IT Service Provided By Assessee To Associate Company In USA Amounts To Export Of Service: CESTAT

The Adjudicating Authority demanded the Service Tax, holding that the appellant's supply of services to the corporation M/s Celtic Cross Holding Inc., USA did not constitute export. The adjudicating authority observed that the appellant could not prove that they had received the export proceeds in convertible foreign exchange. The appellant and the service recipient are not the establishment of a distinct person in accordance with item (b) of Explanation 3 of Clause (44) of Section 65B of the Finance Act. As per the department, both the appellant and service recipient fall under the same entity; hence, they are not a distinct person and the service does not fall under the category of export.

The appellant filed an appeal with the Commissioner after being aggrieved by the Order-In-Original (Appeals). From the order of the Commissioner (Appeals), the only issue left was that the appellant had not fulfilled the condition of Clause (f) Rules 6A(1) of the Service Tax Rules, 1994. Accordingly, the demand was upheld by the Commissioner (Appeals).

The appellant submitted that the appellant company and the service recipient company are two different entities as both are separately registered as independent companies in their respective countries. The shareholders of both companies are also different, even though some of the directors are common. Therefore, both are different and distinct people. Merely because a note was given in the balance sheet of the appellant company that the service recipient's company is an associated company of the appellant does not alter the legal status of independent entities of both the companies.

The CESTAT held that the appellant and the service recipient are two distinct persons, hence, the service provided by the appellant to M/s. Celtic Cross Holding Inc., USA, clearly falls under the export of service.

"Therefore, we are of the view that the demand confirmed by the adjudicating authority and upheld by the Commissioner (Appeals) is not correct and legal. The impugned order is set aside. Appeal is allowed," the court said.

Case Title: Celtic Systems Private Limited Versus C.C.E. & S.T.-VADODARA-I

Citation: Service Txt Appeal No. 10912 of 2021

Dated: 06.06.2022

Counsel For Appellant: Chartered Accountant Manan K Bhatt

Counsel For Respondent: Superintendent (AR) J. A. Patel

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