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 Rules, 2005. It concluded that the services were provided to a recipient located outside India, and payment was received in convertible foreign exchange, meeting the necessary conditions for export. The Tribunal also clarified that the Supreme Court's decision in GVK Industries was not applicable to this case due to differing legislative contexts. The appeal was set for further hearing before the division bench.

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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 3
The 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 Decision
The 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.

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