2023 (8) TMI 107 - AT - Service Tax

Tribunal Confirms Arcelor India's Services to France as 'Export of Service' Under 2005 Rules; Appeal to Continue.

The Tribunal determined that the services rendered by Arcelor India to Arcelor France qualify as 'export of service' under Rule 3 of the Export of Service ... Export of service - destination based consumption tax - Business Auxiliary Service - services provided from India and used outside India - service delivered outside India and used outside India - recipient of service located outside India - used outside India (benefit accrues outside India)Export of service - Business Auxiliary Service - recipient of service located outside India - used outside India (benefit accrues outside India) - services provided from India and used outside India - service delivered outside India and used outside India - destination based consumption tax - Whether the services rendered by Arcelor Mittal Stainless India (sub-agent) to Arcelor France qualify as export of service under the Export of Services Rules, 2005 (in its various forms) and are therefore not leviable to service tax for the period in dispute. - HELD THAT: - The Tribunal held that Arcelor India provided Business Auxiliary Services to Arcelor France, which is the service recipient located outside India, and received consideration in convertible foreign exchange. Applying the destination-based consumption tax principle, the place of consumption is determinative and not the place of performance. The Export of Services Rules require that (depending on the temporal version) the recipient be located outside India and that the service be delivered/used outside India or be provided from India and used outside India; the CBEC circular clarifies that for Category III/BAS services the relevant factor is location of the recipient and that 'used outside India' means the benefit accrues outside India. On these foundations and the factual finding that Arcelor France was the contractual/principal recipient (with Arcelor India acting as sub-agent to procure orders), the Tribunal concluded that the services were delivered/used outside India (pre-01.03.2007 formulation) and provided from India but used outside India (post-01.03.2007 formulation), and that payment was in convertible foreign exchange - thereby satisfying the Export Rules. The Tribunal further observed that prior consistent decisions and the CBEC clarification support treating such agency/sub-agency activities as export of services even where the ultimate physical supply of goods is to Indian customers, because the service recipient and the beneficiary of the service (the foreign principal) are located outside India. [Paras 46, 50, 51, 52, 54]The services rendered by Arcelor India qualify as export of service under the Export of Services Rules, 2005 (in its varied formulations), and therefore are not leviable to service tax for the period in dispute.Export of service - used outside India (benefit accrues outside India) - recipient of service located outside India - Whether the Supreme Court decision in GVK Industries Ltd. (interpreting a deeming provision in the Income Tax Act) is applicable to the interpretation and application of the Export of Services Rules, 2005 in this case. - HELD THAT: - The Tribunal distinguished GVK Industries as a decision grounded on a deeming fiction under Explanation (2) to Section 9(1)(vii)(b) of the Income Tax Act, which treated certain non-resident receipts as accruing or arising in India for income tax purposes. The Service Tax regime and the Export Rules contain no comparable deeming provision; service tax operates as a destination based consumption tax and the Export Rules must be interpreted in that context. The factual matrix of GVK (consultancy to secure project finance for a project in India) is materially different from the present case of agency/sub-agency relationships where the foreign principal is the recipient of BAS and payment is in foreign exchange. Consequently, reliance on GVK Industries to negate export treatment here was held to be misplaced. [Paras 36, 39, 41, 53]GVK Industries is not applicable to the interpretation or outcome of the Export of Services Rules in this case and cannot be invoked to deny export of service treatment to Arcelor India.Final Conclusion: The Tribunal concluded that Arcelor Mittal Stainless (I) P. Ltd. (Arcelor India) rendered Business Auxiliary Services to Arcelor France which, being the service recipient located outside India and having paid in convertible foreign exchange, satisfy the Export of Services Rules (pre and post amendment formulations). The services therefore qualify as export of service and are not leviable to service tax for the period in dispute; the Supreme Court decision in GVK Industries was held inapplicable to the facts and law governing export of services under the Finance Act/Export Rules. Issues Involved:1. Whether the services rendered by Arcelor India qualify as 'export of service' under the Export of Service Rules, 2005.2. Interpretation of the phrases used in Rule 3 of the Export of Service Rules, 2005.3. Applicability of the Supreme Court decision in GVK Industries to the facts of the case.Summary:Issue 1: Qualification as 'Export of Service'Arcelor India, a sub-agent of Arcelor France, provided services to Arcelor France in procuring sale orders for steel mills outside India. The core dispute was whether the commission received by Arcelor India from Arcelor France for these services qualified as 'export of service' under the Export of Service Rules, 2005 (2005 Export Rules). Arcelor India argued that there was no privity of contract between it and the foreign steel mills, and it received consideration only from Arcelor France. The department contended that the services were performed and consumed in India, thus not qualifying as 'export of service.' The Tribunal concluded that Arcelor India provided services to Arcelor France, which is located outside India, and received payment in convertible foreign exchange. Therefore, the services rendered by Arcelor India qualify as 'export of service' under Rule 3 of the 2005 Export Rules.Issue 2: Interpretation of Phrases in Rule 3The Tribunal examined the extant and scope of phrases used in Rule 3 of the 2005 Export Rules:- Rule 3(3)(i) (up to 18.04.2006): 'Such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India.'- Rule 3(2)(a) (from 19.04.2006 to 28.02.2007): 'Such service is delivered outside India and used outside India.'- Rule 3(2)(a) (from 01.03.2007 onwards): 'Services provided from India and used outside India.'The Tribunal clarified that for services to qualify as export, the relevant factor is the location of the service recipient, not the place of performance. The benefit of the service should accrue outside India, and the service recipient should be located outside India. The Tribunal held that Arcelor India met these conditions as it provided services to Arcelor France, located outside India.Issue 3: Applicability of GVK Industries DecisionThe Tribunal distinguished the Supreme Court's decision in GVK Industries, which dealt with the interpretation of Section 9(1)(vii)(b) of the Income Tax Act, involving a deeming fiction for income accruing in India. The Tribunal noted that the Finance Act and the 2005 Export Rules do not contain such deeming fiction. The decision in GVK Industries was based on a different legislative context and was not applicable to the present case. The Tribunal concluded that the services rendered by Arcelor India to Arcelor France qualify as 'export of service' under the 2005 Export Rules, and the reference to GVK Industries was misplaced.Conclusion:The Tribunal answered the reference by affirming that Arcelor India provides 'export of service' as contemplated under Rule 3 of the 2005 Export Rules, as the services were provided to Arcelor France, located outside India, and payment was received in convertible foreign exchange. The appeal was directed to be listed for hearing before the division bench.