By TIOL News Service

MUMBAI, AUG 21, 2017: DURING the period 2004-05 to 2008-09, the appellants paid service charge to foreign-based companies for testing and analysis of sample sent by them. The reports of the test and analysis provided by the foreign-based company were received and utilised by the appellants.

Revenue was of the view that the appellant ought to have discharged service tax liability on reverse charge basis in terms of rule 2(1)(d)(iv) of the STR, 1994.

SCNs for the impugned period were issued and confirmed by the original authority.

In appeal, the Commissioner (Appeals) upheld the demand for the period from 18.04.2006 onwards and dropped the demand for the prior period.

The appellant is before the CESTAT and submits that admittedly the foreign service provider is providing service of technical testing and analysis in respect of the goods of the appellants outside India only; therefore, entire service was wholly performed outside India; that as per the Taxation of Services (Provided from outside India and received in India) Rules, 2006 issued vide notification 11/06-ST dated 19.04.2006 as per sub-rule 3 of clause (ii) the services falling under (zzh) can be taxable only when such service are performed in India. Inasmuch as in the present case the appellants supplied the goods to foreign country and the testing was conducted on such goods outside India only and, therefore, the same is not taxable.

Reliance is inter alia placed on the decisions in BMD Pvt. Ltd - 2012-TIOL-743-CESTAT-DEL and Crompton Greaves Ltd. - 2015-TIOL-2724-CESTAT-MUM.

The AR reiterated the findings of the impugned orders.

The Bench observed –

"4. … We find that there is no dispute in the fact that technical testing and analysis service was provided by the foreign service provider in relation to the testing of the goods supplied by the appellants to foreign country. The performance of such service was wholly carried out in foreign country. For the purpose of levying service tax on the services provided from outside India and received in India, section 66A was enacted wherein Taxation of Services (Provided from outside India and received in India) Rules, 2006 was issued. The relevant provision of rule is reproduced below:- "3. Taxable services provided from outside India and received in India. - x x x"

5. In the present case service of technical testing and analysis is covered under sub-clause (zzh) of clause 105 of Section 65 of Finance Act, as per sub-clause (ii) of Rule 3 as reproduced above, in case of technical testing and analysis service (zzh) if such service is performed in India even either wholly or partly by the person located outside India then it will be taxable in the hands of the recipient under the reverse charge mechanism. However, in the present case the technical testing and analysis was provided wholly in a country outside India, therefore by virtue of Rule 3 clause (ii) the said service is not liable to service tax. This issue has been considered by this Tribunal in the case of Crompton Greaves Ltd. (supra) wherein the Tribunal has passed the following order:- x x x"

In fine, the impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-3010-CESTAT-MUM)