2023 (8) TMI 107 - AT - Service Tax

Export of service or not - condition specified in the 2005 Export Rules that the order for provision of service should be made by the recipient of such service from offices located outside India is not fulfilled since there is no written contract between Arcelor India and Arcelor France and the condition that the service is delivered outside India and is used outside India is also not fulfilled - HELD THAT - The Central Government had issued a notification dated 28.02.1999 granting exemption to taxable services provided in respect of which payment was received in convertible foreign exchange. This notification was superseded by a notification dated 09.04.1999, which extended the same exemption but added a proviso that the exemption will not apply when the payment received in convertible foreign exchange was sent outside India. This notification dated 09.04.1999 was subsequently rescinded by a notification dated 01.03.2003. In M/S GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD. VERSUS CST, DELHI 2014 (3) TMI 696 - CESTAT NEW DELHI , the dispute before the Tribunal was for the period from 19.04.2006 to 31.05.2007. The service provided by the appellant situated in India to GAP International was in relation to procurement of goods from India and for this purpose the appellant conducted survey of the manufacturers of various products required by GAP, USA and recommended vendors who could supply the goods. The appellant also conducted inspection of the export consignments and issued the inspection certificates. It was, therefore, not in dispute that the services provided by the appellant were BAS. The dispute, however, was whether the services qualified as export of service in terms of the 2005 Export Rules and, therefore, not taxable in India. It clearly transpires from the decision of the Bombay High Court in THE COMMISSIONER OF SERVICE TAX, MUMBAI-VI COMMISSIONERATE VERSUS M/S. A.T.E. ENTERPRISES PVT. LTD. 2017 (8) TMI 1233 - BOMBAY HIGH COURT that in a case where the Indian entity only helps the foreign entity to place orders on an Indian Company and it is the foreign entity which actually executes the orders with the Indian Company and the consideration for such orders is directly paid to the foreign entity, the activity may culminate in supplies to the Indian company but this would not mean that services have been provided in India and the services rendered by the Indian entity to the foreign entity would qualify as export of service under the 2005 Export Rules. In the present case, Arcelor India is a sub agent of Arcelor France which is an agent for the steel mills situated outside India. For procuring sale orders for the products manufactured by the foreign mills from customers in India, the requests of prospective customers identified by Arcelor India is forwarded to the foreign mills who, thereafter, directly get in touch with the Indian customer to determine the terms and conditions and execute a contract after which the goods are supplied by the foreign mills directly to the Indian customers. For this provision of service, Arcelor India receives consideration from Arcelor France in convertible foreign exchange. Thus, there exists a relationship of service provider and service recipient between Arcelor India and Arcelor France. It was the consistent view of the High Courts and the Tribunal that export of service would take place under rule 3(1)(iii) of the 2005 Export Rules if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India. This is for the reason that the foreign entity is located outside India and the payment is received by the person residing in India in convertible foreign exchange. The reference is answered in the following manner (i) Arcelor India, a service provider, is providing BAS service to Arcelor France, which is a service recipient. Arcelor India is, therefore, providing service to Arcelor France which is situated outside India and Arcelor India receives consideration in convertible foreign exchange. The service provided by Arcelor India is, therefore, delivered outside India and used outside India as is the requirement under the 2005 Export Rules prior to 01.03.2007 and Arcelor India provides services from India which are used outside India as is the requirement after 01.03.2007. It cannot, therefore, be doubted that Arcelor India provides export of service‟ as contemplated under rule 3 of the 2005 Export Rules; and (ii) Arcelor France is an agent of the foreign steel mills and Arcelor India is its sub-agent. Arcelor India provides the necessary details of the customers in India to the foreign steel mills and, thereafter, the foreign steel mills and the Indian customers execute a contract for supply of the goods. The goods are directly supplied by the foreign steel mills to the Indian customers. Arcelor India also satisfies condition (b) of rule 3(2) as payments for such service have been received in convertible foreign exchange.

Summary

Issues Involved:
1. Whether the services rendered by Arcelor India qualify as "export of service" under the Export of Service Rules, 2005.
2. Interpretation of the phrases used in Rule 3 of the Export of Service Rules, 2005.
3. Applicability of the Supreme Court decision in GVK Industries to the facts of the case.

Summary:

Issue 1: Qualification as "Export of Service"
Arcelor India, a sub-agent of Arcelor France, provided services to Arcelor France in procuring sale orders for steel mills outside India. The core dispute was whether the commission received by Arcelor India from Arcelor France for these services qualified as "export of service" under the Export of Service Rules, 2005 (2005 Export Rules). Arcelor India argued that there was no privity of contract between it and the foreign steel mills, and it received consideration only from Arcelor France. The department contended that the services were performed and consumed in India, thus not qualifying as "export of service." The Tribunal concluded that Arcelor India provided services to Arcelor France, which is located outside India, and received payment in convertible foreign exchange. Therefore, the services rendered by Arcelor India qualify as "export of service" under Rule 3 of the 2005 Export Rules.

Issue 2: Interpretation of Phrases in Rule 3
The Tribunal examined the extant and scope of phrases used in Rule 3 of the 2005 Export Rules:
- Rule 3(3)(i) (up to 18.04.2006): "Such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India."
- Rule 3(2)(a) (from 19.04.2006 to 28.02.2007): "Such service is delivered outside India and used outside India."
- Rule 3(2)(a) (from 01.03.2007 onwards): "Services provided from India and used outside India."

The Tribunal clarified that for services to qualify as export, the relevant factor is the location of the service recipient, not the place of performance. The benefit of the service should accrue outside India, and the service recipient should be located outside India. The Tribunal held that Arcelor India met these conditions as it provided services to Arcelor France, located outside India.

Issue 3: Applicability of GVK Industries Decision
The Tribunal distinguished the Supreme Court's decision in GVK Industries, which dealt with the interpretation of Section 9(1)(vii)(b) of the Income Tax Act, involving a deeming fiction for income accruing in India. The Tribunal noted that the Finance Act and the 2005 Export Rules do not contain such deeming fiction. The decision in GVK Industries was based on a different legislative context and was not applicable to the present case. The Tribunal concluded that the services rendered by Arcelor India to Arcelor France qualify as "export of service" under the 2005 Export Rules, and the reference to GVK Industries was misplaced.

Conclusion:
The Tribunal answered the reference by affirming that Arcelor India provides "export of service" as contemplated under Rule 3 of the 2005 Export Rules, as the services were provided to Arcelor France, located outside India, and payment was received in convertible foreign exchange. The appeal was directed to be listed for hearing before the division bench.