TaxTMI 
TaxTMI 
2024 (6) TMI 845
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....mported into India. They had filed 3 refund claims under Rule 5 of CENVAT Credit Rules 2004 for the service tax paid on input services used in the services that were exported. These refund claims were rejected on the ground that output services were not exported in accordance with the Export of Services Rules, 2005 and on the ground that nexus between input and output services was not established. The Commissioner (Appeals) in the impugned order after providing detailed justification and relying on the Board Circular No.111/5/2009-ST dated 24.02.2009 and Board Circular No. 120/1/2010 dated 19.01.2010 rejected all the three (3) refund claims. Aggrieved by this order, the appellant is in appeal before us. 3. The learned counsel submits that the Appellant enters into various agreements with foreign customers including banks and financial institutions for the purpose of providing information technology software services and various other services in relation to "information technology software". In terms of these agreements, the Appellant is contracted to render, provide and execute information technology software services of varied nature including software development, software impl....
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....shed all the copies, details and required information and filed their replies to the notices. Subsequently, the CBEC issued a Circular No.120/01/2010-ST dated 19.1.2010 which prescribed the procedures and furnishing of Chartered Accountant (CA) certificate in support of the refund claims in order address the problems of exporters and the CA certificates in terms of the above Circular were also furnished. Thereafter, the Department issued "Addendum" to the respective SCNs requiring the Appellant to furnish some more documents and information and all the details, copies of documents, etc., were furnished. The authorities however rejected all the claims on the following grounds: (i) the export invoices do not indicate the classification/description of services exported and in the absence of which "taxability" of the service cannot be determined; (ii) nexus between input service and output service could not be established; (iii) the condition envisaged in Rule 3(2) of Export Services Rules, 2005 was not established. 3.2 The learned counsel submits that the refund claims have been rejected on unsubstantiated and frivolous findings. It is submitted that during the period of disput....
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....their services and has fulfilled all the criteria as per Rule 6A of the Service Tax Rules, 1994 and the above order has not been challenged in further appeal by the Revenue and has attained finality. For the subsequent periods viz., July 2009 to September 2009; October 2009 to December 2009 and January 2010 to March 2010, on very similar set of facts, with absolutely no change in its business model, and with similar service agreements with global customers etc., (which fact is also admitted in the orders) the refund claims under Rule 5 of the Cenvat Credit Rules, 2004 have been sanctioned. The very same adjudicating authority had passed three Orders-in-Original vide 575/2011 and 576/2011 both dated 9.9.2011 and No.136/2012 dated 6.2.2012, had allowed refund and no refund claims were rejected on the ground that conditions envisaged in Rule 3(2) of the Export of Services Rules, 2005 were not fulfilled. These Orders-in-Original were not challenged in further appeals by the revenue and hence have attained finality. Thus, it is claimed that for the prior period (i.e., May 2008 to September 2008) and for the subsequent periods (i.e., July 2009 to December 2010), the revenue allowed the r....
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....1, 2009, the total "Software Development Expenses" incurred by the Appellant is Rs.11,145.00 crores. Out of this, the total expenses on "Salaries and bonus including overseas staff expenses" was Rs.8,583 crores and whereas the Expenses on "Technical Sub-Contractors-Subsidiaries" was just Rs.861 crores. These financials which are audited by the Statutory auditors clearly disprove the findings in the impugned orders. It is submitted that the substantial portion of the services and/or activities are rendered/provided from India by the Appellant. Further, in a business world, it is impossible and also many times it is imperative for various business reasons that a portion of the activities is outsourced or sub-contracted. Even in respect of outsourced and/or sub-contracted activities the Appellant is the main service provider and the Appellant is answerable and accountable for anything relating to quality of the service. Besides in respect of sub-contracted activities and the consideration paid therefor, the Appellant has been paying service tax under section 66A under RCM and these are nothing but "input services" since the sub-contracted activities are used for the purpose of "export....
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....to providing the customer with required services in Australia" b. The expression customer refers to the appellant and the expression vendor refers to Infosys technologies Australia private limited. It is submitted that the objective of the appellant was to obtain from the vendor the specified services either for itself or for its clients in Australia. This indicates that the intention was to obtain the services in Australia not elsewhere. Further such services were not exclusively for itself. Besides the vendor had agreed to provide the required services in Australia. There is no averment on behalf of the appellant that they obtained any services from the vendor in Australia. The obvious conclusion is that the vendor provided the said services in Australia only to the clients not to the appellant. Thus, the specified services were provided by the vendor Incorporated and located in Australia. These services are provided in Australia and the recipient were also in Australia therefore by no stretch of imagination it can be said that the services were exported from India. c. As per the payment terms Vendor in Australia shall receive 93% of the contract value as per the agreement be....
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.... Rules. f. The Learned Counsel additionally submits that matching of invoices pertaining to input services and output services need to be established and the matter made need to be remanded for fresh consideration for refund claims other than services rendered by the subsidiaries. He also submits that the refund claim which relates to services rendered by the subsidiaries of the appellant company the output services provided by the subsidiaries in the respective countries would not qualify to be called as output services exported from India. g. The Learned Counsel admitting that the earlier orders had attained finality but the claim of the appellant that the rejection of refund only for the intervening period is not legally sustainable cannot be accepted because the earlier orders did not consider the aspect of Rule 3(2) as is discussed in detail in the impugned order. The earlier orders failed to consider the vital point that affected the grant of refund. The fact that the same have not been appealed against cannot be held against the impugned order in as much as there is no reason to reject the basic principle flowing from para 6.2 of the impugned order. h. It is further su....
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....lant's clients. Further, the expression "services" is defined to mean the tasks to be performed by Vendor for Customer, which would be specified from time to time by the Customer and which shall be governed the Agreement". "Source Deliverable" means the human readable source code that the Vendor is required to produce and deliver to the Customer as part of Services. This clearly establishes that the above foreign company is rendering services directly to the Appellant for its own consumption or for the clients of the Appellant. Further, as per Clause-2.1 of the Sub-Contracting Agreement it is agreed that - "All services to be performed and any related deliverables and other materials to be supplied by the Vendor (i.e. Infosys Technologies Australia Pvt. Ltd) shall be in accordance with the project requirements and directions given by Customer's (i.e. the Appellant) authorized representatives from time to time". From this Clause, it is clear that above foreign company has agreed to render in accordance with project requirements and directions of the Appellant. Also, as per Clauses 3 & 4, the foreign company shall raise an invoice on the Appellant and the Appellant shall pay the fore....
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....(SC); Hindustan Polymers Co Ltd v. CCE, 1999 (106) ELT 12 (SC); Saci Allied Products Ltd v. CCE, 2005 (183) ELT 225 (SC); Reckitt & Colman of India Ltd v. CCE, 1996 (88) ELT 641 (SC); CCE v. Sanghi Threads, 2015 (321) ELT 180 (SC); CCE v. Sun Pharmaceuticals Inds. Ltd, 2015 (326) ELT 3 (SC). 5.2 Further, the reliance placed on the decision in the case of KPIT Cummins Infosystems Ltd v. CCE (supra) is misconceived and factually different since the facts involved in the above decision was alleged service between Head Office vis-à-vis its foreign branches and the services between different companies i.e. holding Indian company and foreign subsidiary company was not involved in the above decision. It is stated that the claims cannot be accepted in view of the judgment of the Hon'ble Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commission, AIR 1978 SC 851, 858 wherein it was observed thus - "When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may by the time it ....
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....certified by the Bank * Invoice for input services * Export invoices, etc. 8.1 In response to this notice, the appellant had filed the following documents for processing the refund claim. * Details of export turnover * Details of CENVAT credit * Service tax paid under reverse charge mechanism * Sample copies of FIRCs * Copies of softtex forms and connected invoices 8.2 Based on the above documents filed, the refund claims were rejected on various grounds. The notice was issued calling for all the relevant documents that were to be filed along with the Rule 5 Refund claims and only after receipt of the above document the officers concerned could verify the eligibility of the claims based on which the original authority issued the order. The original authority has rightly observed that the Order-in-Original has not traversed beyond the scope of show-cause notice as apparently the essential facts required to process the refund claims were not produced and admittedly due to very high volume of transactions covering about 45,000 export invoices, equal number of input invoices and certified copies of FIRCs were not filed along with the claim and filed only along with thei....
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....hus, a perusal of this Rule indicates that where any input or input service is used in the final product, which is cleared for export etc., or used in the intermediate product cleared for export or used for providing output service which is exported, then, the Cenvat credit in respect of the input or input service so used shall be allowed to be utilised by the manufacturer or provider of output service towards payment of duty of excise on any final product cleared for home consumption or for export on payment of duty or service tax on output service. Whether for any reason, such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitation as may be specified by the Central Government by a Notification. The Notification reproduced below clearly spells out the conditions to be satisfied and the procedures to be followed in filing the refund claim. Notification No. 05/2006 - Central Excise (N.T.) G.S.R. (E) dated 14th March 2006 In exercise of the powers conferred by rule 5 of the CENVAT Credit Rules, 2004 (hereinafter referred to as the 'said rules'), and in supersession of the notification of th....
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....'the given period'). 5. The refund of unutilized input service credit will be restricted to the extent of the ratio of export turnover to the total turnover for the given period to which the claim relates i.e. Maximum refund Total CENVAT credit taken on input services during the given period export turnover Total turnover Illustration : If total credit taken on input services for a quarter = Rs. 100 Export turnover during the quarter = Rs 250 Total Turnover during the quarter = Rs 500 Refund of input service credit under Rule 5 of the CENVAT Credit Rule, during the quarter 100*250/500 i.e. Rs 50 Explanation: For the purposes of condition no.5, 1. "Export turnover" shall mean the sum total of the value of final products and output services exported during the given period in respect of which the exporter claims the facility of refund under this rule. 2. (a) (b) (c) "Total turnover" means the sum total of the value of, all output services and exempted services provided, including value of services exported; al excisable and non-excisable goods cleared, including the value of goods exported; The value of bought out goods sold, during the given period. 6. The applicatio....
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....nputs _________ (iv) Amount of credit taken on: (a) Inputs__________________ (b) Input Services_______________ (C ) Total Turnover During The Given Period: (i) The value of al output services and exempted services provided, including value of services exported: (ii) (iii) The value of al excisable and non-excisable goods cleared, including the value of goods exported: The value of bought out goods sold: (D) ENCLOSURES: (i) Copy of the relevant Shipping Bills or Bills of Export duly certified by the officer of customs to the effect that the goods have in fact been exported (in case of final products). (ii) (iii) (iv) Copy of invoices. Certificate from the bank certifying realization of export proceeds (in case of export of output services). Relevant extracts of the records maintained under the Central Excise Rules, 2002, the CENVAT Credit Rules, 2004, or the Service Tax Rules, 1994, as the case may be, evidencing taking of CENVAT credit, utilization of such credit in payment of excise duty or service tax and the balance unutilized credit during the given period. (E) Amount Of Refund Claimed: Rs (in figures and in words) 9.2 From the above Rules and the Notification, i....
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....e rendered from India as required under Rule 3(2) of ESR 2005." 9.4 Let's examine these contracts. (i) Infosys consulting Inc. USA the agreement is entered between the appellant and Infosys Consulting Inc USA vendor and is effective from 1st April 2004. (ii) Subcontracting agreement between Infosys Technologies Ltd. India and Infosys Technologies Shanghai company limited China with effect from 1st October 2005. (iii) Subcontracting agreement between Infosys Technologies Ltd. India and Infosys Technologies Australia Pvt. Ltd. Australia with effect from 1st April 2004. 9.5 We have examined one of the agreements between Infosys Technologies Ltd., India and Infosys Technologies Pvt. Ltd., Australia which is effective from 1st April 2004. As per this Agreement, services include the tasks to be performed by the vendor for the customer here the and the vendor is Infosys Technologies Pvt. Ltd., Australia while the customer is Infosys Technologies Pvt. Ltd., India. Infosys India enters into an agreement with the client situated abroad for providing information technology services and these services are provided by the vendor to the client who is also outside India. Thus, there is no....
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....encement. - (1) These rules may be called the Export of Services Rules, 2005. (2) They shall come into force on the 15th day of March, 2005. 2. Definitions. - In these rules, unless the context otherwise requires, - (a) "Act" means the Finance Act, 1994 (32 of 1994); (b) "input" shall have the meaning assigned to it in clause (k) of rule 2 of the CENVAT Credit Rules, 2004; (c) "input service" shall have the meaning assigned to it in clause (l) of rule 2 of the CENVAT Credit Rules, 2004. 3. Export of taxable service.- The export of taxable service shall mean,- (1) in relation to taxable services specified in sub-clauses (d), (p), (q), (v) and (zzq) of clause (105) of section 65 of the Act, such taxable services as are provided in relation to an immoveable property which is situated outside India; (2) in relation to taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy) of clause (105) of section 65....
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.... service tax or duty paid on input services or inputs, as the case may be, used in providing such taxable service and the rebate shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as may be specified in the notification. F. No. B2/4/2004-TRU V. Sivasubramanian Deputy Secretary to the Government of India Notification No. 2/2007-Service Tax New Delhi, the 1st March, 2007 G.S.R. (E).- In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Export of Services Rules, 2005, namely :- 1. (1) These rules may be called the Export of Services (Amendment) Rules, 2007. (2) They shall come into force on the date of their publication in the Official Gazette. 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 (b) payment....
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....the appellant. The following points were submitted on behalf of the appellant: a. the foreign branches of the appellants received the service abroad, consumed the service abroad, which was provided abroad, and thus Section 66A has no application. b. the foreign service providers have charged local taxes, such as VAT, as evidenced by the invoices raised by them for the foreign service delivered, provided and rendered by them to the branches of the appellant. c. the branches of the appellant are sustained, maintained and funded out of the appellant HO in India, and the branches survive from the money sent to them, and payment made by the branches to the service providers abroad for overseas services, if taxed would amount to taxing fund transfers and is not Service Tax at all, and loses it character, and pith and substance. The demand is untenable. d. the foreign sub-contractors who rendered service have direct nexus with the branches abroad for the reason that the contracts were entered into by the overseas branches, purchase orders placed by the branches and invoices raised by the service providers on the respective service receiving overseas branches, thereby not rendering....
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.... have been made by the noticee to the overseas sub-contractors. Hence services have been received by the noticee through their overseas branches and payments for such services have been made by the assessee which is evident from the expenditure incurred to the tune of Rs. 259,08,53,512/- for the period from 16-5-2008 to 31-3-2009. Further, as per the provisions of Section 66A(2) the overseas branch will be a separate person for the purpose of charging Service Tax under import of services. The noticee has received some sub-contracting services from overseas sub-contractor and the same is chargeable to tax under Import of Service under the category of Information Technology Software Service from 16-5-2008 onwards, as per the provisions of Section 65(105)(zzzze) of the Finance Act, 1994. The most important evidence for identifying a service recipient is the agreement between the parties where it is available, invoices raised by the service provider to the service recipient and details of evidence relating to the nature of the service provided if any. As can be seen the observations of the Commissioner that these aspects have not at all been considered. The conclusion of the Commissi....
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.... provider, it is for the Department to show that taxable event has taken place. This issue is no longer res integra and there are several decisions in the case of Central Excise matters and Customs matters wherein it has been held that taxable even has to be proved by the Revenue. In the case of Central Excise duty, it is for the Revenue to show that manufacture has taken place and if the Revenue cannot show it, no liability arises. Therefore in this case the observation of the Commissioner that payment has been made by Infosys and when the payment is made by the branch, it has been made by Infosys through their branch and therefore obviously service has been received cannot be a conclusion and especially in this case when such an allegation is made and is rebutted, such rebuttal will have to be properly considered and evidence shown to show why such rebuttal is not accepted which, in our opinion, has not been admitted even. 7.7 It is not the case of the appellant that money was not paid. It is the case of the appellant that whatever consideration is received for services rendered by them abroad goes into EEFC account and the appellant is entitled to spend 75% of such receipts in....
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....directly or through their branches to the sub-contractors in different countries has to be linked with service received in India and in the absence of any evidence to show that such receipt of service in India, the demand for Service Tax in the hands of receiver cannot be sustained. 7.8 At this juncture, it has to be noted that in paragraph 20 of the impugned order, it has been stated that the appellant had enclosed the sub-contracting agreement with Brainhunter Inc. which is the same one we have considered. We also find that many of the points which were urged before us had been urged before the original authority also. 7.9 There is also another interesting fact that was found when we were considering the adjudication order impugned before us. We have already reproduced paragraph 71 earlier as part of our discussion. The corresponding paragraph 5 in the show cause notice is reproduced below :- "5. During the course of verification of financial records it is noticed that, the assessee has incurred foreign exchange expenditure towards receipt of sub-contract services from overseas sub-contractor. The assessee has overseas branches and in case the clients of the assessee are in....
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....ment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and received by a person/recipient who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India." The above conclusion has been reached on the ground that a branch office also has to be treated as a separate person for the purpose of Section 66A. If the branch office has to be treated as a separate person for the purpose of Section 66A, when the invoice is raised on the branch office for service rendered and contract is entered into between the branch office and the service provider, it cannot be said that such contract has been entered into by the company located in India. This is because for the purpose of levy of Service Tax in the hands of receiver, the branch office is treated as a separate person but for the purpose of determining as to who has received the service, the branch office is treated as part of th....