TaxTMI 
TaxTMI 
2023 (8) TMI 107
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....ospective customer in India is either approached by Arcelor India or a prospective customer contacts Arcelor India regarding stainless steel requirement, but in either case the request is forwarded by Arcelor India to the foreign steel mills with the technical requirements of the Indian customer. Once the foreign mills and the Indian customer come to an understanding on the terms and conditions of supply, a written contract is executed between the Indian customer and the foreign mills or a purchase order is placed on the foreign mills. The documents are prepared by the foreign mills in the name of the Indian customer and the Indian customer, in turn, pays the foreign mills. Thus, the goods directly pass from the foreign mills to the Indian customer. 2. A part of the commission received by Arcelor France, as the main agent, from the foreign mills is paid to Arcelor India based on the volume of sales in each quarter in convertible foreign currency. A dispute arose in relation to such commission received by Arcelor India from Arcelor France for the period from April 2005 to January 2009. According to Arcelor India, there is no privity of contract between it and the steel mills loca....
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....g the services to be export of service is vis a vis the usage/ consumption of service by the service recipient. If the consumption of service is in relation to the activities of foreign entity/ resident located outside but for his business in India, then the appellant will not be entitled to the benefit of export of service as the service is not exported as provided for by the Export of Service Rules, 2005 as they existed at material time." (emphasis supplied) 5. The division bench, after noting that the aforesaid view expressed by it would run contrary to the views expressed earlier by the division benches of the Tribunal in M/s. Gap International Sourcing (India) Pvt. Ltd. vs. Commissioner of service Tax 2015 (37) S.T.R. 757 (Tri. - Del.), Blue Star Ltd. vs. Commissioner of Central Excise, Bangalore 2008 (11) STR 23 (Tri. Bang.), and Mapal India Private Ltd vs. Commissioner of C. Ex., Bangalore 2011 (22) S.T.R. 454 (Tri. - Bang.), observed as follows: "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: ***** The said decision relies upon the ....
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....y a notification dated 09.04.1999, which extended the same exemption but added a proviso that the exemption will not apply when the payment received in convertible foreign exchange was sent outside India. This notification dated 09.04.1999 was subsequently rescinded by a notification dated 01.03.2003. 9. There was an apprehension in the industry that "export of services‟ will become taxable because of the withdrawal of the aforementioned notification dated 09.04.1999. The Central Board of Excise and Customs CBEC , thereafter, issued a Circular dated 25.04.2003 to clarify the position with regard to the 'export of service‟. It clarified that since service tax is a destination based consumption tax, it would not be applicable on "export of services‟ and these services would continue to remain tax free even after the withdrawal of the notification dated 09.04.1999. The relevant extract of the Circular is as follows: "The Central Government has issued Notification No. 2/2003 dated 1-3-2003 in the current year‟s Budget rescinding the earlier Notification No. 6/99 Service Tax dated 9-4-99 which exempted taxable services from payment of service tax ....
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.... exchange, from the whole of the service tax leviable thereon under section 66 of the said Act. Provided that nothing contained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India." 12. The aforesaid Notification was, however, rescinded by Notification dated 03.03.2005 and the Export of Service Rules, 2005 were framed in exercise of the powers conferred by section 94(2)(g) of the Finance Act, 1994 the Finance Act to achieve the destination based consumption tax concept and consequently provide exemption from payment of service tax to service exported out of India. 13. The main allegation in the show cause notice issued to Arcelor India is that the condition specified in the 2005 Export Rules that the order for provision of service should be made by the recipient of such service from offices located outside India is not fulfilled since there is no written contract between Arcelor India and Arcelor France and the condition that the service is delivered outside India and is used outside India is also not fulfilled. 14. The adjudicating authority f....
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....or ultimate consumption in India by the customers in India and the observations made by the Commissioner (Appeals) are as follows: "16. In the instant case, I find that the Appellants are receiving commission in convertible foreign currency in two different situation, in respect of the orders booked by the prospective customers with the foreign supplier directly, but through the Appellants, whereby the goods are directly exported by the supplier outside India and payments are made to them directly by the customers in India and in another situation where the goods are imported directly by the Appellants for trading purposes for which they are holding dealers‟ Registration under Central Excise. Thus, I am of the view that the Appellants had performed the service in India for ultimate consumption thereof in India by its customers in India." (emphasis supplied) 16. The submissions advanced by Shri V. Sridharan, learned senior counsel for the appellant assisted by Shri Vinay Jain and Shri Somesh Jain, and Shri Anand Kumar, learned authorized representative appearing for the department have been considered. 17. It is not in dispute that Arcelor India is a su....
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....uch recipient has commercial establishment or any office relating thereto, in India, such taxable service provided shall be treated as export of service only when order for provision of such service is made from any of his commercial or industrial establishment or any office located outside India (2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied: (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 provider in convertible foreign exchange" (emphasis supplied) 21. Rule 3(2) was thereafter amended by Notification dated 01.03.2007 and the relevant portion of the Notification is reproduced below: "2. In the Export of services Rules, 2005, in rule 3, for sub-rule (2), the following sub-rule shall be substituted, namely:- (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 (....
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.... be read harmoniously so as to avoid contradictions within a legislation. Keeping this principle in view, the meaning of the term 'used outside India' has to be understood in the context of the characteristics of a particular category of service as mentioned in subrule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)], even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(I)(ii)] arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase "used outside India‟ is to be interpreted to mean t....
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....06 to 31.05.2007. The service provided by the appellant situated in India to GAP International was in relation to procurement of goods from India and for this purpose the appellant conducted survey of the manufacturers of various products required by GAP, USA and recommended vendors who could supply the goods. The appellant also conducted inspection of the export consignments and issued the inspection certificates. It was, therefore, not in dispute that the services provided by the appellant were BAS. The dispute, however, was whether the services qualified as export of service in terms of the 2005 Export Rules and, therefore, not taxable in India. It is in this context that the Tribunal held that the services provided by the appellant in India were obviously meant for and were used by GAP, USA for their business and, therefore, these services would be treated as exported out of India. The contention of the department that the condition "used outside India" was not satisfied as they were being performed in India was not accepted by the Tribunal and the relevant portions of the decision of the Tribunal are reproduced below: "6. The service provided by the appellant to M/s G....
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....rincipal abroad on the basis of the quality of their products, their manufacturing infrastructure, compliance with child labour laws and pollution control norms and also provide the services of inspection of the export consignments, besides identifying the logistic service providers for smooth transportation of the goods purchased to the port for their export, the user and beneficiary of all these services is their principal abroad. It would be absurd to say that the recipient and user of these services are the persons in India and not M/s GAP, U.S.A. for whom all these services provided by the appellant are meant, who have used these services for their business and have made payment for these service in convertible foreign exchange." (emphasis supplied) 27. In Commissioner of Service Tax, Mumbai-VI vs. A.T.E. Enterprises Pvt. Ltd. 2018 (8) G.S.T.L. 123 (Bom.), the substantial question of law framed by the Bombay High Court was whether the services provided by the respondent, in accordance with various contracts entered into with overseas manufacturers, is classifiable under BAS and if so, whether the said services provided can be treated as export of services or not. T....
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....es the orders with the Indian Company and the consideration for such orders is directly paid to the foreign entity, the activity may culminate in supplies to the Indian company but this would not mean that services have been provided in India and the services rendered by the Indian entity to the foreign entity would qualify as export of service under the 2005 Export Rules. 29. In Commissioner of Service Tax-VII vs. Wartsila India Ltd. 2019 (24) G.S.T.L. 547 (Bom.), it was noticed by the Bombay High Court that the respondent- Wartsila India was receiving commission from foreign based principals for promotion of sale of the products/goods in India. The Department was of the view that the services provided by the respondent would fall under the category of BAS chargeable to service tax. The case of the respondent-assessee, however, was, and which case was accepted by the Commissioner of Service Tax, that the services rendered by the respondent to its foreign principals would constitute export of service covered by the 2005 Export Rules, and so no tax could be levied. The Bombay High Court, after referring to the decision of the Bombay High Court in A.T.E Enterprises and the Circula....
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....ermediary agents providing money transfer services to foreign travellers who were the end user on behalf of their principals. The contention of the Department that this did not qualify as "export of service‟ was rejected by the CESTAT. It noted that the C.B.E. & C. had to issue a clarification Letter No. 334/1/2010-TRU, dated 26th February, 2010 acknowledging the difficulties that were faced by the trade in complying with the condition that the services had to be "used outside India‟. It was clarified that "as long as the party abroad is deriving benefit from service in India, it is an export of service." 51. In the considered view of the Court, the judgment of the CESTAT in Paul Merchants Ltd. v. CCE, Chandigarh (supra) is right in holding that "The service recipient is the person on whose instructions/orders the service is provided who is obliged to make the payment from the same and whose need is satisfied by the provision of the service." The Court further affirms the following passage in the said judgment in Paul Merchants Ltd. v. CCE, Chandigarh (supra) which correctly explains the legal position: "It is the person who requested for the service i....
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....ils of the transactions. He has also furnished the Chartered Accountant‟s Certificate. ***** 6. On a very careful consideration of the matter, I find that the appellants have produced documentary evidence to show that they had rendered the services to their foreign principals by booking orders in India for their goods. I have also perused the details of the refund application. They all relate to the goods supplied by the foreign principals based on the orders booked by the appellant. Moreover, in the Agreement relied on by the Revenue, para 9 relates to the services rendered by the appellant. This para has not been referred to by the Commissioner (Appeals) in his order at all. On the 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." 32. In Mapal India, the appellant identified customers for the goods manufactured in Germany for the Indian customers to place purchase orders on the German company, for which the appella....
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....476.16. After the receipt of the said invoice, GVK Industries approached the concerned Income Tax officer, for issuing a No Objection Certificate to remit the said sum pointing out that NRC, Switzerland had no place of business in India; that all the services rendered to it were from outside India; and that no part of success fee could be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the Income-Tax Act, 1961 the Income Tax Act . Since the foreign consultant had no business in India and had provided all the services from outside India, GVK Industries believed that tax liability would not arise under the Income Tax Act. The issue framed by the High Court was whether "success fee‟ payable by GVK Industries to NRC, Switzerland was chargeable to tax under the provisions of the Income Tax Act. This issue was answered by the High Court in favour of the department by placing reliance upon section 9(1)(vii)(b) of the Income Tax Act in the following manner: "Thus from a combined reading of clause (vii)(b) Explanation (2) it becomes clear that any consideration, whether lump sum or otherwise, paid by a person who is a resident in I....
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....a, and Indians." (emphasis supplied) 38. After upholding the validity, the Supreme Court examined whether the payment made by the appellant to NRC, Switzerland as "success fee‟ would be deemed to be taxable in India under section 9(1)(vii) of the Income Tax Act. It is in this context that the Supreme Court observed: "28. Coming to the instant case, it is evident that fee which has been named as "success fee" by the assessee has been paid to the NRC. It is to be seen whether the payment made to the non-resident would be covered under the expression "fee for technical service" as contained in Explanation (2) to Section 9(1)(vii) of the Act. The said expression means any consideration, whether lump sum or periodical in rendering managerial, technical or consultancy services. It excludes consideration paid for any construction, assembling, mining or like projects undertaken by the non-resident that is the recipient or consideration which would be taxable in the hands of the non-recipient or non-resident under the head "salaries". In the case at hand, the said exceptions are not attracted. ********* 37. As the factual matrix in the case at ha....
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....ct. The Supreme Court found that since the services were provided by the consultant in relation to setting up a gas-based power project in Andhra Pradesh, there existed a territorial nexus with India and so relief was not granted to GVK Industries. 41. In the present case, there is no dispute regarding the competence of the Parliament to enact the law. The Finance Act levies tax on service provided or to be provided under section 65(105). Section 64 provides that the provisions extend to whole of India, except Jammu and Kashmir. Thus, the Parliament has chosen to levy tax only those services which are provided or to be provided in India and there is no deeming fiction treating extra-territorial transactions as taking place in India. The only issue in the present appeal is regarding the interpretation of the phrase "such service is delivered outside India and used outside India‟ used in rule 3(2)(a) of the 2005 Export Rules from 19.04.2006 to 28.02.2007 and the phrase "services provided from India and used outside India‟ used in rule 3(2)(a) of the 2005 Export Rules from 01.03.2007 onwards. Any reference to GVK Industries, which decision is based on a deeming fiction ....
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....currency. 46. Prior to 19.04.2006, under rule 3(3) of the 2005 Export Rules, the export of taxable service would mean, in relation to taxable services, such taxable services which have been provided and used in or in relation to commerce or industry and the recipient of such service is located outside India. For the period between 19.04.2006 and 01.03.2007, export of taxable service in relation to business or commerce, is the provision of such service to a recipient located outside India when such service is delivered outside India, and used outside India; and payment for such service provided outside India is received by the service provider in convertible foreign exchange. However, as the phrase "delivered outside India‟ in rule 3(2)(a) did not provide clarity with respect to intangible services, this expression was replaced w.e.f. 01.03.2007 by "is provided from India and used outside India‟. The Circular dated 29.04.2009 issued by CBEC clarifies that the relevant factor is the location of the service receiver and not the place of performance and the phase "used outside India‟ is to be interpreted to mean that the benefit of the service should accrue outside....
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....ual relationship between Arcelor India and the customers in India. Therefore, even though the goods in the form of steel products are being supplied to customers in India, the actual recipient of BAS provided by Arcelor India is Arcelor France. Arcelor France has used the services of Arcelor India to provide services as main agents to the mills located outside India. 51. The reasoning adopted by the department is that the services of commission agent were used in India to cater to the Indian markets. It is not possible to accept this reasoning of the department. The Circular dated 24.02.2009 also categorically states that for the services to fall under rule 3(1)(iii) of the 2005 Export Rules, the relevant factor is the location of the service receiver. In other words, the place of performance of the service or the place where the customers of the service receiver are located is irrelevant. 52. As noticed above, it was the consistent view of the High Courts and the Tribunal that export of service would take place under rule 3(1)(iii) of the 2005 Export Rules if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India.....