2020 (6) TMI 259 - AT - Service Tax

Insurance Auxiliary Services - brokerage received from overseas reinsurance - Export of service or not - Non receipt of consideration in foreign exchange - HELD THAT - There is no doubt that the services of the appellant are beneficial both to Indian insurance company and the foreign reinsurer as the former gets the benefit of reinsurance and the latter gets the business of reinsurance. The appellant is receiving money in Indian Rupees. Instead of remitting the entire amount to the overseas reinsurer in convertible foreign exchange and receiving his brokerage in convertible foreign exchange, he is deducting the brokerage and is only remitting the net amount to the overseas reinsurer. The issue decided in the case of SUPRASESH GENERAL INSURANCE SERVICES BROKERS (P.) LTD. VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI 2008 (11) TMI 82 - CESTAT, CHENNAI where it was held that Under RBI Regulations, there was a requirement of such an agreement under law and the permission of the RBI has to be obtained before remitting the foreign exchange. That issue does not arise in the present case and the provisions of the Service Tax Act does not impose such a condition. In any event, as we have held that the basis of the circular, which is clarified that Notification Nos. 6/99, dated 9-4- 1999, 9/01, dated 16-7-2001, 13/02, dated 1-8-2002 and 2/03, dated 1-3-2003 would not apply to export of service, the question of receiving the payment in convertible foreign exchange does not arise. Even the Export of Service Rules, 2005 does not put an embargo in relation to taxable service as specified in Rule 3(3)(i), (ii) and (iii) of the Export of Service Rules. The Hon ble High Court of Madras in SUPRASESH GENERAL INSURANCE SERVICES BROKERS PVT. LTD. VERSUS THE COMMISSIONER OF SERVICE TAX, CUSTOM, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL 2015 (9) TMI 1219 - MADRAS HIGH COURT has held that such cases amount to export of service and that the amounts which have been retained as brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving back foreign currency should be treated as receipts for export in foreign currency. Hon ble High Court of Madras has decided that the demand of service tax on such amounts is not sustainable. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the service is rendered to the Indian insurance company or the foreign reinsurer.
2. Whether the brokerage is paid by the insuring company or the reinsuring company.
3. Whether the brokerage received in Indian Rupees should be deemed as received in foreign currency.
4. Whether the service in question should be considered as export of service.

Issue-wise Analysis:
1. Service Rendered to Indian Insurance Company or Foreign Reinsurer:
The appellant, acting as a reinsurance broker, arranges reinsurance for Indian insurance companies with overseas reinsurers. The primary question is whether the service is being provided to the Indian company which takes the reinsurance or the foreign company which gives the reinsurance. The Hon’ble High Court of Madras in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. held that the reinsurance broker's services are beneficial to both the Indian insurance company and the foreign reinsurer, indicating that the service is rendered to the foreign company.

2. Brokerage Paid by Insuring Company or Reinsuring Company:
The revenue contended that the brokerage received by the appellant from Indian insurance companies, even if it is for services rendered to foreign reinsurers, does not amount to export of services. The appellant argued that the brokerage is received from the overseas reinsurers, and this was supported by the High Court's decision, which emphasized that the brokerage is paid by the foreign reinsurer, not the Indian insurance company.

3. Brokerage Received in Indian Rupees:
The appellant received brokerage in Indian Rupees, which the revenue argued disqualifies it as export of service since it was not received in convertible foreign exchange. However, the High Court of Madras clarified that the brokerage retained in Indian Rupees by deducting it from the premium before remitting the rest to the foreign reinsurer should be treated as receipts for export in foreign currency. This interpretation aligns with the RBI circular and the provisions of the Service Tax Act, which do not impose a condition of receiving the payment in convertible foreign exchange for it to be considered as export of service.

4. Consideration as Export of Service:
The High Court of Madras concluded that the services provided by the appellant amount to export of service. The brokerage retained by the appellant in Indian Rupees, instead of remitting the entire premium abroad and receiving back in foreign currency, should be considered as received in foreign currency. This precedent was binding, and the demand for service tax on such amounts was deemed unsustainable.

Conclusion:
The impugned order was set aside, and the appeal was allowed. The judgment of the High Court of Madras in Suprasesh General Insurance Services & Brokers Pvt. Ltd. was followed, holding that the brokerage received by the appellant in Indian Rupees should be treated as receipts for export in foreign currency, and thus, no service tax was applicable. The appeal was pronounced in open court on 10.06.2020.