Export of services and FIRC, Service Tax

[chetan jadhav]

During the adjudication of SCN, with respec to to export of services, assesee submitted the forein inward remittance advice from the bank as proof of receipt of consideration in foreign currency. However department rejected the advice on following grounds -

1. These were just advice and not certificate (ie FIRC was not in a proper format)

2. inward remittance advice does not prescribed purpose of receipt

Now when we contatced our bankers to isssue Foreign Inward Remittance Certificate (instead of advice), we are told that, banks has stopeed issuing FIRC ( for other than FDI) from 2016 and now only advices are issued.

My question -

In our view, no specific format of FIRC has been prescribed under services rules/finance act 1994. what is necessary is to proov receipt of foreign currency.

Can department still challenge the export of services for not submitting FIRC in proper format ???

Posts / Replies

[Sadanand Bulbule]

Dear Sir

1. In terms of Section 2[6] of the IGST Act, the following ingredients shall be satisfactorily fulfilled to qualify as "export of services"

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India;

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

2. Now coming back to the specific issue of insisting for FIRC, it is true that the Banks have stopped issuing such certificates. Alternatively it is enough to properly substantiate the receipt of convertible foreign exchange based on Bank Advice. The Audit Authority cannot insist for what is not available. In case of any tangible doubts, it can double check the facts with the Bankers. On this count alone, it cannot disapprove the fact of 'export of services' merely on outdated deficiency of format [FIRC] which is not prescribed under the GST Act. Assuming that you have fulfilled the above ingredients to the satisfaction of law , the onus lies on the Authority to disprove the fact of export of services.

3. It is needless to mention that, facts are older than laws and remain fresh as bloomed flowers when put to litmus test. So facts are not going to magically disappear as assumed by the Authority. They not only survive but also prevail for ages. Law is prone to interpretation in wishful manner but not the facts.

[Sadanand Bulbule]

Further to my reply, please find the following additional information on the subject issue:

A Foreign Inward Remittance Certificate (FIRC) is a document that acts as proof of a foreign transfer to India.

According to guidelines from the Reserve Bank of India (RBI) and letters circulated by FEDAI (Foreign Exchange Dealers Association in India), the following 2 documents can be issued by A.D (Authorized Dealer) Category I banks in India as proof of foreign transfers to India.

Physical Foreign Inward Remittance Certificate (FIRC)

A physical FIRC may be issued only for inward remittances covering Foreign Direct Investment (FDI) / Foreign Institutional Investment (FII). Payments for these purposes are only allowed through banking channels as per RBI guidelines .

Electronic FIRC (e-FIRC)

According to the RBI, AD Category I banks must report all money transfers to India (inward remittances) to Export and Data Monitoring Systems (EDPMS). This includes any advances or outstanding transfers they’ve received for the export of goods or services. Banks that receive these kinds of transfers will issue an electronic FIRC to EDPMS when the exporter asks them to.

Foreign Inward Remittance Advice

If the transfer doesn’t fall in either of these 2 categories above, one can apply for a Foreign Inward Remittance Advice (certificate of inward remittance) from the partner bank that processed the transfer. Advice is only available for businesses.

Since your case does not fall under any of the above 2 categories[FDA & FII], you cannot be issued a FIRC but only a FIRA. So the Audit Authority has no other option but to accept FIRA as the only legal proof and approve export of services for all statutory purposes.

[Sadanand Bulbule]

Please read it as FDI.

[chetan jadhav]

Thank You for your promt reply.

But can department insist us to obtain E-FIRC from bank as since physical FIRC was discontinued, bank were supposed to issue E-FIRC.

Can you please elaborate the same ??

[Sadanand Bulbule]

Dear Chetan ji

With the RBI guidelines in place, the Authority can not insist even for e-FIRC since your case admittedly does not fall under the category of either FDI or FII. It has to be contended with the FIRA only. Assuming still it insists for e-FIRC, it is only out of its sheer ignorance of the RBI rules governing the issue of physical FIRC, e-FIRC & FIRA or for some other unkonwn reason. The Audit Authority is also under the statutory obligation to obey the RBI guidelines per say. Therefore try to impress the Authority as regards to its compliance of prevailing RBI guidelines and it cannot overlook them so easily. Facts prevail over the purposeless interpretation.

Rules are rules and they are similar to everyone irrespective of the status of the stakeholders. No one is above other stakeholder, much less tax laws.

[KASTURI SETHI]

Answer is YES. The burden of proof is cast upon the assessee who claims exemption as per judgement of the Supreme Court in the case of Dilip Kumar & Company reported as 2018 (7) TMI 1826 - SUPREME COURT. The department can ask for any document which it considers necessary for investigation/verification to safeguard revenue. You are statutorily bound to comply with.

[Shilpi Jain]

There is a good amount of information shared by Sadanadji. You could share that with the department in a letter and make them understand that FIRC / e-FIRC is something which the banks have to issue and if there are rules in place that they need not issue that for your transaction then this will not be available.

Maybe department would then get this info cross checked and get satisfied (just a ray of hope). If not, let them reject and you would have to take it up in adjudication/appeal.

[Amit Agrawal]

I agree with Shri Sadanand Ji & Ms. Shilpi Ji!

If order is not yet issued, you can meet senior officers and explain the misgivings in given situation and request them to intervene informally. Even after 7 years of stopping of issuance of FIRC in case like yours, if any officer is asking to produce something impossible (though rules says FIRC), then, it is better to get seniors involved. I am sure Dept. - a whole - has taken practical calls and accepted bank-advices as equivalent as FIRC for services exported in majority of cases (if not all) in last 6-7 years.

But, if order is already issued, you got no option but to defend yourself judicially by filing an appeal.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

You have raised the issue with the head 'Service Tax' and not 'GST'.

What is subject matter of SCN? Is it demand against services provided (i.e. exported as per your submission) or to deny refund of Cenvat Credit against services so provided?

[chetan jadhav]

Dear all

Scn is for demand against export of services provided.

Further wrt inward remittance advice, it does not contain purpose code and officer is not willing to accept it as proof for receipt of foreign currency.

[Amit Agrawal]

In addition to the legal position as explained in earlier posts and with the understanding that you are referring to demand of service tax & not GST, please note the followings:

Charging Section 66B was 'for services provided or agreed to be provided in the taxable territory (i.e. India)'

Non-receipt of convertible foreign exchange (even if assumed, for sake of argument) does NOT result into levy of service tax, when place of provision of service was outside India (as per Place of Provision of Services Rules, 2012).

So, debate about FIRC V/s bank advice etc. itself becomes secondary.

Of-course, you need to continue defending yourself that given bank-advice is nothing but FIRC due to reasons discussed in earlier posts. But, you can add non-levy of service tax u/s 66B as primary argument.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Sadanand Bulbule]

Dear all

Its quite exciting to witness voluminous water being flown from all dimensions on the subject issue not only for the benefit of querist alone but in general to all visitors of TMI. Further to my replies, I wish to add following for the profit of expanding the regulating mechanism of "convertible foreign exchange".

The Foreign Exchange Management Act, 1999 [FEMA] regulates the complete management of foreign exchange both inward & outward in collaboration with the RBI. Section 2[l] of the FEMA defines export & foreign exchange as under:

(l) "export", with its grammatical variations and cognate expressions, means-"

(i) the taking out of India to a place outside India any goods,"

(ii) provision of services from India to any person outside India;"

(m) "foreign currency" means any currency other than Indian currency;"

(n) "foreign exchange" means foreign currency and includes,-"

(i) deposits, credits and balances payable in any foreign currency,"

(ii) drafts, travellers cheques, letters of credit or bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency,"

(iii) drafts, travellers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency;"

So the statutory position being so, it is natural that the authorities are expected to be aware of such base provisions before creating controversial issues on production of FIRC to substantiate export of goods/services. The system of FIRC has been discontinued since 2016 to normal businesses [other than FDI & FII]. There are other authenticated similar documents which can be safely relied upon by the authorities allow the claim of export. Further in terms of Section 7 of the FEMA, every exporter of goods/service has to furnish prescribed declarations indicating the full details of export to the RBI in relation to the payment of such exports. As such the question of producing FIRC, being non-existential, does not arise at all by the querist.

Hope the authorities realise the truth of the matter and appreciate the genuine export transactions and pave the way for seamless flow of precious foreign exchange to make the country more vibrant.

[KASTURI SETHI]

Sometimes full and true facts are known to us in this forum. It often happens here. I do not doubt integrity of the querist/assessee.

[KASTURI SETHI]

Pl.read "not known" instead of "known"

[chetan jadhav]

Thank you all for valuable feedback.

To summarise the issue -

1. FIRC is not mandetory as per FEDAI guidlines and thus only advice should work.

2. even without FIRC, if services are provided outside india (place of provision outside india), it shall not be taxable - section 66B (charging section)

thanks once again.

[Manoj Khatri]

Why don't you get BRC from bank for export of services and submit to the department.