The Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has struck down a Rs. 67 crore service tax demand raised by tax authorities on a Navi Mumbai–based IT services exporter.
The bench of Ajay Sharma (Judicial Member) and C.J. Mathew (Technical Member) ruled that income derived from exports of IT and IT-enabled services (ITeS) could not be reclassified as domestic taxable services, effectively granting major relief to companies operating under export promotion schemes.
The dispute originated from a show cause notice issued in December 2020 by the Commissioner of CGST & Central Excise, Belapur. Acting on information obtained from the Income Tax Department, the authorities alleged that the exporter’s 2015–16 income tax filings reported receipts of ₹18.98 crore, which were not reflected in its service tax returns.
Instead of verifying subsequent years’ accounts, the department applied a 20% year-on-year enhancement on this figure to estimate turnover from 2015 to 2017. On this basis, the Commissioner in May 2023 confirmed a tax liability of ₹67,03,49,992, along with interest, penalties, and late fees.
The adjudicating authority held that the company was effectively providing “secondment of personnel” and “provision of space” to overseas entities—activities which, under the Place of Provision of Service Rules, 2011, were taxable in India rather than qualifying as exports.
The exporter contended that it was operating under the Software Technology Parks of India (STPI) scheme with a valid Letter of Permission under the Foreign Trade Policy (FTP). All receipts were from genuine IT/ITeS exports, regularly reviewed by the Unit Approval Committee (UAC), which included tax authorities themselves. The STPI framework does not allow leasing or “provision of space,” contradicting the Commissioner’s interpretation. Payments were for software support services, not manpower supply. Reliance solely on income tax data without independent verification of services rendered amounted to a breach of natural justice.
The tribunal was critical of the tax department’s methodology. It noted that the demand was based on presumptions and third-party data rather than concrete evidence. The show cause notice failed to clearly identify the taxable service or service recipient. During adjudication, the Commissioner introduced a new case theory (treating exports as domestic services) without putting the assessee on notice, violating principles of natural justice. The exporter’s compliance under the FTP and STPI scheme, including periodic reviews, had been ignored by the authorities.
Concluding that the proceedings were “deficient from lack of adequate notice” and that the demand was “untenable,” the tribunal set aside the Commissioner’s order.
Case Details
Case Title: Maxval Technologies Pvt Ltd Versus Commissioner of CGST &Central Excise
Belapur
Case No.: Service Tax Appeal No: 86936 Of 2023
Date: 19/08/2025
Counsel For Appellant: Suresh Navalkar, Advocate
Counsel For Respondent: Manish Mohan, Commissioner (AR)
Read More: ‘A Service Will Not Become Taxable or Exempted Simply Because It Was So in the Past,’ Says CESTAT
