2017 (10) TMI 1496 - HC - Service Tax

Court affirms Tribunal decision on foreign currency commission as export of service under 2005 Rules

Commissioner of Central Excise Jaipur-1 Versus M/s National Engineering Industries Ltd.

The court upheld the Tribunal's decision in favor of the assessee, ruling that the commission received in foreign currency, although routed through Indian ... Refund claim - Export of services - assessee had not received the payment on convertible foreign currency - contravention to Rule 3(1) (b) of the Export of Service Rules, 2005 - HELD THAT:- The very object of the Export of Service Rules, 2005 is that such services are performed outside India and payment for such service provided is received by the service provider in convertible foreign exchange. The assessee was a party to the services which was required to be rendered for earning the foreign exchange therefore a very narrow compass put by the department is considered then no citizen in India will be benefited from the exchange of foreign currency - the interpretation of the department cannot be accepted and we are bound to accept the interpretation as given by the tribunal. The issues are required to be answered in favour of the assessee and against the department - Appeal dismissed. Issues Involved:1. Whether the Tribunal was correct in law in deciding the issue in favor of the assessee regarding export of services when the payment was not received in convertible foreign currency, contravening Rule 3(1)(b) of the Export of Service Rules, 2005.Issue-wise Detailed Analysis:1. Common Question of Law and Facts:The appeals involved a common question of law and facts, hence they were decided by a common judgment. The appellant challenged the Tribunal's decision which allowed the assessee's appeal.2. Substantial Question of Law:The court framed the substantial question of law regarding whether the Tribunal was correct in law in deciding the issue in favor of the assessee concerning export of services even when the payment was not received in convertible foreign currency, contravening Rule 3(1)(b) of the Export of Service Rules, 2005.3. Facts of the Case:The assessee was appointed as a distributor by a foreign company to promote sales in India and received a commission on imports into India. The commission could be paid either directly by the Indian buyer in Indian rupees or by the foreign seller in foreign currency. The court noted that the commission received by the assessee in foreign currency was practically paid by the Indian buyer, either directly or through the foreign seller, indicating that the service cycle started and ended in India.4. Tribunal's Interpretation:The Tribunal observed that the commission was effectively paid by the Indian buyer, and the foreign currency remitted out of India was rotating back to India. Thus, such a service could not qualify as the export of service for exemption from service tax.5. Appellant's Argument:The appellant contended that Rule 3 should govern the field, emphasizing that payment for the service must be received in convertible foreign exchange. The appellant relied on the Supreme Court's decision in Saraswati Sugar Mills, which stated that exemption notifications should be construed strictly, and the conditions for taking benefit under the notification must be strictly interpreted.6. Respondent's Argument:The respondent relied on the Mumbai Tribunal's decision in Pam Pharma & Allied Machinery Company Pvt. Ltd. vs. CST Mumbai, which held that marketing services provided to a foreign counterpart, even if the payment was received in Indian currency, qualified as export of service. The respondent argued that the appellant complied with the Export of Service Rules, 2005, and was entitled to a refund claim.7. Court's Analysis:The court noted that the very object of the Export of Service Rules, 2005, was to ensure that services performed outside India and payment for such services were received in convertible foreign exchange. The Tribunal had observed that the assessee's commission was effectively paid in foreign exchange, although routed through Indian Railways in Indian rupees.8. Court's Conclusion:The court agreed with the Tribunal's interpretation, stating that a narrow interpretation by the department would prevent Indian citizens from benefiting from foreign exchange. The court concluded that the department's interpretation could not be accepted, and the Tribunal's interpretation was correct.9. Judgment:The issues were answered in favor of the assessee and against the department. The appeals were dismissed.