable services to any person in respect of which payment is received in India are received in convertible foreign exchange. When the position stood thus, the Government of India decided to formulate Rules regarding the export of services, which were introduced vide Notification No.9/2005, which categorized services into three categories. The controversy in these cases relates to the category, namely, whether such services were delivered or used, or consumed outside India, and partially to the category, whether such services were wholly or partly performed outside India.
Appearances:
ASG Vikramjit Banerjee, Senior Advocates V Raghuraman & Nisha Bagchi, AORs Anand Sukumar, Gurmeet Singh Makker, B. Krishna Prasad & Mukesh Kumar Maroria, a/w Advocates S Sukumaran, Sandhya Raghuraman, Bhupesh Pathak, Ruche Anand, Sughosh Subramanyam, Udai Khanna, Siddhartha Sinha, B. Sunita Rao, Seema Bengani, and V. Sinha, for the Appellant
Senior Advocates Sujit Ghosh, S K Bagaria, G. Shivadass, & V Sridharan, and AORs Abhishek Vikas, Mahfooz Ahsan Nazki, Aneesh Mittal, Mahua Kalra, T. V. S. Raghavendra Sreyas, B. Vijayalakshmi Menon, Pawanshree Agrawal, Deepak Thackur, Mannat Warchi, Vikas Upadhyay, Mannat Waraich, Naresh Kumar, Deepika Nandakumar, Aisha Bansal, M. P. Devanath, Gurmeet Singh Makker, Charanya Lakshmikumaran, Jatin, & Punit Dutt Tyagi, along with Advocates Nishant Shah, Kumar Visalaksh, Udit Jain, Virangana Wadhawan, Bhargavi Shukla, Vanita Bhargava, Ajay Bhargava, Nandita Chauhan, Nishant Shah, Kumar Visalaksh, Udit Jain, Virangana Wadhawan, Bhargavi Shukla, Bharat Raichandani, Deepak Kumar Khokhar, Komal Mittal, Mayank Nagi, Tarun Singh, Harish Bindhumadhavan, Ashwini Chandrasekharan, Shraya Thiyagarajan, Manoharan Ellappan, Siddharth Vasudev, Gayatri Gulati, Brahma Prakash Soni, Tushar Jarwal, Anuradha Dutt, Rahul Sateeja, Vikrant A Maheshwari, Harish Bindumadhavan, Ashwini Chandrasekharan, Disha Gursahaney, Shubhangi Gupta, Kamal Sawhney, Deepak Thackur, Aakansha Wadhwani, Rishabh Mishra, Ashray Behura, S. Ganesh, Prasad Paranjpe, Kumar Harshvardhan, Jasdeep Singh Dhillon, Prabhat Chaurasia, Anirudh Jamwal, Prashant Shivadass, Shradha Rajgiri, Abhishek Anand, Rahul Kumar, V Lakshmikumaran, Neha Choudhary, Ayush Agarwal, Umang Motiyani, Nitum Jain, R. Satish Kumar, V. Susheatha & Prateek Gupta.
