2019 (10) TMI 1324 - AT - Service Tax

Refund of service Tax - export of services or not - POPOS Rules - denial on the ground that appellant was providing intermediary services and not manpower recruitment/supply agency services which as per Rule 9 of POPS Rules 2012 (Place of Provision of Service) is not export of services and there was no nexus between input and output activities. HELD THAT - The ground of rejection cited by the Commissioner (Appeals) is that the content of agreement reveals that appellant was an agent of employer (intermediary) engaged for the purpose of providing Seafarer recruitment service to third parties for which as per Rule 6(a) of Export of Services that stipulates under sub-rule (1)(d) that the Place of Provision of Service is to be outside India to bring the activities into the purview of Export but Rule 9 of the Place of Provision of Services Rules 2012 stipulates under sub-clause (c) that in case of intermediary service the location of service provider since been in India such service rendered by agent to the principal cannot be treated as export of services for which refund was not admissible. From the Seafarer recruitment agreement executed between the parties it is abundantly clear that first party to the agreement i.e. employer is an intermediary between the principal (third party but not a signatory to the agreement) and the appellant who is as per sub-clause (a) is in the business of Seafarer recruitment service duly licensed to provide Seafarer recruitment service to third party. This being the status of the appellant as referred in the agreement the findings of the Commissioner (Appeals) that the first party i.e. employer is the principal under whom the appellant had worked as an agent is erroneous. Admittedly payments were received from the first party i.e./employer who has its office in Singapore and such payment has been made in convertible foreign exchange which remains undisputed. Therefore appellant cannot be treated as an intermediary of the first party when the agreement indicates that it is the vice versa. In view of Circular No. 120/01/2010-S.T. dated 19th January 2010 issued by the Board which clarified that no correlation or nexus is required to be established between input service and export and since credits were validly taken by the appellant refund cannot be rejected on the ground that there was no nexus between input and output services without any findings on its adverse impact on the quality and efficiency of the provision of services exported. Appeal allowed - appellant is entitled to get refund of 11, 45, 551/- with interest as per Section 11BB of the Central Excise Act 1944 from the respondent department - decided in favor of appellant.

Summary

Issues: Denial of refund for export services due to classification as intermediary services, lack of nexus between input and output activities.

Analysis:
1. The appellant claimed a refund for export services but was denied based on the classification of its services as intermediary services, not manpower recruitment/supply agency services as per Rule 9 of POPS Rules, 2012. The denial was also due to the alleged lack of nexus between input and output activities.

2. The appellant argued that despite being labeled as an "agent" in the agreement with the foreign client, a closer look at the agreement revealed that the appellant was a licensed Seamen recruiter providing Seafarers for overseas vessels. The appellant handled the entire process from selection to transportation, receiving fees in foreign exchange, making its services eligible for export classification. Previous and subsequent refund applications on the same grounds were approved, supporting the appellant's claim. The appellant cited relevant judgments to establish that its services were manpower supply services, not intermediaries.

3. The Authorized Representative for the respondent Department supported the Commissioner's decision, emphasizing the previous findings on inadmissibility of Cenvat credits. The Department argued that the appellant failed to provide a defense against the revenue's claims, justifying the Commissioner's decision.

4. The Tribunal examined the case record and found that the Commissioner's rejection was based on the belief that the appellant acted as an agent providing intermediary services, thus not eligible for export classification. However, the agreement clearly stated that the appellant was a Seafarer recruitment service provider, not an intermediary. Payments in foreign exchange further supported the appellant's position. The Tribunal referenced a relevant Delhi High Court case to distinguish between export and non-taxable events, affirming that the appellant's services were indeed manpower recruitment/supply agency services eligible for export.

5. Referring to Circular No. 120/01/2010-S.T., the Tribunal highlighted that no nexus between input and output services was required for export services, especially when credits were validly taken. The lack of nexus should only impact the quality and efficiency of the exported services, which was not proven in this case. Consequently, the Tribunal allowed the appeal, setting aside the Commissioner's order and directing the respondent department to refund the appellant with interest within two months.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the correct classification of its services as manpower recruitment/supply agency services eligible for export, overturning the denial of refund based on the lack of nexus between input and output activities.