TaxTMI 
TaxTMI 
2013 (4) TMI 104
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....nteralia in the business of "Information Technology Software Services" as defined in Section 65 (105) (zzzze) of the Finance Act, 1994 and they are providing these services mainly to their overseas customers. These services are exported by M/s. TML to their overseas customers in two ways, i.e. by entering into a direct contract with its overseas customers or by entering into a contract with the overseas customers through its subsidiaries/branches located outside India. There are two components, namely, Offshore Software Development services provided by it from India and onsite Software Development Services provided by the subsidiaries located outside India. M/s. TML are availing CENVAT Credit of tax paid on input services used in providing the output services. Since they are mainly exporting these services on a regular basis, they are not able to utilize the CENVAT Credit availed by them. Hence, in terms of Rule 5 of the CENVAT Credit Rules, 2004 read with the Notification No. 05/2006-CE(NT) dated 14/03/2006, they have been filing refund claims of the un-utilized CENVAT Credit from time to time. In the adjudication of the said refund calims, the jurisdictional Assistant Commissione....
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....he service provider has the requisite technical, financial and human resources to receive and provide the service. Even on-site activities have to be validated, integrated and co-ordinated with the off-site work and therefore, services can be treated as provided from the business premises of the service provider. Rule 4 of the Service Tax Rules, dealing with the registration of the premises of the service provided from the premises of the service provider. The ld. Counsel also relies on the decision of the European Court of Justice in FCE Bank case wherein a question arose as to whether the Italian branch of the FCE Bank provided the service or the overseas headquarters of the FCE Bank in United Kingdom provided the same. The Italian VAT authorities sought to levy Italian VAT on the premise that service was provided by the Italian branch. Rejecting this claim, the European Court of Justice held that FCE Italy is not the establishment which provided the service but it is only the headquarters in UK. 3.2 The Second submission is that service tax is a contractual levy and is leviable on each contract of service. Vide Circular No. 334/1/2010-TRU dated 26/02/2010, a clarif....
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....nerally reflect the underlying transactions and financial flows. Only in specified or exceptional circumstances should the place of taxation vary from the main rule." In the present case, the agreement is between M/s TML India and the clients abroad. Therefore, it is M/s. TML who has provided the services to the clients abroad for which they have received consideration in convertible foreign exchange. Though part of the service is rendered by M/s. TML's subsidiary abroad to the client on behalf of M/s. TML in terms of agreement, it is M/s.TML India who should be considered as the service provider for the purposes of Export of Service Rules, 2005. 3.3 The third submission is that the question whether a particular taxable service is provided from India or not is to be answered only by recourse to Rule 3 of the Export of Service Rules, 2005. Since the service is intangible in nature, it is very difficult to determine the suits or locale of a service. In the Education Guide published by the CBEC, in guidance Note 5 relating to the Place of Provision of Services Rules, 2012, it has been stated that it is also a common practice to largely tax services provided....
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....rt of service from India. 3.6 The Ld. Counsel further submits that in case the refund claims cannot be considered under Rule 5 of the CENVAT Credit Rules then claim should be considered under the provisions of Section 11B of the Central Excise Act read with Section 83 of the Finance Act, 1994, inasmuch as the service tax paid on reverse charge basis to the subsidiaries is admissible, if the onsite services are considered as service not supplied from India. It is also urged that onsite activities are treated as exports under Customs Notifications, Foreign Trade Policy and Income Tax Act and therefore, in the case of service tax alone, there cannot be a different treatment in respect of onsite services as far as computer software development is concerned. 3.7 The department has also disallowed the CENVAT Credit amounting to Rs.4,33,90,810/-. These credits pertained to capital goods, services provided to the employees in respect of their Leave Travel Allowances/Concession, discrepancies in the invoices by non-mentioning of PAN based registration number, denial of CENVAT Credit on account of the unit not being covered under centralized registration and so on....
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....s provided in respect of immovable property situated outside India. Category II: Specified services provided wholly or partly outside India. Category III: Specified services in respect of which the recipient of service is located outside India. In the present case, the taxable service provided by TML is 'Information Technology Software Service" which is covered by category III services 4.3 Vide Notification No.2/2007-ST dated 01/03/2007, the Export of Services Rules, 2005 were amended by substituting sub-rule(2) of Rule 3 which reads as follows: '(2) The provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied, namely:- (a) such service is provided from India and used outside India; and (b) payment for such service provided outside India is received by the service provider in convertible foreign exchange. Explanation:................. The Export of Services Rules, 2005 were again amended vide Notification No. 06/2010-ST dated 27/02/2010. By this amendment, clause (a) of sub-rule (2) was omitted. Sub-r....
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....dication of this case: "4. However, it may be noticed that services can be supplied by the service provider on-site(i.e. work done at customer's site abroad) or off-site (i.e. work done in India). Rule 3(2) (a) states that provision of a service shall be treated as export if 'such service is provided from India and used outside India'. Thus it would need to be checked as to whether the service provider is providing services off-site or on-site. If part of the service is provided off-site and part on-site then only that portion which is provided from India can be treated as export..................." 4.6 Thirdly, TML's subsidiaries located outside India are independent contractors. They are not its agents, as contended. Even the contract between TML and its overseas subsidiaries does not support its contention that its overseas subsidiaries are acting on its behalf, i.e. they are providing service to its overseas customers as agents on behalf of TML. The Agreement dated 27/03/2008 between TML and Tech Mahindra (America) clarifies this position. Clause 19 of the said Agreement provides for relationship between them and reads as follows:- "19 Relationship:....
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....therefore it has to be treated as recipient and consumer of service and not the person receiving money in India through WU. This decision has no application to the facts of the present case. Firstly, in the present case the subsidiaries located outside India are not the agents of TML as per the agreement. They are independent service providers outside India and their services are also consumed outside India by the overseas customers. Therefore, the majority decision in Paul Merchants' case does not advance the case of TML. 4.8 The ld. Sr. Counsel for TML has referred to the CBDT Circular dated 17/01/2013 to say that on-site development of computer software qualifies as an export activity for tax benefits under Section 10A, 10AA and 10B of the Income Tax, 1961. However, the said argument totally ignores the fact that the majority decision in Paul Merchants' case on which the appellant has heavily relied on has held that 'what constitutes export of service is to be determined strictly with reference to the provisions of Export of Services Rules, 2005. 4.9 It is also claimed by TML that it is paying service tax on the services received from its subsidiaries under the reverse charge ....
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....dit Rules, is not meant for those output services provided from outside India for consumption outside India. In view of the foregoing submissions, the appeals filed by TML deserve to be dismissed and the Department appeals deserve to be allowed. 5. We have carefully considered the rival submissions. 5.1 The case before us relates to refund claims filed under Rule 5 of the CENVAT Credit Rules, 2004, read with Notification No.5/06-CE(NT) dated 04/03/2006 in respect of input services used in providing the output service, which is exported. There are 21 refund claims, of which 16 claims pertain to the period prior to 27/02/2010 starting from the month of November, 2008 and the remaining 5 claims are for the period post 27/02/2010. Since the transactions are exports, the meaning of the term 'export' has to be ascertained as provided for in the law. 'Explanation' to Rule 5 defines exports of output service as " the output service exported in accordance with the Export of Services Rules, 2005." 5.2 Rule 3 of Export of Services Rules, 2005 provides for export of taxable services and sub-rule (1) of Rule 3 classifies the taxable services under three categories and export of information t....
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.... "exports" as defined in the Export of Service Rules, 2005 and none else. 5.4 From the legal provisions as extracted above, it may be seen that for the period post 27/02/2010, the only condition required to be satisfied to constitute export of service is that payment for such services should be received by the service provider in convertible foreign exchange. There is no dispute in the present case that the appellant has received the consideration for the service rendered from the service recipient abroad in convertible foreign exchange both in respect of offshore services and onsite services rendered by them. There is no condition relating to place of provision of service post 27/02/2010. Even if the service is rendered from a place outside India, so long as the consideration is received in convertible foreign exchange, the transaction is treated as export. In other words, the rule does not differentiate between "on site services' and "off-site services". Therefore, there cannot be any denial of refund claims filed by the appellant for the period after 27/02/2010. In view of this legal position, order-in-appeal No. No. PIII/RS/120/2012 dated 20/03/2012 (ii) PIII/RS/128/2012 dated....
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....pment service to the appellant's overseas customers as such. Therefore, it cannot be said that the onsite services provided by the subsidiary have been rendered from India to the appellant's customers abroad. Thus the first condition that the service should be provided from India to constitute export is not satisfied. It is further seen from the records that when similar services are provided by the appellants' own branches abroad, they discharge the local taxes and do not pay any service tax under the reverse charge mechanism. In fact the appellant has filed an affidavit to this effect before us. This also goes to show that the service rendered abroad by way of onsite services cannot be treated as service 'provided form India'. In our view, whether a service is provided abroad or not cannot be decided on the basis of who is the service provider and it would be highly illogical to accord different treatment to the same service on the basis of who provided the services. In other words if the service provided by TML's branches abroad are not treated as 'exports", the very same service provided by TML's subsidiaries also cannot be treated as "exports". 5.6 Further, as per the details....
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.... given in the said Rules alone shall apply and "export of service" has to be construed and interpreted in terms of the provisions of the said Rules as they stood at the relevant time. The reliance placed on Paul Merchants Ltd. case by the appellant, in fact, goes against them. The ratio of the said case decided by the Tribunal was that the term "export" has to be understood strictly in terms of the provisions of Export of Service Rules, 2005. If that is done in the present case, in respect of "onsite services", it may be seen that since the said services are rendered abroad at the site of the customer by agencies located outside India, the same cannot be construed as provided from India. The appellant has also relied on the decision of this Tribunal in the case of National Building Construction Corporation of India Ltd. However, the said decision did no deal with a cross border transaction as in the instant case. Therefore, the ratio of the said decision has no relevance to the facts of the present case. The reliance placed by the appellant on the Education Guide published by the CBEC, relating to the Place of Provision of Service Rules, 2012, also does not help since the said Rule....
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....they are not eligible for refund of service tax in respect of such services rendered abroad. Accordingly, order No. PIII/VM/227-280/2010 dated 20/10/2010 passed by the lower appellate authority has to be set aside and the Revenue's appeal against the same has to be allowed. Similarly, order No. PIII/RS/198-2007/2011 dated 25/07/2011 needs to be upheld in respect of the claims of the appellant for the period prior to 27/02/2010 and the TML's appeals in this regard merit to be rejected. 5.9 The appellant has made an alternate argument that if their refund claim can not be considered under Rule 5 of the CENVAT Credit Rules, 2004, then the same should be considered under section11B of the Central Excise Act, 1944. We do not understand the logic of this argument. If a transaction (onsite services) does not constitute export, how can a refund claim arise under section 11B of the Central Excise Act, 1944, in respect of the same transaction? The appellant has paid service tax on the services rendered to them by their subsidiaries (for which they have paid the consideration) on reverse charge basis, treating the same as deemed import of services as provided for under section 66A of the Fin....