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TMI Blog2012 (12) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... ance: Appeared for Appellant : Sh. Rajesh Chhibber, Advocate Appeared for Respondent : Sh. B.L. Soni, SDR Appearance: Appeared for Appellant : Shri S. Malhotra, Advocate Appeared for Respondent : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant :Shri Sumit Kumar & Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant : Shri Fateh Singh, SDR Appearance: Appeared For Appellant : Shri Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent: Shri Harinder Singh, Advocate Appearance: Appeared for Appellant : Shri Sumit Kumar & Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent : Sh. S. Malhotra, Advocate Appearance: Appeared for Appellant : Shri Fateh Singh, SDR Appeared for Respondent : Shri Harvinder Singh, Advocate Appearance: Appeared for Appellant :Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent :Sh. Harvinder Singh, Advocate Per Mathew John: In this proceeding 10 COD applications, 6 stay applications and 42 appeals are being decided. Out of these 42 Appeals 15 are filed by assesses where the main issue is decided against the assessees and 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rams, distributing promotional material etc. The amount incurred by PML for promotional activities was reimbursed by Western Union to the extent of Rs. 1,02,08,980/- during the relevant period. On this amount received service tax amounting to Rs. 11,69,838/- is demanded 5. PML appointed sub-agents within the territories allotted to them to establish a large number of outlets in the area to make it easy for the recipient in India to get the money easily without much travel and hassles. PML compensates these sub-agents by sharing the commission received by them from Western Union which commission itself is received from the person located abroad remitting the money to India. 6. The crucial question is whether PML should pay service tax amounting to Rs. 3,23,72,254/- on the commission amounting to 28,10,71,565/-received by them in this business during the period 01-07-2003 to 30-06-07. A Show Cause Notice issued by the Directorate General of Anti-evasion alleging that service tax is to be paid on such commission and re-imbursements has been adjudicated by the impugned order confirming tax demand of Rs. 3,35,42,092/-against PML with applicable interest. Penalty equal to the dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banking and Financial Service and it was not covered till 01-05-06 under the entry for Banking and Financial Service as defined, the service could not have been covered under the heading for 'Business Auxiliary Service' which is in the nature of a residuary heading. 9. Revenue argues that PML was undertaking the service promised by the Western Union to the person remitting money from abroad and thus was doing a services on behalf of their client as envisaged in clause (vi) of section 65(19) of Finance Act, 1994 for 'Business Auxiliary Service'. 10. They further point out that they were doing advertising of the services of Western Union, distributing promotional literature and holding promotional activities as envisaged in clause (ii) of section 65(19) and activities incidental to such promotion as envisaged in clause (vii) of 65(19). The fact that from 01-05-2006 the service is covered by the entry for 'Banking and Financial Service' cannot imply that the service was not covered by another entry for the previous period. This issue has to be seen with reference to the definition of the service for the relevant time. 11. As argued by Revenue, PML was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service is the person situated abroad who approaches the office of Western Union abroad and who pays for the services. So this is a case of Export of Services as laid down in Export of Services Rules, 2005. (ii) The Revenue contests that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. The receiver of its service is the person receiving the remittance in India. The Revenue argues that no part of the service done by PML is exported. To buttress this argument the Ld. SDR relies on clauses 1, 3,4A and 4B of the contract. However there is no need to reproduce these clauses in this order because there is no contest on the issue that the activities of PML are carried out in India. 14. Now it is beneficial to study the Export of Services Rules, 2005. As per these Rules, taxable services are categorized into three categories and for different categories different criteria are laid down to decide whether the service is exported. The position is explained below. (In the discussion below it may be noted that the Rule numbers are quoted with reference to the position after amendment of the Export of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not paying any commission. So we are clearly not dealing with the service rendered by PML to the receiver of money. The entire discussion is about the commission received from Western Union and this commission is obviously for the service rendered to Western Union. Once it is recognized that service and consideration paid for such service flows in opposite directions, so long as the arrangement for payment is bonafide and is in the ordinary course of business, the entire issue can be dealt with clarity. Once this clarity is achieved the other issues that emerge can be very easily sorted out. 16. The entire argument of Revenue is based on the fact that the activities of PML are performed in India though words like 'used in India' are used while arguing the point. We say so because there is no doubt that the use of the service is by the person paying for it that is Western Union and through them the person abroad who wants to remit the money and hence the use is outside India. But Revenue wants that the issue of export should be decided with reference to place of performance of service by PML, ignoring the fact that Business Auxiliary Service is not specified at Rule 3 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertible foreign exchange; (iii) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organisation to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organisation in foreign exchange for the entire activity being undertaken in India. (emphasis supplied) The departmental officers seem to have taken a view in such cases that since the activities pertaining to provision of service are undertaken in India, it cannot be said that the use of the service has been outside India. 2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories: (i) Category (I) [Rule 3(1)(i)] : For services (such as Architect service, General Insurance service, Construction service, Site Preparation service) that have some nexus with immovable property, it is provided that the provision of such service would be 'export' if they are provided in relation to an immovable property situated outside India. (ii) Category (II) [Rule 3(1)(ii)] : For services (such as Rent-a-Cab operator, Market Research Agency servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)] services as well. 4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned. These instructions should be given wide publicity among trade and field officers. 5. Please acknowledge receipt. 6. Hindi version follows." 18. Because of the confusion that was building on the interpretation of Export of Service Rules, GOI amended Export of service rules vide Notf. 6/2010-ST dated 27-02-2010 and also issued Circular vide Letter D.O.F. No. 334/1/2010-TRU dated 26-02-2010. Some relevant extracts from the letter are given below: "7. AMENDMENT TO EXPORT OF SERVICE RULES, 2005 7.1 Export of Service Rules, 2005 have been amended as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices-2009 (14) S.T.R. 706 (Tri. - Bang.) which deals mainly with the issue whether the payments were received in foreign exchange and does not deal with the issue whether service was utilized outside India and that decision does not give any ratio applicable for this case. The reservation of the Ld. SDR in accepting the decision in Muthoot Fincorp Ltd is so vociferous that this bench is of the view that a second examination of the issue without any reference either to the Board's Circular or the decision of the Tribunal in the case of Muthoot Fincorp Ltd. may help in avoiding such arguments in future on the same issue. 20. For this the legal position prior to notification of Export of Service Rules, 2005 on 03-03-2005 and amendments made in the said Rules after 03-03-2005 need to be stated and examined. 20.1 From 09-04-1999 to 28-02-2003 The service was exempt under Notification 6/99-ST 09-04-99 so long as payment for the service was received in convertible foreign exchange. The impugned order is bad in law because the matter relating to this period is not examined with reference to this notification. 20.2 From 01-03-2003 t0 19-11-2003 Notification 6/99-ST dt 09-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996." The Ld. SDR is harping on the condition (i) (b) as highlighted above which is applicable only if such recipient has any commercial or industrial establishment or any office relating thereto, in India. There is no case that Western Union had an office in India and the order the agreement was signed by any office of Western Union in India. Of Course the notification as amended for later periods this condition was made applicable without reference to office in India. 20.5 Position from 16-06-2005 to 18-04-2006 "After the first proviso, the following proviso shall be inserted namely :- "Provided further that for the purposes of this sub-rule, any taxable services provided shall be treated as export of services only if- (a) such service is delivered outside India and used in business or for any other purpose outside India; and (b) payment for such service provided is received by the service provider in convertible foreign exchange." 20.6 Position from 19-04-2006 to 28-02-2007 "The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 'Banking and Financial Services', because this service is also specified under Rule 3 (1) (iii) of Export of Service Rules, 2005 and not under Rule 3 (1) (ii). 22. Now there is the issue whether any tax has to be paid on the amounts reimbursed by Western Union for expenses incurred in promoting the business of Western Union in India. In the context these services PML makes it clear that for the advertisements given, the advertising agency has charged service tax from them and they have paid such tax. These services allegedly provided by PML to Western Union are also sought to be classified under Business Auxiliary Services and hence the arguments given in respect of commission received from Western Union is equally applicable to these reimbursements also. So there is no scope for any separate examination of this issue. 23.1 Having formed our views we have checked whether our views are in conformity with the previous decisions of this Tribunal. We find that in the matter of classification of service the Tribunal in the case of Muthoot Fincorp Ltd. had not given any specific ruling. We have ruled that the service was classifiable as Business Auxiliary Service prior to 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants have acted in bonafide manner considering the exemption notifications in force, clarifications issued by CBEC. Further the very fact that the Tribunal in the past have accepted that these services are exported and the Revenue itself has not initiated action against the major entities like Commercial Banks providing such service during the same period, would justify the stand of the assesses that there was no intention on their part to evade service tax. 26. Accordingly it is held that the amount confirmed in the impugned order is not maintainable and the appeal is allowed by setting aside the impugned order. Now the appeals filed by sub-agents are to be examined in two sets as under: First Set of Appeals- ST Appeal Nos. 833-837/2008 (5), 652/2008, 14/2009, 423/2009, 206/2010, 224/2010, 230/2010 filed by different assesses. Second Set of Appeals- ST Appeal Nos. 10/2009, 20/2009, 107/2010, 274-278/2010, 298/2010, 300/2010, 314-17/2010, 321-23/2010, 359/2010, 296-97/2010, 1085/2010, 802/2010, 810/2010, 388/2010, 1019/2010, 380-81/2010 filed by Department 27. In the first set of Appeals the Appellants and in the second set of Appeals the Respondents are sub-agents of PML or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SDR that they cannot context the liability at this second stage of Appeal. The Ld. SDR also points out that the assessees are providing the service using the brand name of Western Union and in such cases the exemption under Notification 13/2005-ST is not applicable. 33. The counsel for this Appellant has the additional submission that the Revenue has accepted the decision of the Tribunal in Muthoot Fincorp and hence cannot take a different stand in the case of present Appellant. Further he argues that the Circular issued by the CBEC is binding on the Departmental Officers as per judicial pronouncements and therefore the adjudicating authority and the LD. SDR cannot take a stand diametrically opposite to the contents of the Circular issued by CBEC. It is also the contention that making demand for the periods prior to 03-03-2005, when there was exemption for services for which payment was received in foreign exchange amounts to retrospective taxation which is not legally sustainable. He further contends that since the matter is one of interpretation of legal provisions, the extended period cannot be invoked and the demand is barred by limitation of time. Appeal ST-206/2010 filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported." 40. He stresses that the demand for the period prior to 03-03-2005 the service was exempt under notification 21/2003-ST dated 20-11-03 where in such services were exempt if consideration was received in foreign exchange. 41. He also argues that the demand is barred by limitation of time because there was no willful suppression of material facts. 42. In the matter of Appeal listed in this part (Part-II) of this order our main finding is that the nature of service will not change in the hands of a sub-agent who does essentially the same service for a certain leg of the activities to complete the service and hence our finding in the matter of classification of service and export of service given for the main applicant will apply to these appeals also. The demands issued beyond the period of normal period of one year are also time barred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Finance Act, 1994? (2). Whether the activity of advertisement, publicity and market promotion done by representatives and sub-irepresentatives in India on behalf of their foreign principal, to advance the object of money transfer is business auxiliary service and taxable u/s 65 (zzb) read with section 65 (19) of Finance Act, 1994? And whether such service is export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994? (3). Whether money transfer shall be taxable as "banking and other financial service" with effect from 1.6.2005 u/s 65(105) (zm) read with section 65 (12) of Finance Act, 1994 or taxable as support service of business or commerce u/s 65 (105)(zzzq) read with section 65 (104c) of Finance Act, 19947 And whether such services are export of service under the 'provisions of Export of Service Rules 2005 andimmune from service tax under the provisions of Finance Act, 1994? (4). Whether small tax payers benefit is available under Notification No. 6/2005 dt 1.3.2005? (5). Whether the Adjudications were time barred? (6). Whether the Assessees are liable to penalty? (7). Whether the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ological advancement there is a very thin line which divides a "sale" from "service". That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion vide Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Furthen it is important to note, that "service tax" is a value added tax which in turn is a general tax which*' applies to all commercial activities involving production of goods and provision of services. Moreover VAT is a consumption tax as it is borne by the client. 18. In Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad - 1995 (76) E.L.T. 241 (S.C.) we get a clue of an important principle, namely, "principal of equivalence". In that judgment, this Court was required to explain the words excisable" goods" and "produced or manufactured 'C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods till the test of marketability is satisfied. In the case of Moti Laminates (supra) the "solution" was an intermediate product produced in the course of manufacture of laminated sheets. It had a short shelf life, It was not marketable, therefore, this Court took the view that the solution was not "goods" and, therefore, not dutiable. 19. The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax, which has received legal support in the form of Finance Act, 1994. To give an illustration, an Event Manager(professional) undertakes an activity, namely, of organizing shows. He belongs to the profession of Event Manager. As long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consumers in India. As a result of which such service traveled from abroad to India for provision thereof in India on behalf of the foreign principal and ultimately terminated in India upon delivery of money to the intended consumer in India. Elements of agency are implicit in the contract. "Export" of goods is nothing new to the fiscal legislations of this Country. While Article 286 (1) (b) of the Constitution defines this term, well tested and experienced Customs Act, 1962 in term of section 2(18) thereof states "taking out of India to a place outside India" is export. Activity relating to goods is equated with activity related service following "Principles of Equivalence". Meaning of "export" as has been stated in Constitution and tested by customs law as well as law of Central Sales Tax Act, 1956, enable to understood what "export" means in the context of export of service and governance thereof under the provisions of Finance Act, 1994 read with Export of Service Rules, 2005 when the economy is marching towards to Goods and Service Tax regime. 46.1 In the case of The State of Kerala and Others v. The Cochin Coal Company Ltd. - (1961) 12 STC 1 it has been held that concep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. Crucial fact is sending of the service to a foreign destination where they would be received as imports. But no such fact was in the present set of appeals. Ultimate consumers of service were in India and terms of agreements relied upon by the parties established in substance that India was ultimate destination of the service which traveled from abroad. Consumption of such service was made in India and being terminated, no more goes back from India for delivery abroad. 46.3 The assessees were intermediary agents to provide the service traveling from abroad to the end user thereof on behalf of their principals. It may be reiterated that the destination based consumption of service ended with performance thereof in India and that satisfies the performance based service tax concept as has been held by Apex Court in All India Fedn. of Tax Practitioners - 2007 (7) S.T.R. 625 (S.C.). In Para 7 of the judgment it has been held that service fall into two categories, namely, property based services and performance based services. Such fundamental concept brings the service performed in India to the fold of service tax under the provisions of Finance Act, 1994. Therefore place of orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of levy in India. Accordingly, export of service plea of the Assessees is inconceivable and liable to be rejected\when `money transfer service is meant by foreign principal to come to an end in India upon delivery thereof on his behalf in India. Material facts of the cases also make it clear that the impugned services were meant to reach the consumers of Indian Territory and to exhaust here upon provision. End users of service being in India, foreign principals intended that money transferred from abroad should be delivered on their behalf in India with out further export of such money to abroad. Intimation of delivery of money in India is not attempted to be taxed in the present cases. Therefore law is not concerned with that to color the money transfer service to be export of service. No money transfer service n having moved out of India to a place out side India in terms of representation agreement, plea of export of service is untenable. 46.8 Assessees relied on the Apex Court judgment in Randey Micronutrients V. CCE - 1996 (87) ELT 19 (SC) to submit that Circular is binding on the Adjudicating Authority. There is no difference to such proposition. But a Circular is not l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Nothing is on record to appreciate that advertisement and promotion were either unproductive or futile and served no useful purpose of providing money transfer service in India which was dominant object of the parties. Thus the receipts made forpromotion or marketing of service provided by the foreign principal was in respect of business auxiliary service and that was taxable. Assessees' plea of no taxability claiming that reimbursements is not taxable is devoid of merit and they loose their claim on such count. CLASSIFICATION OF SERVICE 48. Plea of coverage of scope of service provided by Assessees by a lateral taxing entry under the category of "Banking and financial service" and "support service of business or commerce" is of no help * to them for the reason that nature and character of service is decisive for more appropriate and prudent classification. Object of service equally submits to the class which embraces it more specifically and meaningfully. Mere reclassification of service or inclusion of an aspect of a service under a different taxing entry does not immune the assessee from levy when an activity carried out by them inevitably is of the nature which is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce service is of no help to assessees for the reason that they carried out the activity of money transfer in India on behalf of their foreign principals under proper class of "Business AuxiIiary" service. Thus the Assessees were liable to service tax under the taxing entry "Business Auxiliary" service. GAIN ON FLACTUATION OF EXCHANGE RATE 52. There was grievance that the gain made out of fluctuation of ` foreign exchange rate should not form part of assessable value. When the money transfer is made from abroad, that is transacted in foreign exchange being an import to India. The difference arising out of fluctuation in exchange rate no doubt germane to the import itself. But case of Revenue could not demonstrate whether that gain in any way is a consideration for providing taxable service. Fluctuation in exchange rate may result in profit or loss to the transaction. If gain is to form part of assessable value, loss is deductible. But such aspect of transaction is beyond the scope Finance Act, 1994 which not a law to tax Points or gains of business or profession, while such gain is governed by Income Tax Act, 1961. Therefore the assessees shall succeed on this count and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-representative may get Cenvat credit of that extent of tax paid by representative on the proved aspect of service subject to the Cenvat Credit Rules applicable at the relevant point of time. 57. This batch of appeals may be decided on the aforesaid back drop of law. 58. Case of Paul Merchants Ltd in Appeal Case No. 311/2009 having been extensively argued both on facts and law, that case is decided by this order remanding all other cases to the original authority to decide their cases examining their facts on record on the light of statute law, judicial pronouncements as well as taking principles laid down as aforesaid preferably within 6 (six) months of receipt of this order. Remand in those cases has become necessity for the reason that the appellants did not argue on the facts of their cases specially and elaborately while they agreed with the material fact of money transfer and principles applicable as argued by learned Sr. Counsel Sri Vellapally and the counsel Sri 5udhir'Malhotra as to the issue of levy. APPEAL NO. ST - 311 of 2009 PAUL MERCHANTS V. CCE, CHANDIGARH 59.1 The Appellant M/s Paul Merchants Ltd was Representative of Western Union in India for a defined terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, Western Union may provide such proofs, according to Western Unions specifications or to purchase such promotional material from Western Union, if available. Representative agrees to promptly return any proofs supplied by Western Union within 30 days following their receipt by Representative. Western Union shall have the right, upon ninety (90) days written notice, to assume responsibility for advertising and ' promotion in India. " 59.5 Para 2 of agreement dt. 26.1.07 dealing with the subject read as" 2. Money Transfer Service: 2.1 During the terms of Agreement and strictly in accordance with applicable laws, rules, regulations, and the Service Requirements, REPRESENTATATIVE shall offer to the general A 'public the Money Transfer Services or which REPRESENTATIVE is authorized in Attachment B. If permissible under local laws and regulations and if authorized by appropriate authorities and by Western Union, REPRESENTATIVE will offer Commercial Transactions as part of the Money Transfer Service. REPRESENTATIVE represents and warrants to WESTERN UNION that REPRESENTATIVE has and shall maintain during the Term of this Agreement all licenses, permits and authorizations necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions by any means other than cash (including by way of illustration and not limitation by crediting a deposit account or debit card or by issuing a check), then REPRESENTATIVE and not WESTERN UNION shall be responsible for ensuring that good funds are available to the Recipient immediately and at no additional cost to the Recipient. REPRESENTATIVE may pay Money Transfer Service transactions only in the currency designated by the Sender, as such currency is identity in the WESTERN UNION approves a different payment currency for a particular transaction in accordance with WESTERN UNION's policies. 2.5 REPRESENTATIVE shall pay out all Money Transfer Service transactions in accordance with the time standards set for in the Service Requirements. 2.6 REPRESENTATIVE agrees. to charge only the fees and charges specially set forth in WESTERN UNIONS rate schedules, as they may be amended and modified by WESTERN UNION from time to time. REPRESENTATIVE shall not impose any fees or charges upon Money Transfer Services or any aspect thereof including but not limited to the delivery of funds within the Territory without the express prior written approval of WESTERN UNION. Without limiting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about WESTERN UNION services not offered by REPRESENTATIVE shall be forwarded as WESTERN UNION shall from time to time direct. 2.10 If WESTERN UNION has appointed other representatives in the Territory or appoints additional representatives in the future, WESTERN UNION and REPRESENTATIVE will use best efforts to reach an agreement with respect to the creation of a joint call center for al representatives ("Joint Call Center') that shall serve as a customer service center for all potential users of the WESTERN UNION service in the Territory. If the parties cannot reach agreement on the establishment or operation of a Joint Call Center, then WESTERN UNION may create the Joint Call Center and may make in its sole discretion any and all decisions pertaining to same. REPRESENTATIVE agrees to cooperate with WESTERN UNION in this process. If WESTERN UNION establishes the Joint Call Center WESTERN UNION may offset REPRESENTATIVE's proportionate share of the actual cost of establishing and operating the Joint Call Center from REPRESENTATIVES remuneration under this Agreement. 2.11 WESTERN UNION and/or any party authorized by WESTERN UNION may at any time visit the locations of REPRESE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set forth in Exhibit A attached hereto. " 59.7. The appellant also being governed by subsequent agreement dated 26.1.07 that was examined by Investigation as well as Adjudicating Authority. In this agreement as well as prior agreement, I i.e., 26.4.98, the appellant was agent (Representative) of Western Union in India and object of parties was to provide and effect money transfer service in India delivering money to the receiver nominee of foreign sender (Ref: page 145 of appeal folder). Market promotion activities were undertaken by the Appellant to make the service of money transfer available to the intended persons in India as well as ` potential consumers. The object of money delivery in India was also sought to be achieved appointing sub-representatives. The scope of money transfer business was defined in clause-2 of the agreement dt. 26.1.07. There was no material difference to the agreement dated 26.4.98 except reference to certain definitions and expressions used in the subsequent agreement. The appellant representative was authorized to appoint sub-representatives to promote market for Western Union and provide service to the said concern. The agreement further provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is completed in India in lieu of contract with WU. 7 (B) In reply to question No.3, she stated that Paul Merchants Ltd. is providing service to Western Union abroad in their business of money transfer by handing over the money to the person nominated by . sender abroad after verification of his identity and Money Transfer Code Number (MTCN). (C) In answer to question No.4 and 5, she stated that Paul Merchants Ltd. is providing services to Western Union in India for which the appellant company is being paid when the transaction is completed handing over the money to a person in India and service A tax* was not paid on the consideration received from Western Union. 59.10 Statement recorded u/s 14 of Central Excise Act, 1944 on 23.1.2007 (Ref: RUD -2 to the SCN) from Mrs. Aarti Makan, Deputy Manager (Accounts) of M/s Paul Merchants Ltd was cogent evidence. That established nature of activity carried out by M/s Paul Merchants Ltd. The said assessee was acting on behalf of the foreign principal as Representative thereof in India. It also provided money transfer service appointing sub representatives with the prior approval of the said principal. Endeavor of the assessee through adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erchants Ltd. was promoting and marketing of services provided by Western Union and also providing service on its behalf. 59.14 Investigation found that there was suppression of fact of rendering of taxable service by the appellant and no disclosure being made filing returns under law penalty was proposed in SCN, invoking extended period while proposing levy of service tax under provisions of the Finance Act, 1994. 59.15 The vital and material facts aforesaid invited incidence of service tax in India. Finance Act, 1994 being value added destination 59.18 The Ld. Adjudicating Authority dealt the first issue in para 4.1 to 4.4 of his order and came to the conclusion that the appellant provided Business Auxiliary Service u/s 65(19) of Finance Act, 1994 discarding no liability plea of the appellant. While reaching to the conclusion, opinion given by Hon'ble Mr. Justice P. N. Bhagwati (formerly Chief Justice of India) and Senior Advocate Sri. S. Ganesh to the appellant opining that service rendered by the appellant was classifiable under the category Business Auxiliary Service received attention of Adjudicating Authority as is revealed from Para 4.4 of Adjudication order. 59.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his order, the appellant was made liable to pay service tax on the entire amount received from Western Union. While holding so, he was also of the opinion that sub-representative being providing some service to the appellant they would be liable to pay service tax but that was not the subject matter of SCN. He further opined that `the appellant was eligible to take credit of tax paid by sub- representatives, if otherwise eligible. 59.24 On the aforesaid back drop of law and facts stated above, adjudication finding and conclusion of Adjudicating Authority is upheld. The appellant is liable to service tax and penalty imposed in adjudication. Interest as per law on service tax demand shall follow. Appeal being devoid of merit is dismissed. 60. All other appeals are disposed by way of remand to original authority for the reasons aforesaid. Condoning delay made in filing some of the appeals. DIFFERENCE OF OPINIOIN We have differed in our opinion in deciding the above appeals, in the manner aforesaid on the set of facts borne by record. Therefore the following points are to be determined to resolve the difference: Points to be determined. (i) Are the provisions of Export of Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 65 (104c) of Finance Act, 1994 And Whether such services are export of service in the case of Appellants under the provisions of Export of Service Rules, 2005 and immune from service tax under the provisions of Finance Act, 1994. . (xii) Whether appeals other than Appeal of Paul Merchants ltd need to be remanded or is to be decided on the basis of majority opinion? In View of the above, Registry is required to place the matter before Honorable President for appropriate orders. Per Rakesh Kumar: 61. In pursuance of the orders dated 16.05.2012 of Hon'ble President, CESTAT under Section 86(7) of the Finance Act, 1994 read with Section 35D(1) of the Central Excise Act, 1944, and Section 129C(5) of the Customs Act, 1962, the undersigned heard this matter on 18.05.2012, 28.6.2012 & 6.7.2012 in respect of the points of difference between the Member (Judicial) and Member (Technical), as mentioned in para 60 above. 62. Western Union Financial Services, INC (hereinafter referred to as WU); with principal place of business at Panama, New Jersey, provide services of money transfer from one country to another through their worldwide network of Agents and sub-agents. WU hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment money along with commission in convertable foreign currency and the Agent passes on the reimbursement money along with the sub-agent's commission to the sub-agent, but in Indian currency. 62.2 The main dispute in these appeals is about- (a) the classification of the services mentioned above provided by the Agents and sub-agents; and (b) whether these services are to be treated as export of services out of India and hence not liable to service tax as in terms of Rule 4 of the Export of Service Rules, 2005, no service tax is payable on the services exported out of India. 62.3 Though in terms of an Agent's agreement with WU and a sub-agent's agreement with Agents, both the Agent and sub-agent can provide the service of money transfer from a person in India to his intended recipient abroad, this service is not being provided, as there is no permission from RBI for this service. Thus in this group of appeals, the dispute is only in respect of the part of the money transfer service provided by WU, which is performed in India, i.e. delivery of money to the intended person on behalf of WU. Besides this, the Agents and sub-agents also arrange the advertisement and publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been received from WU is convertable foreign currency. Since the service has been received by WU and it is WU who are the beneficiary of the services provide by PML/Transcorp, the services have to be treated as having been delivered to WU and used by them outside India, and hence, exported out of India. (4) The services being the intangible, the concept of export in case of goods can not be applied to the export of services. Therefore, the judgment of the Apex Court in case of Burmah Shell Oil Storage & Distributing Co. of India Ltd. Vs. Commercial Tax Office & Others reported in AIR 1957 Cal 395 is not applicable Theory of equivalence between the Taxation of goods and Taxation of services mentioned in Apex court's judgment in case of Association of Leasing & Financial Service Companies reported in 2010 (20) STR 417 (SC) does not mean that in case of taxation of services, the terms `export' or `import' must be understood in the same manner in which these terms are understood in the context of levy of sales tax or levy of import or export duties. (5) Place of performance of service can not always be a factor for determining whether a particular service provided has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een received is foreign currency, the same will have to be treated as export of service and hence, there is no question of charging service tax on the same. (7) Extended limitation period of five years under proviso to Section 73(1) of Finance Act, 1994 is not applicable, as there was no wilful mis-statement or suppression of facts or contravention of any provisions of Finance Act, 1994 or of the rules made thereunder with intent to evade the tax. 65. Shri S. Malhotra, Advocate, representing the sub-agents M/s. Bhatia Money Chargers, M/s. Shadira Jagannath, M/s. Akal Money Changer, M/s. Vijay Money Changers, M/s. Srikrishana Money Changers, M/s. Sonu Forex, M/s. Paradise Radio, M/s. Sharma Enterprises, M/s. Hiralal Jewellers, M/s. Anmul Money Changers, M/s. Mandeep Electronic and M/s. Bhagwati Forex, M/s. Rana Money Charger, M/s. Anmol Forex Dealer, and M/s. Diamond Enterprises; Shri Rakesh Chitkara, Advocate, representing the sub-agents, M/s. Jolly Enterprises, m/s. Ramble Consumer Services, Shri Jitender Mohan, Advocate, representing M/s. Novelty Finance Ltd., a sub-agent and Shri Ankit Gulgulia C.A. also representing M/s. Ramble Consumer Services white adopting the arguments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agents would be eligible for SSI exemption under notification No. 6/05-ST. For this purpose, the sub-agent can not be said to be providing the Business Auxiliary Service under the brand name of Western Union and providing service to WU, the brand owner, can not be held as the ground to deny the benefit of small scale service provider exemption. In this regard, reliance is placed on Tribunal's judgment in case of Mrs. Jaspreet Kaur & Mr. Gagandeep Singh Vs. CCE, Delhi reported in 2012 TIOL 142 CESTAT Delhi and also the Tribunal's judgment in the case of Peoples Automobiles Ltd. [Final Order No.ST/473-474/2011 dated 18.08.20111. 66. Shri Sumit Kumar, the learned DR made the following submissions:- The question as to what constitutes export of service must be decided in accordance with the concept of "export" in Art 286 (1)(b) of the Constitution of India read with Section 2 (18) of the Customs Act, 1962. (2) The ratio of Apex courts' judgment Burmah Shell Oil Storage & Distribution Co. of India Ltd. & Ors. Vs. Commercial Tax Office & Others (supra) that export of goods involves taking the goods out of India to a foreign destination and for this merely placing the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and India is the ultimate destination of the services provided by the Agents and sub-agents. No service goes from India to a foreign destination. Hence, this can not be termed as Export of Service. (7) The Agents and sub-agents of WU are intermediary to provide service travelling from abroad to the end user thereof in India on behalf of the principal. It may be reiterated that the destination based consumption of service ended with the performance thereof in India and that satisfies the performance based service tax concept, as has been held by Apex Court in All India Federation of Tax Practitioners reported in 2007 (7) STR 625 (SC). (8) The services provided by the Agents and sub-agents are not money transfer but are Business auxiliary service taxable under Section 65(105)(zzb) read with Section 65 (19) of the Finance Act, 1994. Since these services have been rendered in India and used in India, the service can not be treated as export, more so, when there is no intention in this regards. For the purpose of determining as to who is the recipient of the services provided by the Agents and sub-agents of WU, the fact as to who paid or is liable to make payment for the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e details of the intended beneficiary in India and after payment of money to be remitted alongwith commission, he is given a unique code number by the WU/their agents/sub-agent. WU do not have any office or business establishment in India and they operate in India through a network of Agents and sub-agents appointed by agents with the approval of WU. The role of Agents and sub-agents is that when the intended beneficiary approaches them with the code number and provides the prescribed proof of identify, they handover the money remitted by the sender immediately. This service they are required to provide 24 hours in a day and all the seven days in a week for which they get a commission. There is no dispute that the money paid out to the intended beneficiary alongwith commission, whether by the Agent or by some sub-agent appointed by Agent, is reimbursed by WU in convertible foreign currency to the Agent and in the cases where the money is paid out by sub-agent, the sub-agent gets his commission alongwith the reimbursement of money paid from the agent in Indian currency. Both the agents and sub-agents, in term of their agreement are also required to spend a prescribed percentag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65(19). 69. Next comes the main question whether- (a) the services provided by the Agents of WU, and (b) the services provided by the sub-agents appointed by Agents, amount to export of service out of India and, hence, not taxable in India. Linked with this question are the questions- (i) what criteria should be adopted for determining whether a service provided by a person in India has been exported out of India-whether this question, as held by learned Member (Judicial), should be determined on the basis of provisions of Act 286(1)(b) of the Constitution of India, read with Section 2(18) of the Customs Act, 1962 and various judgments of the Apex Court in respect of the Article 286(1)(b) of the constitution, or as held by learned Member (Technical), this question should be determined strictly in accordance with the provisions of Export of Service Rules, 2005 framed by the Central Government under Section 94(1)(f) of the Finance Act, 1994 which empowers the Central Government to frame rules for determining the export of taxable services; (ii) who is the recipient of the service provided by Agents and the sub-agents whether the WU located abroad or the persons in India who rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import in traditional sense would involve crossing of international border. The services are intangible and can be provided by several modes. For example one mode of cross border service transaction would be where the service provided by a person in India is received by a person located abroad. Second mode of service export can be when service is supplied by a service provider located in India, from India to a service consumer of some other country in India and that service is meant for use abroad. Third mode of service export would be where service is supplied from India through commercial or physical presence in territory of any other country, like a software company providing the services of software development to its client in USA by sending its employees to USA. In 2nd and 3rd type of service transaction, the criteria of crossing the international border would be impossible to apply. 70.2 Section 2(18) of the Customs Act, 1962 defines the term `export' for the purposes of the provisions of this Act as taking some goods to a place outside India. Thus, in respect of goods, for export to take place, the goods must cross the international border and must reach a destin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider abroad, it is taxed in India and collected from service recipient by treating him as deemed service provider under Section 66A of Finance Act, 1994. (c) In terms of Rule 4 of Export of Service Rules, 2005, services exported out of India are not to be taxed. Thus for taxing a service, it is not the place of performance but the place of consumption which is relevant and Export would take place when the service is provided in India by some person but is received and consumed abroad. In the reverse situation, there will be service import. 70.3 But determining the place of consumption is a complex task on account of intangible nature of services and the different modes by which a service can be provided and can be consumed i.e. used by the recipient to satisfy his needs. The place of consumption and the location i.e. permanent address of the service recipient may be different. A uniform criteria for determining the place of consumption/receipt for different categories of services like, services in relation to immovable property, services in relation to business, performance based services, transport services etc. can not be adopted. In case of performance based services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of Service Rules, 2012, the Rule 3 of which states that the place of provision of a service shall be the location of the service recipient, (who is the service consumer). Therefore, in my view, there is nothing in the Export of Service Rules, 2005 which can be said to be contrary to the constitutional provisions of the Apex Court's judgment in the case of All India Federation of Tax Practitioner's Association (supra). 70.4 The principle of equivalence mentioned in the Apex Court's judgment in case of Association of Leasing & Financial Service Companies (supra) is that- (a) there is no difference between the production or manufacture of saleable good and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which stands consumed by the service receiver; (b) consumption of goods and consumption of services are similar, as they both satisfy human needs; and (c) service tax is a value added tax on an activity the value of addition being on account of an activity. This judgment also emphasizes that service tax is a tax on consumption and is a charge on the consumer of service. The implication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich in terms of Rule 3 is the place of recipient i.e. the place of consumption) follow the same principles as those behind the Export of Service Rules, 2005 and Service Import Rules and the learned DR's stand would imply that the recently framed Place of Provision of Service Rules, 2012 are also ultra vires the Constitution of India. 71. In this case, the service provided by the Agents to WU, as discussed in para 68 above, is "Business Auxiliary Service" covered by Section 65(105) (zzb) read with Section 65(19) of the Finance Act, 1994. Since this service is in relation to the money transfer business of WU having their business establishment abroad and since this service has been received by WU and used by them in their business and payment for this service has been received in convertible foreign currency, in terms of the provisions of Rule 3(1)(iii) read with Rule 3 (2) of the Export of Service Rules, 2005, the service provided by the Agents has to be treated as export of service. 71.1 It has been pleaded that the recipient of the services provided by the Agents of WU is not WU but the but the persons in India receiving the money sent by their friends and relatives abroad t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by B would be A, not the customers C1, C2, C3............In general in case of services provided by an Agent to some person on behalf of his Principal for some commission, it is the Principal who is the service recipient/beneficiary, not the person affected by the services performed by the Agent, who may be affected pleasantly or unpleasantly (e.g. when the service performed by the Agent is the service of money recovery or some other unpleasant service performed on behalf of the Principal) depending upon the nature of the services performed in respect of him. He can not be called beneficiary or recipient of the service provided by the Agent. Since the service provided by the Agents has been used by WU in their money transfer business abroad, the same has to be treated as received and consumed abroad, not received and consumed in India. 72. Next comes the question as to whether the services provided by sub-agents appointed by the Agents of WU are export of service and hence not taxable. As held in para 68 above, the services provided by the sub-agents appointed by the Agents is "Business Auxiliary Service" covered by Section 65(105)(zzb) read with Section 65(19) irrespective of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent offers to the general public in India WU's money transfers service. 72.2 Reading the agreement of WU with Agents and together with the agreement of an Agent with his sub-agent, I find that these agreements represent a tripartite arrangement between WU, Agents and sub-agents under which while a sub-agent provides the service directly to WU, he gets his commission and the reimbursement through the Agent-while the agent receives the reimbursement and sub-agent's commission is convertible foreign currency, the sub-agent receives it in Indian currency. The sub-agency agreements clearly mention that WU is the third party beneficiary of the agreement. Taking into account the above facts, I am of the view that the sub-agents are providing services to WU and it is WU who is the beneficiary of the service provided by the sub-agents and since the payment for these services is received in convertible foreign currency by the Agent, the services provided by the sub -agent have to be treated as export of service, not the services received and consumed in India. Same view has been taken by the Tribunal in the cases of- (a) Muthoot Fincorp Ltd. vs. CCE (supra); and (b) Kerala State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Service Companies vs. Union of India (supra) and All India Federation of Tax Practitioners vs. Union of India (supra) in the context of constitutional validity of levy of service tax on certain services. This principle does not imply that service tax should be levied and collected in exactly the same manner as the levy and collection of tax on goods or that export of service should be understood in exactly the same manner in which the export of goods is understood. In fact the question as to what constitutes the export or import of service was neither raised nor discussed in the abovementioned judgments of the Apex Court. As discussed in this order, the Export of Service Rules, 2005 are in accordance with the Apex Court's ruling in the above mentioned judgments 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. (iii) What constitutes export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time bar is not relevant when the main question has been answered in favour of the Agents & sub-agent. (viii) & (ix) These questions are no longer relevant when the main question has been answered in favour of the Agents and sub-agents. (x) 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. (xi) 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. (xii) There is no need to remand the cases of sub-agents. The same must be decided on the basis of the majority opinion. MAJORITY ORDER 77. The point of difference as mentioned in Para 60 of the referral order has been answered by third Member as under:- "In view of the above discussion, the points of difference, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and chaos. (iv) 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. (v) The consumer of the service provided by the Agents and sub-agents of WU in India is the Western Union, located abroad who use this services for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 2005, and has been provided in relation to business of Western Union located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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