2012 (12) TMI 424 - AT - Service Tax

Scope of the term Export - Money transfer business Location of the consumer - Whether the issue as to what constitutes export of services is to be determined with reference to provisions in Export of service Rules, 2005 only Difference of opinion held that - The term export has not been defined either in Article 286 (1)(b) or in any of the article of the Constitution of India. Though the Apex Court s judgments in the case of the State of Kerala vs. The Cochin Coal Company Ltd. 1960 (10) TMI 57 - SUPREME COURT OF INDIA and Burmah Shell Oil Storage & Distribution Co. of India vs. Commercial Tax Officer & Others reported in 1960 (9) TMI 70 - SUPREME COURT OF INDIA explain the meaning of the term export , the ratio of these judgments which are with regard to export of goods, is not relevant for determining what constitutes the export of services. There is no question of Export of Service Rules, 2005, being in conflict with Article 286 (1) (b) of the Constitution of India. The Export of Service Rules, 2005 are in accordance with the Apex Court s ruling in the Association of Leasing & Financial Service Companies vs. Union of India 2010 (10) TMI 4 - SUPREME COURT and All India Federation of Tax Practitioners vs. Union of India 2007 (8) TMI 1 - SUPREME COURT that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India. What constitutes export of service is to be determined strictly with reference to the provisions of Export of Service Rules, 2005? Not doing so and leaving this question to be determined by individuals tax payers or tax collectors for each service, based on their deductive ability would result only in total confusion and chaos. Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their Agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is business auxiliary service , being provided to Western Union. It is Western Union who is the recipient and consumer of this service provided by their Agents and sub-agents, not the persons, receiving money in India. When the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service. Reimbursement of advertisement and sales promotion activities received from WU is not taxable as the same are for the services provided to WU, which are export of service. When the services provided by the sub-agents have been held to be export of service and hence not liable for service tax, the question of their eligibility for exemption under Notification No. 6/2005-ST is irrelevant and has not been gone into. The services provided by the Agents and sub-agents throughout during the period of dispute are classifiable as Business Auxiliary Service under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994 and the same have been exported in terms of the provisions of Rule 3(1) (iii) read with Rule 3(2) of the Export of Service Rules 2005 and hence no service tax is payable. Decided in favor of assessee and against the revenue.

Issues Involved:
1. Classification of services provided by agents and sub-agents.
2. Determination of whether the services provided are exported.
3. Applicability of service tax on reimbursements for promotional activities.
4. Time-bar for raising demands.
5. Eligibility for small-scale exemption.
6. Inclusion of amounts paid to sub-agents in the value of taxable services.
7. Extension of cum-tax benefit.
8. Taxability of gains from foreign exchange fluctuations.

Detailed Analysis:

1. Classification of Services Provided by Agents and Sub-Agents:
The services provided by the agents and sub-agents of Western Union (WU) were classified as "Business Auxiliary Services" under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. The agents and sub-agents were involved in delivering money to the intended beneficiaries in India on behalf of WU and promoting WU's money transfer services. Even after 1.6.2005, when services related to money transfer were included under "Banking and Financial Services," the Tribunal held that the services provided by the agents and sub-agents remained classifiable as "Business Auxiliary Services" due to their agency nature.

2. Determination of Whether the Services Provided are Exported:
The Tribunal determined that the services provided by the agents and sub-agents were indeed exported. The recipient of the services was WU, located abroad, which used these services for its money transfer business. The services were provided in relation to WU's business located outside India, and the payment for these services was received in convertible foreign currency. Therefore, the services met the criteria for export under Rule 3(1)(iii) read with Rule 3(2) of the Export of Service Rules, 2005.

3. Applicability of Service Tax on Reimbursements for Promotional Activities:
Reimbursements received by the agents for promotional activities were not taxable. These activities were considered services provided to WU, which were exported. Therefore, no service tax was applicable on these reimbursements.

4. Time-Bar for Raising Demands:
The question of time-bar became irrelevant once it was decided that the services provided were exported and not liable for service tax. However, it was noted that the demands were not time-barred due to the suppression of facts by the appellants.

5. Eligibility for Small-Scale Exemption:
The eligibility for small-scale exemption under Notification No. 6/2005-ST was not addressed as it became irrelevant after determining that the services provided were exported and not taxable.

6. Inclusion of Amounts Paid to Sub-Agents in the Value of Taxable Services:
The question of whether amounts paid to sub-agents should be included in the value of taxable services provided by the agents became irrelevant after determining that the services were exported and not taxable.

7. Extension of Cum-Tax Benefit:
The question of extending cum-tax benefit also became irrelevant as the services were determined to be exported and not liable for service tax.

8. Taxability of Gains from Foreign Exchange Fluctuations:
Gains from foreign exchange fluctuations were not considered part of the assessable value for service tax purposes. These gains were subject to the risk of losses and were not directly related to the provision of services.

Conclusion:
The Tribunal concluded that the services provided by the agents and sub-agents of WU were classifiable as "Business Auxiliary Services" and were exported services. Therefore, these services were not liable for service tax. The appeals were allowed in favor of the appellants, and the demands raised by the Revenue were set aside.

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