TaxTMI 
TaxTMI 
2022 (5) TMI 1396
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....nd Admissible ST/85231/15- Mum PUN- EXCUS- 003-APP- 075 to 078-14-15 dated 29.09.2014 63,42,72,694 35,72,99,075 27,69,73,619 ST/85232/15- Mum 39,48,90,011 23,84,23,310 15,64,66,701 ST/85229/15- Mum 60,37,55,970 36,01,84,513 24,35,71,457 ST/85230/15- Mum 38,44,78,858 16,78,94,641 21,65,84,217 ST/85613/15- Mum PUN- SVTAX- 000-APP- 0028-14- 15 dated 16.02.2015 73,80,82,659 33,04,89,118 40,75,93,541 ST/86387/15- Mum PUN- SVTAX- 000-APP- 0007-15- 16 dated 15.04.2015 154,02,14,580 71,88,27,386 82,13,87,194 ST/86711/15- Mum PUN- SVTAX- 000-APP- 0063-15- 16 dated 06.07.2015 220,86,90,949 129,97,36,943 90,89,54,006 ST/87194/15- Mum This appeal is filed by the respondent assessee in above appeals mainly challenging the imposition of interest on erroneous refund 2.1 Respondent is engaged in providing of taxable service viz. "Management Consultant Services", "Business Auxiliary Services", "Renting of Immovable Property Service" and "Information Technology Software Services" and are holding centralized Service Tax....
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....,118 40,84,43,061 October 2013 to December 2013 R/404/STC/PIII/2014 dated 30.09.2014 154,58,54,886 71,88,27,386 82,70,27,500 January 2014 to March 2014 R/445/STC/PIII/2014 dated 29.12.2014 221,37,77,469 129,97,36,943 91,40,40,526 Order adjusts interest on erroneous refund 2.3 Aggrieved by the impugned orders, revenue has preferred seven appeals and the appellants have preferred one appeal as indicated in the table in para 1 above.. 3.1 We have heard Shri Shamboo Nath, Principal Commissioner, Authorized Representative for the revenue and Shri V Sridharan, Senior Advocate along with Shri Vinay Jain, Advocate for the respondents. 3.2 Arguing for the revenue learned authorized representative while re-iterating the submissions made in appeals, submits that • as regards Model-I, the Commissioner (Appeals) has erred in treating that the value of 'on-site services' provided to overseas clients by the subsidiary of the appellant located outside India, is to be considered as export. • Appellant and their subsidiaries or branches are two separate legal entities, and that they had e....
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....ovided by the overseas subsidiary or branch and therefore, the provider of service is either the overseas subsidiary or the branch, who is separate legal entity carrying out their business as per the laws of the respective countries where they are located. The provider of service, i.e., overseas subsidiary or branch are not located in the taxable territory of India, therefore, it appears that the condition (a) of Rule 6A is not fulfilled. Further, as regards the conclusion of the Commissioner (Appeals) that in view of the definition under Clause (44) of Section 65B of the Act, the overseas subsidiary cannot be called as provider of services in respect of 'onsite service' component and that the assessee in India was the provider of service, it appears that the provisions of Clause (44) of Section 65B of the Act, would not be applicable to the overseas subsidiary and is required to be considered only in respect of the assessee in the taxable territory of India and would not apply to the person (subsidiary or branch) outside India. Consequently, the conclusion of the Commissioner (Appeals) that the assessee has satisfied the condition (a) of Rule 6A of Service Tax Rules, 1994,....
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....t the agents as contended. Even the contract between M/s Tech Mahindra Ltd and its overseas subsidiaries does not support its contention that its overseas subsidiaries are acting on its behalf i.e. they are providing services to its overseas customers as agents on behalf of M/s Tech Mahindra Ltd. The agreement dated 27.03.2008 between M/s Tech Mahindra Ltd (TML) and Tech Mahindra (America) clarifies this position. Clause 19 of the Agreement provides for relationship between them and reads as follows "Relationship":- All dealings between Parties shall be in accordance with the arm's length standard and nothing contained herein shall be construed as constituting any relationship of agency or joint venture or partnership between the parties or management of any operation of M/s Tech Mahindra Ltd in America relating to this agreement or otherwise, by Tech Mahindra Inc. (America)". This relationship clause implies that the export turnover claimed by the appellants would be restricted to the extent of those work orders executed by the appellants themselves for their overseas clients. It would not include the part of work orders executed by the on-site/overseas subsidiary. Hence, the ....
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....27/2012-CE(NT), dated 18.6.2012. • As regards services under Model-II, although the Commissioner (Appeals) has accepted the stand taken by the refund sanctioning authority, that the onsite services provided by the overseas subsidiaries / branches do not qualify to be termed as 'export services', it appears that he has erred in excluding the value of these services from the value of "total turnover", while calculating the admissible refund claim amount as per the formula under Rule 5 of Cenvat Credit Rules, 2004. 3.3 Arguing for the respondents learned counsel submits that- • Issue in respect of Model I and Model II has been considered by the tribunal in their own case and the matter is no longer res-integra. Revenue has filed these appeals placing reliance on para 4.6 of the order of tribunal, which in fact are the submissions made by the revenue. However the findings have been recorded para 5 onwards rejecting the said submissions. A proper appreciation of the said order has been done by the Commissioner (Appeal) in his order. Hence the appeals filed by revenue on these ground needs to be dismissed. • Against the order of tri....
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....oreign customer enters into an agreement (contract) with the Appellant and under Model-II the foreign customer enters into an agreement with the subsidiary for a particular set of services (particular project). Further, the Appellant initially stated that 98 percent of their provision of Information Technology Software Services to overseas clients is through Model-I. During the Personal Hearing held on 03.06.2014, the Appellant were requested to give breakup of turnover in respect of both models. Accordingly, vide their letter dated 11.06.2014, the Appellant clarified that there were no material transactions during the period covered by these appeals under Model-II. However, subsequently when further details were sought from the Appellant, they have given figures of transactions made under Model-II during the relevant periods and it is seen that there were transactions under Model-II also, during each of the relevant periods, though the quantum of these transactions is much less, as compared to the quantum of transactions under Model-I. Therefore, I proceed to discuss the eligibility of refund in respect of onsite services provided by the Appellant under both the Models, one by one....
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....re can be only one recipient of any particular service. The said conclusion of the Ld. Respondent is legally incorrect too, in view of the statutory definition of "Location of the service receiver" as contained the clause (i) of Rule 2 of POP Rules. The said statutory definition of location of service receiver dictates that the location of the service receiver must be unambiguously identified and it leaves no room for holding two distinct entities, viz. Appellant and their overseas client, to be called service recipient for the same set of onsite service, as done by the Ld. Respondent. 21. The necessary six ingredients to treat any provision of service as an export of service are given in Rule 6A of the Service Tax Rules, 1994. The same have also been discussed in detail in the impugned Orders-in-Original. Regarding the following clauses of the said Rule 6A, the Ld. Respondent has held that the said ingredients are present in the case of onsite services provided to the overseas clients: (b) The recipient of the service is located outside India, (c) The service is not a service specified in the Section 66D of the Act, (d) T....
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....of Rule 6A of the Service Tax Rules, 1994 as the provider of service in case of onsite services are the subsidiary / branches of the Appellant. The Ld. Respondent has further concluded that therefore even though the Appellant had received the payment in convertible foreign exchange for the onsite services, they are not the actual provider of the service. I find that this conclusion of the Ld. Respondent is incorrect as he has admitted the receipt of payment by the Appellant in convertible foreign exchange and the only ground for not accepting the fulfillment of the said condition is by treating the subsidiary / branch as the provider of service in the case of onsite services. As concluded in Para 22 above, in respect of onsite services also, the Appellant were the service provider and therefore consequent to receipt of payment for the onsite services in convertible foreign exchange, the Appellant have fulfilled this condition also. Thus, I find that all the six conditions contained in Rule 6A of the Service Tax Rules, 1994 have been fulfilled by the Appellant for onsite services provided under Model-I and accordingly their value is includable in the 'Export Turnover', as de....
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....he subsidiary has issued invoices in favour of the Appellant, after addition of a fixed percentage of mark-up, of the value of the onsite component of the services provided by the subsidiary. This onsite component had been actually provided by the subsidiary to the overseas customer in terms of the original contract between them (i.e. between the subsidiary and the overseas customer). Also, this onsite component of services was provided from a non-taxable territory, by a distinct legal entity (subsidiary) incorporated in that non-taxable territory, to a foreign customer located in that non-taxable territory, under a valid contract between them. The invoices raised by the subsidiary in favour of the foreign customer, include the value of these onsite services and it has also received payment from the foreign customer, in that country only, i.e. in the non-taxable territory, against those invoices, as per the contract between them. Thus, it is clear from this factual position that this component of onsite services under Model-II was not exported from India, as neither the service was provided from India nor the payment was received in India nor the entity which provided the service (....
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....to various customers in those countries. Since, refund under Rule 5 of the CCR is in respect of specific services exported during the relevant period and is based on the CENVAT credit taken during that relevant period and the export proceeds received during that relevant period, this general agreement between the Appellant and their subsidiary, viz. the Contract Service Provider Agreement dated 27.03.2008, is of limited value for identifying the recipient of service under Model-II. The relevant invoices and the receipt of export proceeds by the Appellant from the subsidiaries, being the primary documents, have to be considered for the purpose of refund under Rule 5 of the CCR. The Agreements between the Appellant and their subsidiaries are running contracts and have to be examined only with reference to the invoices raised and payments received in respect of the offshore services provided by the Appellant and against which payments were received in convertible foreign currency. Though the Appellant have raised invoices for the total value of services, i.e. onsite plus offshore, but the subsidiary has also simultaneously issued invoices in the name of the Appellant for the onsite co....
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....ontract) for entire value of services (onsite plus offshore) and their subsidiary has issued invoices worth Rs.30/- showing services imported by the Appellant from their subsidiary. In effect, the contract of Rs.100/- between the Appellant and their subsidiary is contradictory to the main contract between the subsidiary and the overseas client, as it seeks to camaflouge and invert the true relationship between the subsidiary (who are the main contractor providing the services to the real eventual service recipient, i.e. the foreign client) and the Appellant (who are the sub-contractor providing only the off- shore component of the services to the subsidiary) in respect of that original contract of Rs.100/- between the subsidiary and the overseas client. Accordingly, I conclude that these unusual set of transactions between the subsidiary and the Appellant are more in the nature of paper transactions, created only for accounting purposes. It is a fact that under Model-II, the Appellant are providing services only to their subsidiary and receiving payment only from their subsidiary. Thus, I find that the Appellant's claim that the component of onsite services actually provided th....
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....nder Model-II (i.e. offshore services), the same were provided to a distinct legal entity outside the taxable territory and the payment for the same was received by the Appellant in convertible foreign currency. Thus said offshore services provided under Model II have to be considered as export of service. V 26. The Appellant have relied upon the decision of Hon'ble CESTAT in their own case 2013-TIOL (543) - CESTAT-MUM) and have contended that the ratio of the same is applicable on the present appeal also. This decision of Hon'ble CESTAT has been upheld vide two Orders dated 15-09-2014 of Hon'ble High Court of Bombay whereby the appeals filed by the Appellant as well as by the Department against the said Order of Hon'ble CESTAT were dismissed by the Hon'ble High Court. I have gone through the said Orders of Hon'ble CESTAT and Hon'ble High Court of Bombay. I find that the same were given by interpreting the provisions of Export of Service Rules, 2005 and for the period prior to 01.07.2012. The entire regime of Service Tax underwent a paradigm shift w.e.f. 01.07.2012 with the introduction of Negative list of services and the introduction of ....
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....e independently providing software development service to TML's overseas customers. Therefore, TML's contention that its overseas subsidiaries are acting as its agents is hollow and bereft of any merit. 4.7....4.11 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. 5/2006-C.E. (N.T.), dated 4-3-2006 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 27-2-2010 starting from the month of November, 2008 and the remaining 5 claims are for the period post 27-2-2010. 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 ...... 5.3 It is the first principle of interpretation that a statute should be read in its ordinary, natural and grammatical sense. As observed by ....
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....rs which has been denied to them for the reason that the refund claims pertain to the period after 27-2-2010 and the condition of export as provided in Rule 3(2) has been satisfied. Similarly, the appellant would also be eligible for the refund of Rs. 10,19,568/- for the period March, 2010, which was denied to them vide Order-in-Appeal No. PIII/RS/198-2007/2011, dated 25-7-2011. Thus, what is left for consideration is only the refund claims pertaining to the period prior to 27-2-2010 covered by Order-in-Appeal No. PIII/VM/227-280/2010, dated 20-10-2010 against which Revenue has filed the appeals and Order-in-Appeal No. PIII/RS/198-2007/2011, dated 25-7-2011 against which TML has filed the appeals. 5.5 For the period prior to 27-2-2010, for a transaction to be considered as 'export', two conditions were required to be satisfied, namely, (i) such service is provided from India and used outside India and (ii) payment for such service provided outside India is received by the service provider in convertible foreign exchange. In the present case, there is no dispute about satisfaction of the second condition. The dispute is only with respect to the first condition, i.e., ....
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....ancements and Bug fix), Testing (Integration test, system test, end to end test, performance test, regression test, user acceptance test and deploy solution test) and Test coordination". From the nature of the activities, it is obvious that these services cannot be performed from India at all as the service recipient's systems are located abroad. Maintenance, testing, removal of defects, etc. of the systems located abroad has to be done at the site where the systems are located. Thus from the nature of the activities undertaken with respect to onsite services, it is seen that they cannot be performed in or provided from India. The appellant had also referred the matter to the Central Board of Excise and Customs seeking clarification in this regard and the C.B.E. & C. vide letter dated 23-11-2009 had clarified that if the services are rendered partly offsite and partly onsite, then only that operation provided from India (off-shore service) can be treated as export. The C.B.E. & C. clarification was also based on the RBI Circular No. 54, dated 29-6-2002. This clarification issued by the C.B.E. & C. makes the matter abundantly clear that onsite services rendered in respect of IT soft....
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....ective application of a law unless the law itself specifically provides for the same. Every law has to be construed and interpreted based on the language used at the relevant time. If the language is unambiguous and clear, there is no need to refer to any external aids to interpret the law. In the present case, for the period prior to 27-2-2010, to constitute exports, two conditions were required to be satisfied, namely the service should be provided from India and used outside India and consideration for the service rendered should be received in convertible foreign exchange. There is no ambiguity in the language used. As far as the service rendered on site abroad, the first condition is not satisfied and therefore, on-site services cannot be considered as export during the relevant period and we hold accordingly. If the intention of the legislature was to treat onsite transactions as exports, then the legislature would have stated the same explicitly as in the case of category II services, where even if the services are partly performed in India and partly outside, it is treated as performed outside India. Such a provision does not exist in respect of category III services. There....
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.... as such when the payment for such service is received by the service provider in convertible foreign exchange. We are concerned with the situation prior to this omission. We are of the view that if Mr. Sridharan's submissions have to be accepted, then, we must ignore this omission. 62. The Export of Services Rules, 2005 have been amended and substituted on several occasions after they came into force on 15-3-2005. We have noted these amendments carefully. In that regard we have referred to the Notification No. 28/2005-S.T., dated 7-6-2005 and we have also referred to the Notification published in the Official Gazette on 19-8-2009 bearing No. 25/2009-S.T. notifying the Rules entitled "Export of Services (Amendment) Rules, 2009". We have also noted the Notification dated 31-3-2011 bearing No. 22/2011-S.T. published in the Official Gazette and in addition to one noticed above. We are of the view that the Tribunal was right in it's conclusion that the services provided do not satisfy the requirement of the Export of Services Rules, 2005 as prevailing prior to their amendment with effect from 27-2-2010. In such circumstances any wider questions or controversy need not be....
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.... "10.2.1 What does the export of a service mean under the new system? Export of services shall now be governed by new provisions in the Service Tax Rules 1994, namely rule 6A. The essential requisites before a service can be designated as export service are: • It must be a service as defined under sub-section 44 of section 65B • by a service provider located in the taxable territory • to a service receiver located outside India • the service is not a service specified in the negative list • the place of provision of the service is outside India • the payment for such service is received by the service provider in convertible foreign exchange • the service provider and service receiver are not merely establishments of a distinct person by virtue of item (b) of Explanation 2 of clause 44 of section 65B of the Act The answer to all questions above must be yes to avail the status of export of service. 10.2.2 Can there be an export between an establishment of a person in taxable territory and another establishment of same person in a non-taxable territory? N....