2018 (10) TMI 900 - AT - Service Tax

Refund/rebate of Service Tax paid on export of services - Business Auxiliary Services - service charges in the form of commission by their Parent Company - Export of Service Rule, 2005 - Held that - The procedure of retaining the service charge/commission amount and only remitting the remaining portion of the proceeds in foreign exchange will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of monies in convertible foreign exchange - It is nothing but saving of foreign exchange as the Appellant has retained that portion and not sent the same in foreign exchange to the Parent Company at Singapore along with other said proceeds. Outflow of foreign exchange has been reduced to the extent of commission/service charge retained by the Appellant within India. Such retention has to be necessarily treated as saving of foreign exchange. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Service Agreement for Business Auxiliary Services
2. Eligibility for Refund under Export of Service Rules, 2005
3. Compliance with Rule 3(2) of Export of Service Rule, 2005

Interpretation of Service Agreement for Business Auxiliary Services:
The appeal involved a subsidiary providing services categorized as "Business Auxiliary Services" to its Parent Company in Singapore. The Appellant received payments from customers in India for the Parent Company's products, deducted service charges as per Clause 4 of the Service Agreement, and remitted the remaining amount to the Parent Company. The dispute arose when a refund claim under Export of Service Rules, 2005 was rejected, leading to subsequent appeals.

Eligibility for Refund under Export of Service Rules, 2005:
The Appellant argued that by remitting the net consideration to the Parent Company after deducting service charges, they effectively saved foreign exchange, meeting the conditions of Export of Service Rules, 2005. The Appellant cited precedents where similar procedures were deemed compliant with the Rules, emphasizing that the retention of service charges and remittance of the remaining amount constituted saving of foreign exchange, thus qualifying for exemption.

Compliance with Rule 3(2) of Export of Service Rule, 2005:
The critical issue revolved around Rule 3(2) requiring payment in convertible foreign exchange for services to be treated as exports. Despite the Appellant receiving payments in Indian Rupees and remitting the net amount to the Parent Company, the Tribunal held that the process amounted to saving foreign exchange, aligning with precedents and the interpretation of convertible exchange. Citing a Supreme Court decision and Tribunal rulings, the Tribunal concluded that the retention of service charges within India was akin to saving foreign exchange, making the Appellant eligible for a refund.

In conclusion, the Tribunal allowed the appeal, emphasizing that the Appellant's procedure of retaining service charges and remitting the remaining amount in foreign exchange constituted saving of foreign exchange, meeting the conditions of Export of Service Rules, 2005. The decision was based on the interpretation of the Service Agreement, compliance with Rule 3(2), and precedents supporting the Appellant's position.