CESTAT Delhi: No Service Tax on Expenditure Incurred Abroad by Indian IT Firm via UK Branch; Services Rendered & Consumed Outside India

Headnote:

The CESTAT, Delhi Principal Bench, held that services provided and consumed outside India are not liable to service tax under the Finance Act, 1994, even if invoiced or reimbursed through an Indian entity. Expenditure incurred by the Indian company for marketing, conferences, exhibitions, web hosting, and intermediary services abroad through its UK branch does not attract service tax under the Reverse Charge Mechanism (RCM) because the taxable event arises only when services are received in India. The Tribunal relied on Section 66B, Place of Provision of Services Rules, 2012, SEZ notifications, and multiple precedents (Milind Kulkarni v. CCE Pune-I, KPIT Cummins Infosystems Ltd., Infosys Ltd., Tata Technologies Ltd.), concluding that the services were rendered and consumed outside India and local taxes were already paid abroad. Consequently, the Revenue’s appeal for demanding service tax on foreign expenditure was dismissed.

Background:

The appellant, Principal Commissioner, CGST Delhi South Commissionerate, challenged the decision of the Commissioner dropping a service tax demand of ₹5.97 crore from M/s RateGain I.T. Solution Pvt. Ltd. The demand arose for the period 2010–11 to 2014–15 on foreign expenditure for marketing, conferences, exhibitions, professional fees, software licenses, web hosting, and proxy charges. The respondent, primarily an exporter of IT services (90% revenue from abroad), incurred these expenses through its UK branch, which acted as an intermediary. The Adjudicating Authority held that services were consumed outside India and exempt under SEZ notifications, and thus no service tax was payable. Aggrieved, the Revenue filed the present appeal.

Tribunal’s Observations/Analyses:

Hon’ble Ms. Binu Tamta, Judicial Member, observed:

1. Service tax is a destination-based consumption tax under Section 66B, applicable only to services provided or consumed within India.
2. Place of Provision of Services Rules, 2012 (Rule 9(c)) defines intermediary services and taxes them at the service provider’s location. Here, the UK branch acted as an intermediary; invoices show local taxes were paid abroad.
3. Expenditure incurred for exhibitions, marketing, advertising, web hosting, and proxy charges was for promotion and service provision outside India.
4. SEZ units up to August 2012 were exempt from service tax under Notifications 09/2009-ST and 17/2011-ST.
5. Reliance on multiple precedents (Milind Kulkarni v. CCE Pune-I, KPIT Cummins Infosystems Ltd., Tata Technologies Ltd., Infosys Ltd.) confirmed that services rendered and consumed abroad do not attract service tax in India.
6. No evidence showed that services were received in India; reimbursement through the UK branch does not create a taxable event.

Legal Provisions Discussed:

1. Section 66B, Finance Act, 1994 – Levy of service tax in taxable territory.
2. Rule 9(c), Place of Provision of Services Rules, 2012 – Intermediary services.
3. Section 51 & 53, SEZ Act, 2005 – Exemption and territorial scope.
4. Notifications 09/2009-ST and 17/2011-ST – SEZ service exemptions.

Decision:

The Tribunal held that:

1. Services provided and consumed outside India do not attract service tax under RCM.
2. Expenditure incurred abroad by the Indian company for marketing, professional services, web hosting, and conferences is not taxable.
3. The Revenue’s appeal was dismissed, and the Adjudicating Authority’s order dropping the service tax demand was affirmed.

(Pronounced in open court on 09.10.2025)

Citation: Final Order No. 51530/2025

Case: Principal Commissioner, CGST Delhi South Commissionerate v. M/s RateGain I.T. Solution Pvt. Ltd.

Tribunal: Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi – Court No. III

Coram: Hon’ble Ms. Binu Tamta, Member (Judicial) & Hon’ble Mr. Sanjiv Srivastava, Member (Technical)