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2024 (6) TMI 845
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....e charge mechanism in respect of services imported 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 ....
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....IRCs, export invoices, etc. The Appellant furnished 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 an....
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....20.11.2019 specifically recorded findings that the Appellant has exported 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 subseq....
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....fit & Loss Account and Consolidated Profit & Loss Account of the Appellant. It is further submitted that for the year ended March 31, 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 secti....
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....ng information technology services, business and information technology consulting and business process outsourcing services and is agreeable 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....
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....ion of services it was not possible to categorize the services and thus the nexus between input services and output services was not established in terms of Cenvat Credit 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 appe....
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....nt with its customers for rendering IT and other specified services and the Appellant has entered into Sub-contracting agreement to receive sub-contracted services to the Appellant or for Appellant'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 a....
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....late stage which is beyond the scope or parameters of show-cause notice as held in CC v. Toyo Engineering India Ltd, 2006 (201) ELT 513 (SC); Gujarat State Fertilizers Co v. CCE, 1997 (91) ELT 3 (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....
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....17.9.12 44,50,22,275/- 43,34,96,747/- 1,15,25,528/- October 2010 to December 2010 52/2013 dtd.23.1.13 48,71,81,583/- 20,02,37,974/- 28,69,43,609/- Oct. 2009 to Dec. 2009 576/2011 dtd.9.9.11 47,89,62,451/- 21,92,28,267/- 25,97,34,184 8. The first issue is whether the Order-in-Original has traversed beyond the show-cause notice. The appellant filed a refund claim on 24.0.2009 for Rs.35,84,74,431/- being the unutilised CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004, without the relevant documents to be filed along with the claims. Hence, the notice dated 15.12.2009 was issued calling for the following documents. • Details of services exported and used outside India • FIRC 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 • De....
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...., 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty: Provided further that no credit of the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, as amended by clause 72 of the Finance Bill, 2005, the clause which has, by virtue of the declaration made in the said Finance Bill, under the Provisional Collection of Taxes Act, 1931, the force of law, shall be utilized for payment of service tax on any output service. Explanation: For the purposes of this rule, the words 'output service which are exported' means any output service in respect of which payment is received in India in convertible foreign exchange and the same is not repatriated from, or sent outside, India. Provided that the CENVAT credit or inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule." 9.1 Thus, a perusal of this Rule indicates that where any input or input service is used in the final product, which is cleared for export e....
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....by Export Oriented Unit, the claim for such refund may be submitted for each calendar month. 3. The manufacturer or provider of output service, as the case may be, submits an application in Form A annexed to this notification to the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, in whose jurisdiction, (a) the factory from which the final products are exported is situated, along with the Shipping Bi l or Bi l of Export, duly certified by the officer of customs to the effect that goods have in fact been exported; or (b) the registered premises of the service provider from which output services are exported is situated, along with a copy of the invoice and a certificate from the bank certifying realization of export proceeds. 4. The refund is allowed only in those circumstances where a manufacturer or provider of output service is not in a position to utilize the input credit or input service credit a lowed under rule 3 of the said rules against goods exported during the quarter or month to which the claim relates (hereinafter referred to as 'the given period'). 5. The refu....
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....es used in the manufacture of final products cleared for export under bond or letter of undertaking; (b) on input or input services used in providing output services exported without payment of service tax, and such credit being allowed under rule 3 of the CENVAT Credit Rules, 2004, for payment of duty in respect of final products cleared for home consumption or for export on payment of duty or for payment of service tax on output services during the given period. I/We request that refund of such credit for the given period may be granted. The following particulars/enclosures are being provided/enclosed by me/us for this purpose. (A) Particulars Of Final Products or Output Services Exported During The Given Period: (i) Description: (a) Final Products __________ (b) Output Services ___ (ii) Quantity (in units) in case of final products _________ (iii) Value: (a) Final products_______________________ (b) Output Services__________________________ (B) Particulars Of Inputs Or Input Services Used In The Manufacture Of Final Products Or Used In Providing Output Services During The Given Period: (i) Description: (a) I....
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....d fact that in this case the payment of said services have been received by the appellant but reimbursed to the respective subsidiary units as per their subcontracting agreements. The outsource service earns foreign exchange off around 92-95% of the contract amount for the respective country of the subsidiary company as per the subcontracting agreements and not to India. Mere documentation would not facilitate the appellant to avail the export incentive as the facts disentitled them from the export benefits towards service rendered by service providers located in countries other than India. It is therefore apparent from the records the mandatory requirement of output service being performed by the service provider from India to fetch convertible foreign exchange to India is not satisfied. The appellants have neither disputed the findings of the respondent of having received remittances for the output services that were rendered by establishments situated outside India, remittance instructions for depositing in Bank of America, Chicago and the Deutsche Bank Amsterdam, Mumbai etc; and also of such instances wherein as per the softex copies the service is claimed to be rendered by Inf....
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....supplied by vendor shall be in accordance with the project requirements and directions given by the customers' authorised representatives from time to time. At Para 4.4, it says that the vendor shall raise all the invoices in electronic form and payment shall be made by the customer in accordance with the instructions provided on vendor's invoice. At paragraph 4.3, it says that the vendor shall receive 90% of the contract value as per the agreement between customer and its client. Therefore, the Commissioner has rightly observed that the services are rendered outside India and received outside India and the payments to the extent of 90% to 95% have been received by the vendor was located outside India. Therefore, in this context it becomes relevant and significant to notify the breakup of the invoices of payments directly received by the vendor and the payments actually made by the customer to the vendor. In other words, the services have not satisfied the conditions laid down in the "Export of Service Rules, 2005". The Export of Service Rules 2005 are reproduced below: Notification No. 9/2005-Service Tax dated 3rd March, 2005 In exercise of the powers conferred b....
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.... India: Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if- (a) order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India; (b) service so ordered is delivered outside India and used in business outside India; and (c) payment for such service provided is received by the service provider in convertible foreign exchange; (ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received. Explanation.- For the purposes of this rule "India" includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs Nos. S.O.429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996. ....
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.... are satisfied, namely:- (a) such service is provided from India and used outside India; and 9.7 In the instant case, admittedly, the services are not provided from India but are provided from their subsidiary units situated in Australia, USA and China. Even with regard to the payments, the Commissioner (Appeals) has observed that the remittances for the output services that were rendered by establishments situated outside India, remittance instructions for depositing in Bank of America, Chicago and the Deutsche Bank Amsterdam, which has not been disputed by the appellants. Therefore, having not satisfied the conditions laid down in the Export of Service Rules, 2005, the appellants cannot claim that they have exported the services for the period October 2008 to June 2009. 10. The learned Special Counsel on behalf of the Revenue has submitted that the appellant is not liable to pay service tax under 66A and any tax that is paid is without authority of law and therefore credit inadmissible and hence refund to be rejected and relied on the KPIT Cummins Infosystems Ltd. vs. CCE, Pune (supra) With regard to this issue whether the appellant is liable to pay Service Tax under Sectio....
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....ry mandate of Section 66A. The Order-in-Original and show cause notice have in fact brought out the separateness aspect in law, but ignored the legal effect thereof. g. The impugned orders are wrong in assuming that the branches have rendered services to the HO, whereas the branch merely performs the same activity at the behest of the HO, and the HO instead of exporting from India, has an extended arm in the form of branches to perform on-site activities which cannot be taxed in India, the same being outside the territory of India. h. There is no consideration paid to the branches to assume that there is a contract of service for performance by the branch so as to warrant receipt of service by the HO. 7.2 Before proceeding to consider various submissions, it would be appropriate to see on what basis the adjudicating authority has come to the conclusion that appellant is liable to pay Service Tax. Para 71 of the impugned order is reproduced herein below :- "71. I find from the records placed before me that, the noticee has incurred foreign exchange expenditure towards receipt of sub-contract services from overseas sub-contractor. The noticee has o....
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....s agreement, the definition of 'services' means the 'services' provided to the appellant's branch. Appellant also produced a sample invoice issued by AG Tech. The invoice dated 2-2-2010 shows that it has been issued by AG Tech to Infosys Technologies Ltd. Branch Office at Plano and heading is US sub-contractor payments. The charges made are towards consultancy charges in relation to DBA support for SAP Basis. Another invoice in relation to Purchase Order dated 31-12-2009 also is similarly made on the branch office of Infosys. 7.4 Another sub-contracting agreement considered by us is between Brainhunter Inc. and the branch office of Infosys at Toronto, Ontario 5140 Yonge Street, Suite 1400, Toronto, Ontario M2N 6L7. Here also the definition of service is the same as in the case of AG Tech USA and the invoice also has been addressed to the branch office of the appellant. 7.5 If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or....
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....ara 5.1 the Tribunal observed as follows :- 5.1 The provisions of Section 66A are attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad. In the present case, the appellant has provided services through their branches abroad to customer located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has received proceeds of the service rendered abroad by their branches, after deduction of expenditure incurred for rendering of services abroad. Therefore, prima facie, we are of the view that the provisions of Section 66A are not at all attracted. The observations made by the Tribunal in the case of KPIT are similar to the one which we have also made above. There also there was no evidence to show that KPIT had received some services. In that case also, they had paid. The only difference being in that case, there was evidence to show that the appellants had received payments for the services ....
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....or 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." When this is compared with paragraph 71, it can be seen that except omission of some words which does not affect the contents and substance at all, the same is reproduced as findings. This is the reason why there is no discussion about the agreement or invoice or the taxable event in the impugned order. Again in paragraph 75, the conclusion has been reached after reproducing statutory provisions and the conclusion is the reproduction of a portion of subsequent continuation of Para 5 which we have reproduced earlier. Paragraph 75 and relevant portions of paragraph 5 are reproduced below to show this aspect :- Para 5. .......... "Whereas, as per Section 66A of the Finance Act, 1994, where any service specified in clause (105) of Section 65 is, - (a) Provided or to be provided by a person who has established a business or has fixed establishment 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....
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....bserved that: "If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or the benefit of service rendered abroad has been received in India, the tax, in our opinion, would not be payable". On the same analogy, Infosys India and Infosys Australia are two different entities independent of each other and the services rendered by Infosys Australia cannot be deemed to have rendered from Infosys India when the payments for such services are also received by Infosys Australia and not by Infosys India. The intention of the legislature to refund the unutilised credit is to compensate the industry that brings in more foreign exchange and hence, in this case, it is abundantly clear that foreign exchange in the guise of payments of services rendered by their subsidiary unit is being diverted and to that extent the foreign remittances have been reduced. The appellant for levy of service tax claims that they are independent entities and for refund, they want to ....