Customs Excise and Service Tax Appellate Tribunal Vindicates Sojitz India Private Limited in Landmark Export of Services Case

Tribunal rules services provided to foreign entities as 'export of service', exempting them from service tax under the Export of Services Rules, 2005  

In a significant ruling, the Customs Excise and Service Tax Appellate Tribunal (CESTAT) in Mumbai has delivered a verdict in favor of Sojitz India Private Limited, a subsidiary of Sojitz Corporation, Japan. The Tribunal's decision exempts the company from paying service tax on services rendered to its foreign associates, designating these as 'export of service' under the Export of Services Rules, 2005.  

The case revolved around the interpretation of services provided by Sojitz India as an indenting agent to its overseas entities, notably Sojitz Machinery Corporation, Japan, and Sojitz Taiwan Corporation. The services included facilitating contracts, assisting in commercial and technical matters, and providing market intelligence. The core of the dispute was whether these services attracted service tax under the Finance Act, 1994.  

The Principal Commissioner of Central GST, Thane Rural, had previously demanded a service tax of over Rs. 2.77 crore, arguing that the services constituted a taxable 'Business Auxiliary Service' (BAS). However, Sojitz India contended that these services were exports, as the benefit accrued outside India and payments were received in foreign currency, aligning with Rule 3 of the Export of Services Rules, 2005.  

The Tribunal, comprising Mr. S.K. Mohanty and Mr. M.M. Parthiban, upheld Sojitz India's position, citing the clarification by the Central Board of Excise & Customs (CBEC) that emphasized accrual of benefit and payment in foreign currency as determinants for export of service. The Tribunal pointed out that the services were indeed utilized outside India, with no service tax liability arising from such transactions.  

This judgment aligns with previous decisions by the Larger Bench and High Courts, which have consistently recognized similar services as exports, thereby exempting them from service tax. The Tribunal's ruling not only overturns the order of the Principal Commissioner but also provides clarity on the interpretation of export of services, reinforcing the principle that the location of service performance is irrelevant when determining export status.  

Bottom Line:

Services provided to foreign entities and receipt of commission are considered as "export of service" under the Export of Services Rules, 2005, and are not subject to service tax if they meet the criteria of accrual of benefit and payment in foreign currency.

Statutory provision(s):  

• - Finance Act, 1994 Section 65(105)(zzb)  
• - Export of Services Rules, 2005 Rule 3(1)(iii)  
• - Export of Services Rules, 2005 Rule 3(2)(a)  
• - Sections 73(1), 76, 78 of the Finance Act, 1994

Sojitz India Private Limited v. Pr. Commissioner of Central GST & Central Excise, (CESTAT)(Mumbai)(Regional Bench) : Law Finder Doc Id # 2811935