2016 (12) TMI 1527 - AT - Service Tax

Rejection of refund claim - unjust enrichment - export of services - Held that - the services rendered by the appellant for Institutional Investors situated abroad from whom brokerage is charged by them. In any case, the services were rendered by the appellant to the Institutional Investors who are situated abroad hence service tax law does not apply to them as also on the export of services. Services provided by the appellant to Foreign Institutional Investors can be termed as export of services as the service tax being a destination based tax, the recipient of the services are situated abroad. Identical issue came up before the bench in the case of Commissioner of Service Tax, Pune II v. HSBC Software Development (I) Pvt Ltd 2016 (2) TMI 475 - CESTAT MUMBAI , where it was held that service rendered outside the country are outside the ambit of taxation. The question of unjust enrichment does not arise in the case of export of service - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Rejection of refund claim for service tax paid on brokerage charges collected from Foreign Investment Institutions.
2. Application of unjust enrichment principle under Section 11B of the Central Excise Act, 1944.
3. Determination of whether services provided to Foreign Institutional Investors constitute export of services and are exempt from service tax.

Analysis:
1. The appeal challenged the rejection of a refund claim for service tax paid on brokerage charges collected from Foreign Investment Institutions (FIIs) during a specific period. The appellant initially paid the service tax under reverse charge mechanism but later discovered an exemption notification that could apply. Both lower authorities concluded the appellant was not eligible for a refund, leading to the amount being credited to the Consumer Welfare Fund.

2. The issue of unjust enrichment under Section 11B of the Central Excise Act, 1944 was raised regarding the refund claim. The show cause notice questioned the lack of documentary evidence to prove that the tax amount was not collected from customers or paid by clients, thus invoking the unjust enrichment principle. The appellant contended that the commission amount was received in convertible foreign exchange and fell under specific exemptions, indicating they did not collect service tax from FIIs.

3. The crucial determination revolved around whether the services provided to Foreign Institutional Investors constituted export of services, thereby exempting them from service tax liability. The Tribunal found that the services rendered to FIIs, situated abroad, did not fall under the purview of service tax law due to being export of services. Citing precedents and judicial pronouncements, the Tribunal emphasized that service tax is a destination-based tax and, in this case, the recipients of services were abroad, supporting the conclusion that the services provided were indeed exports.

4. In light of the authoritative judicial pronouncements and the factual circumstances, the Tribunal concluded that the question of unjust enrichment did not apply in the case of export of services. Consequently, the impugned order rejecting the refund claim was set aside, and the appeal was allowed with consequential relief, including the disposal of the cross-objection filed by the Revenue.