Xomox Sanmar Limited, a valve manufacturer that is part of the Chennai-based Sanmar Group, had a long-running contract to provide engineering and inspection services to its overseas group company, Xomox International GmbH & Co., Germany. Under that arrangement, Xomox Sanmar's personnel visited the premises of Sanmar Foundries in India to inspect castings before they were supplied onward, checking that the castings met the specifications Xomox International GmbH & Co. required, and billed Xomox International GmbH & Co. in convertible foreign exchange for the work. The department took the view that because the actual inspection happened on Indian soil, at an Indian foundry, the service could not be treated as having been exported, however the parties had structured the billing.
Revenue's demand covered two separate stretches of time and reflected two different ways of describing the same underlying activity. For the earlier period, up to 30 June 2012, the department classified the service as Consulting Engineer Service under Section 65(105)(g) read with Section 65(31) of the Finance Act, 1994. For the later period, it reclassified the same inspection and quality-related work as Technical Inspection and Certification Service, reasoning that personnel deputed by Xomox Sanmar were physically carrying out inspection at Sanmar Foundries' premises in India rather than performing the service from outside the country. On both classifications, the department reached the same conclusion: tax the activity as a service rendered and consumed in India, and deny any export benefit, treating the physical presence of Xomox Sanmar's engineers at an Indian foundry as decisive against the appellant.
The Tribunal did not accept that the place where the engineer physically stood decides where the service is exported to. What matters is who the contractual recipient of the service is and where that recipient is located, not the physical location of every step an Indian provider takes to perform the contract. Xomox International GmbH & Co., located outside India, was the party that had contracted for the engineering and inspection work, had actually used the results of that inspection in its own business abroad, and had paid for it in convertible foreign exchange remitted from outside India. On those facts, the recipient of the service was outside India even though part of the underlying activity happened here.
Bench members also dealt with the department's reliance on an older requirement that an exported service be both provided from India and used outside India. That twin test, which earlier versions of the export rules carried, was dropped with effect from 27 February 2010. For periods after that date, a service can qualify as an export so long as the recipient is located outside India and the other export conditions, such as payment in convertible foreign exchange, are satisfied, without a separate inquiry into whether every element of performance also physically occurred outside India. Incidental on-site work performed in India, such as the casting inspections carried out at the foundry here, does not by itself take the service outside the export category once the amended rule applies to the period in question.
Applying that reasoning across both the Consulting Engineer Service period and the later Technical Inspection and Certification Service period, the Tribunal held that Xomox Sanmar's engineering services to Xomox International GmbH & Co. qualified as export of services throughout, and set aside the service tax demands along with the associated interest and penalties that had been raised on the footing that they did not.
The ruling is useful to Indian engineering, inspection and technical service providers working for group companies or clients based abroad, particularly where the contract requires some hands-on work inside India, such as factory audits, quality checks or on-site certification, before goods move to the foreign buyer. The department has repeatedly tried to deny export status on the ground that such on-site steps happened in India, but this decision confirms that for periods after the 2010 amendment, the decisive questions are who the recipient is, where that recipient is located, and whether payment came in convertible foreign exchange, not whether an engineer's boots were on Indian soil at some point in the process.