MANU/CB/0301/2008

Equivalent Citation: [2008]13STJ355(CESTAT-Bangalore), 2008[10]S.T.R.308(Tri. - Bang.)

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL

SOUTH ZONAL BENCH, BANGALORE
Appeal No. ST/349/2007 (Arising out of Order-in-Appeal No: 84/2007-CE Dated
29.5.2007 Passed by the Commissioner of Central Excise (Appeals-I), Bangalore)
Decided On: 28.01.2008
Appellants: Prakash Air Freight Private Limited
Vs.
Respondent: The Commissioner of Service Tax
Hon'ble Judges/Coram:
S.L. Peeran (J) and T.K. Jayaraman (T), Members
Counsels:
For Appellant/Petitioner/Plaintiff: K.S. Ravi Shankar and N. Anand, Advs.
For Respondents/Defendant: Sudha Koka, Authorised Representative (SDR)
Case Note:
Demand - Courier Agency Service - Appellants had provided 'Courier Agency
Service' partly outside India - Whether the same is liable for Service tax -
Held, Rule3(2) with effect from 15-6-2005, Appellant would be liable to pay
Service tax, as the service would be considered as export of service only if
payment is received in convertible foreign exchange - Whereas, for the
relevant period in terms of Rule 3(2), the services rendered by the
Appellant would be deemed to have been performed outside India and
therefore, the Appellant will not be liable for payment of Service tax during
that relevant period - Appeal allowed [para 3]
ORDER
S.L. Peeran, Member (J)
1 . This appeal arises from Order-in-Appeal No. 84/2007 CE dated 29.5.2005 by
which Service Tax has been confirmed on the appellants on the ground that they had
provided 'Courier Agency Service' partly outside India and the same is liable for
Service Tax. The period in question is 15.3.2005 to 15.6.2005. The appellant's plea
was that as the services were performed partly outside India and they are required to
be treated as export. This plea has not been accepted by the Commissioner (A)
despite the clarification issued by CBEC by F. No. 341/43/96-TRJ dated 31.10.1996.
The Commissioner (A) has held that the assessee has not received payment for such
services provided in convertible foreign exchange. This finding is challenged in this
appeal.
2. The learned Counsel submits that this very issue was subject matter of judgment
rendered by this Bench in the case of TNT India Private Limited v. CST,
Bangalore 2007 (7) STR 142 (Tri.-Bang.) wherein it has been held that the services
has been performed outside India and therefore, in terms of Rule 3(2) of Export of
Service Rules, 2005 Service Tax is not liable to be levied. This is contested by

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learned SDR on the ground that the assessee has not received payment in foreign
exchange and hence, the order passed by the Commissioner (A) is correct. The
learned Counsel submits that the period in question is same as was in that case of
TNT (supra) and the finding recorded on this issue as in that case clearly applies to
the facts of this present case.
3 . We have carefully considered the submissions, it is seen from the ruling of TNT
India Private Limited (supra) that this bench has analysed the provisions of Rule
3 of Export of Service Rules, 2005 in an identical situation wherein the services of
'Courier Agency' was performed outside India. This Bench after due consideration
held that they are not liable to pay Service Tax on such services performed outside
India. The findings recorded in Para 4 is reproduced herein below.
4 . Heard both sides. We reproduce Rule 3 of the Export of Services Rules,
2005.
3. Export of taxable Service - The export of taxable service shall
mean -
(1) in relation to taxable services specified in Sub-clauses
(d), (p), (q), (v) and (zzq) of Clause (105) of Section 65 of
the Act, such taxable services as are provided in relation to
an immovable property which is situated outside India;
(2) in relation to taxable service specified in Sub-clauses
(a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x),
(y), (z), (zb), (zc), (zi), (zj),...(zzx) and (zzy) of Clause
(105) of Section 65 of the Act, such services are as
performed outside India :
Provided that is such a taxable service is partly
performed outside India, it shall be considered to
have been performed outside India.
(3) In relation to taxable services other than.
(i) The taxable services specified in Sub-clauses (a), (f),
(h)... and
(ii) The taxable service specified in Sub-clause (d) as are
provided in relation to an immovable property of Clause
(105) of Section 65 of the Act,-
i. Such taxable services which are provided and
used in or in relation to commerce or industry and
the recipient of such services are located outside
India.
ii. Such taxable services which are provided and
used other than in or in relation to commerce or
industry, if the recipient of the taxable service is
located outside india at the time when such services
are received.
From the above Rules, it is clear that if taxable services

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 specified in Sub-rule (2) of Rule 3 are partly performed
outside India, such service shall be deemed to have been
performed outside India. Courier Agency is one of the
services specified in Rule 3(2) as the said service falls under
Section 55(105)(f). In the case of international courier
service, the consignment obviously has to be delivered
abroad. In the light of Rule 3(2) it is to be considered as
performed outside India. When the service is performed
outside India, there cannot be any Service Tax liability in
terms of Rule 4 as such a Service is deemed to be exported.
The performance of the service is completed only when the
courier is delivered outside India to the consignee. It is not
correct to say that the transportation is merely incidental in
providing courier service as held by the Adjudicating
Authority. In fact transportation is very crucial to the courier
service and courier agency rendering taxable service is
entitled to Cenvat credit on the duty paid on motor vehicles.
The Adjudicating Authority cannot go simply by the
clarification of the Ministry, which is contrary to law.
Ministry's clarification ignores Rule 3(2), according to which
when a service is partially performed outside India, it will be
deemed to be performed outside India. The fact that the
service provider and service receipt are in India is not
relevant while considering whether there is export of service
in the light of the deeming provision in Rule 3(2). All the
other points, such as contractual relationship between
service provider and service recipient the status of the
person receiving the courier, the fact that transportation is
merely incidental in providing courier service are not at all
relevant in the light of Rule 3(2). In our view, the
clarification dated 3-10-2005 issued by the Ministry with
regard to international courier agency is contrary to Rule
3(2) of Export Services Rules, 2005.
4.1. We also note that the Adjudicating Authority has imposed a penalty of
Rs. 4.5 crores, which is a very savage one, to say the least. The appellant did
not discharge the Service Tax liability on a bona fide understanding of the
law. In such a case, there is absolutely no justification for imposing penalty,
which is equal to twice the duty involved. We also note that with effect from
15-6-2005, Rule 3(2) of Export Services Rules 2005 has been amended by
insertion of 2nd proviso, which reads as follows :
Provided further that for the purposes of this sub-rule, any taxable
services provided shall be treated as export of services only if-
(a) Such service is delivered outside India and used in
business or for any other purpose outside India; and
(b) Payment for such service provided is received by the
service provider in convertible foreign exchange.
In terms of the above Rule with effect from 15-6-2005, the appellant would
be liable to pay the Service Tax, as the service would be considered as

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 export of service only if payment is received in convertible foreign exchange.
In any case for the relevant period in terms of Rule 3(2), the services
rendered by the appellant should to be deemed to have been performed
outside India and therefore, the appellant will not be liable for payment of
Service Tax during that relevant period in terms of Rule 4. In view of our
observations, the impugned order has no merits. We set aside the same and
allow the appeal with consequential relief.
4. We are of the considered opinion that the facts being similar to the above order,
therefore, the findings applies to the facts of this case also. Respectfully following
the ratio thereof, we set aside the impugned order and allow the appeal with
consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of
hearing)

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