TaxTMI 
TaxTMI 
2019 (10) TMI 327
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....under Section 83 of Finance Act, 1994." 2.1 During an investigation undertaken against the appellants, it was observed that Appellants had received commission in convertible foreign exchange during the period April 2005 to January 2009 and had not paid any Service Tax on such commission received. Subsequently they obtained registration under the category of "Business Auxiliary Service" and paid service tax along with the interest amounting to Rs. 1,27,55,058/- [Rs. 1,08,55,633/- (Service Tax) + Rs. 18,99,425 (Interest)] 2.2 Thereafter they filed a refund claim for the abovementioned amount on the ground that i. the recipient of the services provided by them were located outside India and the services were provided by them from India; ii. the proceeds were received in convertible foreign currency; iii. hence the services provided by them qualify as export of services; iv. since the service provided by them qualify to be export of services hence they were not required to pay service tax and the amount paid needs to be refunded. 2.3 Since revenue was of the view that the services provided by the appellants do not qualify as export of servic....
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.... a. They act as sub agent AMSI France (who do not have any office in India) who acts a commission agent (main agent) for various steel mills located outside India for procuring sale orders for the products manufactured by these mills. They are sub agent for territories of India, Sri Lanka and Bangladesh. b. Trading in stainless steel and items thereof imported into India from various steel mills outside India. ii. AMSI France receives the commission from the mills and in turn pay commission to them. They receive the commission in convertible foreign exchange. iii. Department undertook certain investigations in their premises and determined that they were required to pay service tax in respect of the commission received by them from AMSI France under the category of Business Auxiliary Services. They paid the amount of service tax along with interest due under protest. Thereafter realizing their mistake they had filed this refund claim which is subject matter of dispute. iv. The services provided by them would qualify to be export of services. For the services to qualify as Export of Service, in terms of Export of Services Rules, 2005 as amended fr....
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....ered the impugned order with submissions made in appeal and during the course of arguments. 5.2 There is no dispute about the classification of the services provided by the Appellants to its principals AMSI France. Both the sides agree that appellants are acting commission agent for their principals to procure orders for the sale of the goods in India, and hence the services provided are classifiable as "Business Auxiliary Service" as defined by Section 65(19) of The Finance Act, 1994. 5.3 The dispute in the present case is whether the services rendered by the appellant to AMSI France will qualify as Export of Services in terms of Export of Service Rules, 2005 as amended from time to time. The relevant excerpts from these rules as the existed during the period of dispute are reproduced below: Relevant portion of Rule 3 of Export of Service Rules, 2005 issued vide notification No 9/2005-ST 3. Export of taxable service.- The export of taxable service shall mean,- (1) .......; (2) ........: (3) in relation to taxable services, other than,- (i) the taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o)....
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....e Act, but excluding,- (a) sub-clauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service: Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India. (2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, namely:- (a) such service is delivered outside India and used outside India; and (b) payment for such service provided outside India is received by the service pro....
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....MSI, France are provided to the person located outside India and the payments against the same have been received in convertible foreign exchange, the services provided by them to the AMSI, France though classifiable under the category of "Business Auxiliary Service", shall get the benefit of export of services. 5.6 In their submission the services provided by them have been used by AMSI, France abroad hence they satisfy all the three conditions specified by the Export of Service Rules, 2005 as amended from time to time for considering the services provided to be export of service. The said conditions in respect of the "Business Auxiliary Service" are as follows: a. The services should be provided to service recipient located outside India. b. The services provided should have been consumed outside India. c. Payment against the services provided should be received in convertible foreign exchange. 5.7 They have relied upon series of case law to justify their stand to state that the services provided by them are consumed by the service recipient outside India. a. Blue Star Ltd. [2008 (11) STR 23 (T-Bang)], b. ABS India Ltd [2009 (13)....
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....ule", that is, income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. The Clause further mandates and requires that the services should be utilized in India. 23. Having stated about the "source rule", it is necessary to appropriately appreciate how the concept has developed. At the time of formation of "League of Nations" at the end of 1920, it comprised of only 27 countries dominated by the European States and the United States of America. The United Nations that was formed after the Second World War, initially had 51 members. Presently, it has 193 members. With the efflux of time, there has been birth of nation States which enjoy political independence and that has led to cross border and international trade. The State trade eventually has culminated in formulation of principles pertaining to international taxation jurisdiction. It needs no special emphasis to state that the said taxation principles are premised to promote international trade and to allocate taxation between the States. These rules help and further endeavour to curtail possibility of double taxation, tax discrimin....
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....ed on the aforesaid principle, it would apply where business activity is wholly or partly performed is a source State, as a logical corollary, the State concept would also justifiably include the country where the commercial need for the product originated, that is, for example, where the consultancy is utilized. 26. From the aforesaid, it is quite vivid that the concept of income source is multifaceted and has the potentiality to take different forms [See Klans Vogel, World-wide V. Source Taxation of Income - Review and Revision of Arguments (1988)]. The said rule has been justified by Arvid A. Skaar in Permanent Establishment; Erosion of Tax Treaty Principle on the ground that profits of business enterprise are mainly the yield of an activity, for capital is profitable to the extent that it is actively utilised in a profitable manner. To this extent, neither the activity of business enterprise nor the capital made, depends on residence. 27. The purpose of adverting to these aspects is only to highlight that the source rule has been accepted by them in the UN Commentaries and the Organisation of Economic Corporation and Development (OECD) Commentaries. It is well....
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....nomic concept based on the principle of equivalence in the sense that consumption of goods and consumption of services are similar, as they both satisfactory human needs. The important points emphasized in these judgments are that service tax, though levied on commercial activities, is a destination based consumption tax and that it is not a charge on business but on the consumer. Therefore when the service provided by a person in India is consumed and used by a person abroad, it is treated as export and is not taxed in India as the destination of the service provided and its use is outside India. In a reverse case, when the service provided by a person from outside India, is consumed and used by a person in India, it is taxed in India under reverse charge mechanism of Section 66A of the Finance Act, 1994. Thus the scheme of levy of service tax according to which - (a) when the service provider and service receiver, both, are in India, service tax is charged in India from the service provider; (b) when service provider is in India and service recipient is located abroad, no service tax is charged from the service provider, and (c) when service pr....
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....he basis of the records, I am convinced that the services rendered have been exported in terms of Rule 3(2) of the Export of Services Rules, 2005. Hence, the appellants are entitled for the refund of the Service Tax already paid. Therefore, I allow the appeal with consequential relief, if any." It is not understood that if the services rendered were, for the sale of goods of foreign entity in India, then how can the same be said to be used/ consumed outside India. Similar is the view expressed in the case of ABS International. 5.11 Appellant counsel have in written submissions filed relied heavily on the decision of Tribunal in case of Mapal India Pvt Ltd. holding as follows: 4.1 As per Notification No. 13/2003-S.T., dated 20-6- 2003, a commission agent is a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase. The revenue has no case that MIPL was not a commission agent as per the above definition. Therefore, during the period 1-7-2003 to 20-11-2003, the services rendered by MIPL could not have been validly found to be liable to Service Tax paid by the assessee. As p....
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.... circulars are only clarification and not exposition of law. They have got limited validity. The circular of 2009 was issued with reference to the provisions of Export of Services Rules, 2005 as they existed then. Without even referring to the Export of Service Rules, 2005 and the manner in which they got amended tribunal has chosen to make the said circular applicable from 2003 onwards. Such an approach is contrary to the law laid down by the Apex Court in case of Ratan Wire & Melting [2008 (231) ELT 22 (SC)] stating as follows: "6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declar....