2019 (10) TMI 327 - AT - Service Tax

Appellant's Services to AMSI France Not Export: No Service Tax Refund

The tribunal held that the services provided by the appellant to AMSI France did not qualify as export of services under the Export of Service Rules, ... Export of Services - Business Auxiliary Service - place of consumption/use of service - receipt of payment in convertible foreign exchange - interpretation of Export of Services Rules, 2005 - refund under Section 11B - reference to Larger Bench for conflicting tribunal precedentsExport of Services - Business Auxiliary Service - place of consumption/use of service - receipt of payment in convertible foreign exchange - refund under Section 11B - Whether commission-agent services rendered by the appellant to its foreign principal qualify as export of services and whether the refund claimed (including interest) is payable. - HELD THAT: - The Tribunal accepted that the services rendered by the appellant are classifiable as Business Auxiliary Service. The determinative question was whether those services qualified as Export of Services under the Export of Services Rules, 2005. The Tribunal examined the rule-conditions and amendments and found that, although the recipient was located outside India and payment was in convertible foreign exchange, the services were used by the foreign principal to develop business in India (procurement and booking of orders in India for sale in the assigned territories). Applying the principle in GVK Industries (as discussed in the judgment) and having regard to the source/nexus concept, the Tribunal held that services consumed for development of the foreign principal's business in India are effectively used/consumed in India and therefore do not satisfy the requirement of being used outside India for the purpose of export-of-service exemption. On that basis the appellant was not entitled to the claimed refund (including interest under Section 11B) of the service tax paid. [Paras 5]Claim for refund of service tax (and interest) was rejected on the ground that the services were used/consumed in India and therefore did not qualify as export of services.Interpretation of Export of Services Rules, 2005 - place of consumption/use of service - reference to Larger Bench for conflicting tribunal precedents - Whether the divergent approaches of coordinate Tribunal benches on interpretation of various phased formulations of Rule 3 of the Export of Services Rules, 2005 require reference to a Larger Bench and the specific questions to be resolved. - HELD THAT: - The Tribunal noted substantial conflict between its view and several earlier Tribunal decisions (and some Single Member orders and circulars) which had treated similar commission-agent services as exportable on the basis that the recipient was located outside India and payment was in foreign exchange. Given the contrary precedents and the significance of differing wordings of rule-phrases across amendment periods, the Bench concluded that judicial propriety required a reference to the President for constitution of a Larger Bench. The Tribunal formulated four specific questions of law concerning the scope of the relevant phrases in Rule 3 for the distinct amendment periods and whether services rendered to a foreign entity for development of its business in India qualify as export of service in light of the Apex Court decision in GVK Industries. [Paras 5, 6]Matter referred to the Hon'ble President for constitution of a Larger Bench to decide specified questions on the interpretation and scope of Rule 3 of the Export of Services Rules, 2005 across the relevant amendment periods and the effect of GVK Industries on services rendered to foreign entities for business development in India.Final Conclusion: The Tribunal held that the appellant's commission-agent services were used in India and therefore did not qualify as export of services; the refund claim (including interest) was rejected. Because of conflicting Tribunal decisions on the interpretation of the phased formulations of Rule 3 of the Export of Services Rules, 2005, the matter was referred to the President for constitution of a Larger Bench to decide the specified questions of law. Issues Involved:1. Classification of services provided by the appellant.2. Whether the services rendered qualify as export of services under the Export of Service Rules, 2005.3. Scope of the phrases 'provided and used in or in relation to commerce or industry and the recipient of such services is located outside India,' 'delivered outside India and used outside India,' and 'provided from India and used outside India.'4. Applicability of the decision in GVK Industries Ltd. vs. Income Tax Officer to the case.5. Entitlement to refund of service tax paid.Issue-wise Detailed Analysis:1. Classification of Services Provided by the Appellant:The tribunal confirmed that there was no dispute about the classification of services provided by the appellant to AMSI France. Both parties agreed that the appellant acted as a commission agent for AMSI France, procuring orders for the sale of goods in India. Thus, the services provided were classifiable as 'Business Auxiliary Service' under Section 65(19) of The Finance Act, 1994.2. Whether the Services Rendered Qualify as Export of Services:The appellant argued that the services provided should qualify as export of services because they were provided to a recipient located outside India, and payments were received in convertible foreign exchange. They relied on the Export of Service Rules, 2005, and various case laws to support their claim. However, the revenue contended that the services were used for the development of AMSI France's business in India, and thus, could not be considered as export of services.3. Scope of Phrases in Export of Service Rules, 2005:The tribunal examined the phrases 'provided and used in or in relation to commerce or industry and the recipient of such services is located outside India,' 'delivered outside India and used outside India,' and 'provided from India and used outside India' as they appeared in the Export of Service Rules, 2005, and their amendments. The tribunal noted that the services provided by the appellant were consumed in India for the business activities of AMSI France, hence failing to meet the criteria for export of services.4. Applicability of GVK Industries Ltd. vs. Income Tax Officer:The tribunal referred to the Supreme Court's decision in GVK Industries Ltd. vs. Income Tax Officer, which held that income earned by a foreign entity in respect of business activities in India could be subjected to tax in India. The tribunal applied this principle, concluding that the services provided by the appellant were used for developing AMSI France's business in India, thus not qualifying as export of services.5. Entitlement to Refund of Service Tax Paid:The tribunal considered the appellant's claim for a refund of service tax paid on the grounds that the services qualified as export of services. However, since the tribunal determined that the services were consumed in India, the appellant was not entitled to the refund. The tribunal also noted that judicial propriety required referring the matter to a larger bench due to conflicting views in previous tribunal decisions.Conclusion:The tribunal concluded that the services provided by the appellant to AMSI France were used for business activities in India and did not qualify as export of services under the Export of Service Rules, 2005. Consequently, the appellant was not entitled to a refund of the service tax paid. The matter was referred to a larger bench to resolve the legal questions regarding the scope of the phrases used in the Export of Service Rules, 2005.