We are sharing with you an important judgment of the Hon’ble CESTAT, New Delhi in the case of Gap International Sourcing (India) Pvt. Ltd. Vs. Commissioner of Service Tax [(2014) –TIOL- 465 CESTAT-DEL)] on the following issue:


Whether the services performed in India for a service recipient located abroad will be treated as export services?

Facts & Background:

M/s Gap International Sourcing (India) Pvt. Ltd. (“the Appellant” or “the Company”) is a company registered in India and is a subsidiary of M/s GAP International Sourcing Inc., U.S.A. (“GAP International”), a prominent retailer in U.S.A. and other countries. The Appellant entered into a service support agreement with GAP International for rendering various services relating to procurement of goods from India viz. Services relating to procurement of goods, recommending fabrics to be used for manufacture of garments, recommending vendors from which fabrics, yarn, zippers, buttons, snap fasteners etc., can be procured, reporting the status of manufacture of products by the chosen vendors, analyzing the reports of the samples sent by the vendors, giving recommendation about the product integrity, inspecting export consignments and issuing inspection certificates etc. The Company received the consideration for the services rendered in convertible foreign exchange.

The Department was of the view that the services rendered by the Company cannot be treated as export in terms of Export of Service Rules, 2005 (“the Export Rules”) since the conditions of delivery outside India and used outside India are not satisfied.

Accordingly, after issue of show cause notice dated 10/01/08, the Jurisdictional Commissioner vide Order-in-Original dated 01/09/08 confirmed the service tax demand of Rs. 5,66,98,112/- along with education cess for the period from 19/4/06 to 31/5/07 and also the interest thereon under Section 75 of the Finance Act, 1994 (“the Finance Act”) and besides this, imposed penalty of Rs. 5,66,98,112/- on the Appellant under Section 78 and also the penalty of Rs. 1,000/- under Section 77 of the Finance Act.

Against this order of the Commissioner, the present appeal has been filed with the Hon’ble Delhi CESTAT.


The Hon’ble Delhi CESTAT held that though the services have been performed in India but these services being Business Auxiliary Services covered by Section 65 (105) (zzb) read with Section 65 (19) of the Finance Act, are in respect of the business of the Appellant’s principal located abroad. The services being provided by the Appellant are obviously meant for and are used by GAP International for their business.

The services being provided by the Appellant are covered by Clause (iii) of Rule 3 (1) of the Export Rules, as these services are in relation to business or commerce and in terms of this clause, read with sub-rule (2) of Rule 3 of the Export Rules, these services would be treated as exported out of India if the recipient is located outside India and the same have been delivered outside India and used outside India and payment for the same has been received by the service provider in convertible foreign exchange.

The Export Rules and Taxation of Service (provided from outside India and received in India) Rules, 2006, read with Section 66A of the Finance Act are in accordance with the law laid down by the Apex Court in case of All India Federation of Tax Practitioners (2007) 7 SCC 527 and Association of Leasing and Financial Service Companies reported in 2010 TIOL-87-SC-ST-LB that “Service tax is a value added tax, which, in turn, is a destination based consumption tax in the sense that it is not a charge on business but is a charge on the consumer”. Therefore, what constitutes export of service has to be decided strictly in accordance with the provisions of the Export Rules and for this purpose, in case of services in relation to business or commerce covered by Rule 3 (1) (iii) of the Export Rules.

The Hon’ble Tribunal rejected the Department’s contention that the conditions of “delivery outside India” and “use outside India” are not satisfied, as the user and beneficiary of the services rendered by the Appellant is GAP International located abroad. It was further held that it would be absurd to say that the recipient and user of these services are the persons in India and not GAP International who have used these services for their business and have made payment for these services in convertible foreign exchange.

The Hon’ble Tribunal further observed that GAP International does not have any branch or project or business establishment in India. The business auxiliary services rendered by the Appellant are entirely meant for GAP International located abroad. Accordingly, it was held that the services have to be treated as delivered and used outside India and since payment for the service has been received in convertible foreign exchange, the same would have to be treated as exported out of India.

Hence, the Hon’ble Delhi CESTAT rejected the contention of the Department and decided the case in favour of the Company.


(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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5 responses to “Services performed in India for a service recipient located abroad are export of services”

  1. Esakkinathan says:

    Dear Sirs,

    I’m providing automobile product inspection service for my overseas customers and domestic customers. For domestic customers service i’ve collected the tax and paid to service tax promptly. For overseas customers as per my tax consultant advise i’ve not collected the tax and it has been considered as “Export of Service”. Now the service tax auditing team has raised the issue according to DEFINITION

    Rule 6A of Service Tax Rules, 1994 gives the meaning of “Export of Service”.

    d) the place of provision of the service is outside India,

    In my case we are providing the service in India. But the service recipient in abroad. We are providing service on his product which he exported to India to their customer. On behalf of the foreign manufacturer we are inspecting his product at their customer end and billing to foreign manufacturer in foreign currency he’s paying the invoices in foreign currency to me. this case in similar to the “Whether the services performed in India for a service recipient located abroad will be treated as export services?” the case details published in taxguru on 02 April 2014.

  2. Gaurav Jain says:

    Dear sir,
    whether services perform in india by an indian service provider to service receiver outside india are taxable as per new Service tax provision w.e.f 01-04-2012.
    which POPs Rule is aplicable for taxability of such service.

  3. sudarshan says:

    Rule 9 may not be applicable as this is not intermediary service: The service provider is not facilitating any service for any other person. Supposing A gets some work from B,C,D and so and outsource this work to E , it will be intermediary service. In the above case law referred it is not. Any other views?

  4. GAUTAM says:

    Dear All,

    I also agree with Mr. Vijaykumar above. As the service is performance based services and relates to goods, Rule 4 would be applicable and hence place of provision would be where service is performed i.e. India and shall be taxable.

    At the same time I also believe the service also falls under Rule 9 as it is a service support agreement can fall under “Intermediary Services”. If a service prima facie falls under more than one rule then Rule 14 asks to follow the rule comes later i.e. Rule 9. However, in that case, the service provider’s location becomes place of provision i.e. again Indian entity would be required to pay service tax on that transaction as service being provided from India.

    These are probably the disadvantages of POP Rules as had there been export of services rules prevailing it could have exempted such services on the first go as export of services.

    Best Wishes.

  5. CMA M K Vijayakumar says:

    Dear All,
    The above judgement is relevant prior to 01.07.2012. Since Place of Provision of Services Rules are in place where Rule 4 negativates such an activity under Export of services though the Recipient of Services is in Non Taxable Territory. Still no case study has come on this to the best of my knowledge. If there is any different view on this may please be shared for better understanding.

    CMA M K Vijayakumar

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