2015 (5) TMI 885 - AT - Service Tax

Denial of refund claim - Payment received in export of service in Indian rupees from Deutsche Bank - Held that - FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees, which establishes that the payment received and mentioned in the FIRCs are other than non-convertible foreign exchange, in other words, the payment is in convertible foreign exchange. - out of the total payment to be made by the insurance broker in India to the foreign insurer was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in the foreign exchange - when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. Issue of admissibility as input service credit in respect of security services was not raised in the show cause notice. Therefore, denial of refund of ₹ 7,747/- and ₹ 1,051/-respectively is not correct. - impugned order deserves to be modified inasmuch as the impugned order in respect of ₹ 1,64,081/- is upheld and the order rejecting refund of an amount of ₹ 10,98,077/- is set aside - Decided in favour of assessee.

Issues Involved:
1. Admissibility of refund claim when payment for exported services was received in Indian rupees.
2. Admissibility of input service credit for security services and air travel services used in providing exported services.

Issue-Wise Detailed Analysis:

1. Admissibility of Refund Claim:
The primary issue revolves around whether the appellant is entitled to a refund under the Export of Service Rules, 2005, when the payment for exported services was received in Indian rupees. The Commissioner (Appeals) had rejected the refund claim on the grounds that the payment was not received in convertible foreign exchange, as stipulated by Rule 3(2) of the Export of Service Rules, 2005.

The appellant argued that the payment, although received in Indian rupees, was routed through Deutsche Bank, which issued Foreign Inward Remittance Certificates (FIRC). The FIRC certified that the payment was not received in non-convertible rupees, implying that it was received in a convertible foreign exchange manner. The appellant cited the Exchange Control Manual and various RBI notifications to support their claim that such payments should be considered as convertible foreign exchange.

The Tribunal noted that the FIRC is issued only for foreign exchange remittances and that the payment in Indian rupees received through Deutsche Bank should be deemed as repatriated foreign exchange. The Tribunal referred to the Supreme Court judgment in J.B. Boda and Company Private Ltd. vs. Central Board of Direct Taxes, which held that the retention of brokerage in Indian rupees out of a foreign remittance should be treated as foreign exchange.

Based on these arguments and statutory provisions, the Tribunal concluded that the payment received in Indian rupees through Deutsche Bank qualifies as convertible foreign exchange, thus complying with Rule 3(ii) of the Export of Service Rules, 2005. Consequently, the rejection of the refund claim amounting to Rs. 10,98,077/- was set aside.

2. Admissibility of Input Service Credit:
The second issue pertains to whether security services and air travel services qualify as input services for providing exported services. The Commissioner (Appeals) had rejected the refund claims for these services, amounting to Rs. 7,747/- and Rs. 1,051/-, respectively, on the grounds that they had no nexus with the exported services.

The Tribunal observed that the issue of admissibility of these services as input services was not raised in the show cause notice. Moreover, the appellant argued that these services were essential for providing export services. The Tribunal agreed, noting that security services and air travel services have a direct nexus with the exported services and should be considered admissible input services.

Conclusion:
The Tribunal modified the impugned order by upholding the admissibility of Rs. 1,64,081/- and setting aside the rejection of the refund claim amounting to Rs. 10,98,077/-. Additionally, the Tribunal ruled that the denial of refund for security services and air travel services was incorrect, recognizing them as admissible input services. The appeal was allowed in these terms.

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