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TMI Blog2014 (9) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... t "CESTAT") dated 07.03.2013 in which it has been held that for the period upto 27.02.2010 the Appellants before us are not eligible for refund. 3 The Appeal is ADMITTED on the following substantial questions of law : ( a) Whether in the facts and circumstances of the case, the CESTAT was correct in holding that onsite work undertaken at customer's premises of the Appellants does not fulfil the requirement of 'Service Provided from India' contained in first leg of Rule 3(2)(a) of the Export of Service Rules, 2005 (b) Whether the CESTAT erred in not considering the alternative plea of the Appellants, that in the event of first leg of Rule 3(2)(a) of Export of Service Rules, 2005 is held not satisfied, (i.e. Service provided from India), then Appellants are not liable to pay service tax under Section 66A on the amount charged by subsidiaries to Appellants for onsite work and hence is liable to be refunded treating the claim already made under Rule 5 of Cenvat Credit Rules, 2004 as claim for refund under Section 11B of the Central Excise Act, 1994, read with Section 83 of Finance Act, 1994? (c) Whether the CESTAT erred in not accepting the alternate plea of the Appellants, that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rformed from locations in India whereas certain steps like Requirement Study, Testing, and Implementation and up gradation and Support are required to be performed at the customer's site. The scope of service to be provided to the client thus involves both Offshore and Onsite work. The Offshore work is undertaken by the Appellants in India whereas the Onsite work is undertaken by the Appellants with the help of their overseas branches/subsidiaries. 7 It is stated that in most of the cases, the Appellants enter into direct contract with their overseas customers for rendering the ITSS service. Annexure A to the memo of Appeal is an illustrative copy of the agreement dated 28th December 2004 entered between the Appellants and M/s. AT&T Services Inc. A company duly incorporated under the laws of the United States of America. As per the contract, the Appellants have to perform both offshore and onsite activities as a part of single transaction. In other words, contract to provision of service is between Appellants and the overseas customer. 8 In case of the above referred direct contract between the Appellants and the customer, the offshore activities are undertaken by the employees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute in the present proceedings about non liability to tax of service rendered by Appellants to its overseas customer. 11 It is stated that normally, the liability to pay service tax is on service provider. However, under the law, in certain circumstances, the liability to pay service tax is shifted on the service receiver. This mechanism is popularly abbreviated as "reverse charge Mechanism" wherein the liability to pay the service tax is shifted from service provider to service receiver. 12 It is further states that prior to 27.02.2010, in terms of the Export Rules 2005, to qualify a particular service as an export of service the following conditions are required to be satisfied: i) The recipient of the service is located outside India ii) The service is provided from India and used outside India iii) The consideration is received in convertible foreign exchange. 13 During the relevant period, the Appellants considered their services provided to overseas customer as export of services under the Export Rules and accordingly filed refund claims for accumulated CENVAT Credit balance under the provisions of Rule 5 of the CENVAT Credit Rules, 2004 (hereinafter referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2010 has set aside all the OIOs pertaining to the period from November, 2008 to May 2009 and held that the onsite services provided by the Appellants through their subsidiary / branches would qualify as export of service. Annexure I to the Appeal memo is a copy of the Order - In - Appeal No. PIII/VM/267280/ 2010 dated 20.10.2010. 18 It is stated that further, in view of the above said Order in Appeal passed by the learned Commissioner (Appeals), the balance refund claim amounting to Rs. 22,41,95,467/pertaining to the onsite activities was received by the Appellants vide Pay Order dated 28th February 2011. 19 Aggrieved by the aforesaid OrderinAppeal dated 20.10.2010, the Revenue preferred appeal before the CESTAT (hereinafter referred as Batch I appeals). The Revenue has challenged the said Order in Appeal mainly on the ground that providing service from India is one of the key conditions which need to be satisfied and the same has not been satisfied in this case. Therefore, onsite services would not qualify as export of service. The revenue in their appeal, however has accepted that the onsite services provided by the Appellants through its branches and subsidiaries are used o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue and of Input Service Tax for the period from April, 2010 to September, 2010. The Revenue reviewed the refund sanctioned, but not disbursed the same for the period October, 2010 to January, 2011 and filed an Appeal before the Commissioner (Appeals) with regard to the refund granted to the Appellants during this period. It was urged that the Onsite Services provided by the Appellants would not qualify as Export of Service as the same are not provided from India. Upon being served with this Appeal, the Appellants filed the crossobjections before the Commissioner (Appeals). The Commissioner (Appeals) followed his prior order of 25.07.2011 and passed the order on the Revenue's Appeal allowing it. A copy of that order is at AnnexureQ dated 30.03.2012. Four identical orders and delivered on 30.03.2012 are, therefore, referred to and the grievance is that because of this order of the Commissioner (Appeals) the refund of service tax pertaining to Onsite Services was not disbursed to the Appellants. 23 Aggrieved by this order of the Commissioner (Appeals) the Appellants approached the CESTAT and the proceedings in relation thereto are referred to by the Appellants from paragraphs 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the employees of the Appellants in India. However, for Onsite Services the Appellants entered into back to back agreements with their subsidiaries. Mr.Sridharan emphasized that the Contract of Service is only between the Appellants and the Overseas Client for the entire work. There is no privity of contract between the Appellants' subsidiaries and the overseas clients. 28 Mr. Sridharan submitted that the subsidiaries are operating on different basis, namely, they are charging the Appellants based on total cost incurred by them for rendering Onsite Services plus certain percentage of total cost as their profit. This method has been accepted by the Income Tax Authorities in the respective countries. The Appellants are rendering the Software Development Services to their customers and for which they are raising either separate invoices or single invoice, but separately indicating the consideration for Onsite and Offshore activities. 29 Inviting our attention to Section 66A of the Finance Act, 1994, Mr.Sridharan submits that the Appellants paid to the Central Government the service tax under Reverse Charge Basis. That is on the footing that the services are provided by subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants. Therefore, services provided by subsidiaries will be deemed to be services provided by the Appellants in India. Consequently, onsite services undertaken in the present case has to be considered as provided from India, for the purpose of Rule 3(2) (a) of the Export of Service Rules, 2005. 31 The next contention of Mr.Sridharan is that the service tax is a Contract Based Levy and leviable on each contract of service. Thus, it is a transaction based tax leviable on each contract of service. Mr.Sridharan submits that the provision of service is based on the contract between the parties. The service tax liability flows from the contract and follows the contract. Each contract is a distinct supply of service attracting the service tax liability. Mr.Sridharan then submits that the above submissions are based on several judicial pronouncements in India and abroad. 32 The next limb of Mr.Sridharan's argument is that there is privity of contract only between the Appellants and overseas customers and there is no such privity between the overseas subsidiaries and customers. It is in these circumstances that the doubt is raised that the service provided by the subsidiaries on site i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mic or business substance in signing of contract between A and B on one hand and B and C on the other hand. There can be distinct possibility of evasion of tax in that situation. Also, it is possible that A in India renders service to C in India, but invoices B, a related party of C, outside India, without any reinvoicing by C to B. This can escape tax altogether. 36 Mr.Sridharan, therefore, submits that to avoid these situations alone, where artificial intermediaries can be introduced Rule 3(2) (a) has been enacted. First limb of Rule 3(2)(a) cannot apply where the final consumption and actual consumer of service is definitely outside India. 37 Mr.Sridharan submits that the Notification No.6/99ST dated 09.04.1999 exempted payment of service tax if consideration is received in convertible foreign exchange. The said notification was rescinded by the Notification No.2/2003ST dated 01.03.2003. Subsequently, the notification was restored vide Notification No.21/2003ST dated 20.11.2003. This notification was rescinded when Export of Service Rules, 2005 were introduced. Under the notifications, services provided to a foreign tourist in India for which payment was received in foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the CESTAT should have considered this aspect of the matter and dealt with it. Having not dealt with the same vitiates the order passed by the CESTAT. 39 In support of the above submissions Mr.Sridharan has placed reliance upon the following materials: ( 1) Section 64 of the Finance Act, 1994, (2) Section 65(105) of the Finance Act, 1994, (3) Sections 66, 66A of the Finance Act, 1994, (4) The Export of Service Rules, 2005 as amended from time to time, (5) The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, (6) Rule 5 of the Cenvat Credit Rules, 2004, (7) The Commissioner of Service Tax v/s M/s SGS India Private Limited reported in 2014 TIOL 580 (HCMumST) : Central Excise Appeal No.57/2012 dated 23.04.2014, (8) The All India Federation of Tax Practitioners v/s Union of India reported in 2007(7) STR 625 (SC), (9) The Commissioner of Inland Revenue v/s Databank Systems Limited in Privy Council Appeal No.39/1989 decided on 23.07.1990. (10) Customs and Excise Commissioner v/s Redrow Group PLC reported in (1999) 1 Weekly Law Report 408. 40 On the other hand, Mr.Kantharia, learned counsel appearing for the Revenue, submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided from Outside India and received in India) Rules, 2006". Thus, in view of the above clear cut admission on the part of the Appellants and material on record the CESTAT has correctly held that onsite work has been undertaken at the customers' premises of the Appellants and it does not fulfill the requirement of "services provided from India contained in first leg of Rule 3(2)(a) of the Export of Service Rules, 2005". 42 Mr.Kantharia then submits that the questions at paragraph No.15 of the appeal memo do not arise from the impugned order as the alternative plea was never taken by the Appellants before the lower authorities. In support of its contentions on the above issues, the Appellants have relied upon Section 66A of the Finance Act, 1994. It is submitted that the true meaning and interpretation of Section 66A of the Finance Act, 1994 is to provide for payment of service tax by the service recipients on reverse charge mechanism which is clarified in a Circular issued by the Central Board of Excise and Customs simultaneously, with the introduction of Section 66A of the Finance Act, 1994 vide F.No.B1/41/2006TRU dated 19.04.2006. Mr.Kantharia submits that the plain read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellants in the prescribed format under the provisions of Section 11B of the Central Excise Act, 1944 and therefore, the Appellants' alternative plea is without merit and correctly rejected by the CESTAT. In such circumstances the Appeal deserves to be dismissed. 45 For proper appreciation of the rival contentions a reference will have to be made to the relevant facts as also statutory provisions. 46 The issue before the Authorities arose from the Corporate Frame Agreement for Development of SoftwareHardware and related services. This Agreement of 01.01.2007 is between Compagnie Financiere AlcatelLucent under which the Appellant M/s Tech Mahindra Limited is described as a supplier and the customer means any subsidiary of AlcatelLucent. The Appellants' case is that any software development service is a composite activity of several stages under which offshore work is undertaken by the Appellants in India whereas the Onsite Work is undertaken by the Appellants with the help of their overseas branches/ subsidiaries. The agreement, copy of which is at AnnexureA, with M/s AT&T Services Inc. is referred to as an illustrative agreement with the Overseas Customers for ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment TMInc has accepted." 49 A bare perusal of these clauses together with the definitions in recital 2, the provision for software services in recital 3, recital 4 which sets out responsibilities of TMInc and recital 5 which sets out responsibilities of TML, would indicate that TMInc was to only provide software and related services at client's site, undertake development and delivery of software solutions, install, implement new software solutions or technology at client's site. TMInc was to provide personnel, but overall responsibility of the services is with TML. The invoices are also referred to, but we find from perusal of this material that the Appellants cannot derive any advantage by bifurcation and arrangement between them and TMInc. The argument is that by a fiction the service is received from India. Further argument is that the services are provided from the locations in India. However, the Tribunal in dealing with these submissions eventually held that there are 21 refund claims filed by TML. Out of these, 16 claims are pertaining to the period prior to 27.02.2010 and starting from November, 2008. The remaining 05 claims are pertaining to the period post 27.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxable service performed outside India;] (iii) specified in clause (105) of section 65 of the Act, but excluding‚ - (a) subclauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services specified in subclauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service: Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India. [Provided further that where the taxable service referred to in sub clause (zzzzj) of clause (105) of section 65 of the Act is provided to a recipient located outside India, then such taxable service shall be treated as export of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the conclusion based thereon in paragraph 5.5. of it's order cannot be faulted. Net effect is that the export of taxable service in relation to taxable services specified by Section 65(105) of the Finance Act, 1994 and in the context of performance of services as are specified in category (iii) of subrule (1) of Rule (3) of the Export of Service Rules, 2005, would come within the purview of the Rule as this stood at the relevant time only if the conditions are satisfied and these conditions are to be found in Rule 3(2). The earlier twin conditions were as noted by us above. Therefore, the first condition was that the service is provided from India and used outside India and payment for such service is received by the service provider in convertible foreign exchange. However, the scenario changed, namely, amendment made on 01.03.2007 and later amendments and the condition is that the payment for such service is received by the service provider in convertible foreign exchange. In the present case the first condition (clause (a)) with regard to provision of service from India and its use outside India has not been satisfied. The services have been performed at overseas' cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply: Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this subsection shall not apply: Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. Explanation 1.- A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country. Explanation 2.-Usual place of residence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a buyer abroad and a report of such test and analysis has been dispatched abroad, consideration or fee for such service was received by the service provider in convertible foreign exchange, can the same be liable to be taxed in India. In other words, whether the service tax in terms of the afore referred provision can be levied, assessed and recovered on the service provided in India or whether it is export of service and therefore, not exigible to such tax. It is in that context that the Division Bench to which one of us was a party (S.C.Dharmadhikari, J.) in SGS India Private Limited (supra) referred to the judgment of the Honourable Supreme Court in the case of All India Federation of Tax Practitioners (supra). That was to understand and appreciate the nature of tax. The elucidation and exposition of law in this judgment of the Honourable Supreme Court was referred for the purpose of eventually holding that a provider of service and of the aforesaid nature would not invite tax liability. All these judgments, therefore, cannot assist the Assessee in this case as we are not called upon to answer the issues posed therein. 55 Yet, Mr.Sridharan persists and relies upon the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries and the customers need not detain us. For the same reasons as recorded above we find no substance in the same. 57 The other submission of Mr.Sridharan pertains to the Export of Service Rules, 2005. The argument proceeds on the footing that it is difficult to determine the situs or locale of the service. Rule 3(1)(i), (ii) and (iii) of the Export of Service Rules, 2005 have been enacted so as to overcome the difficulty of determining the situs or locale of service. 58 In that context, a closer look at these Rules would be necessary. The Export of Service Rules, 2005 were notified by Notification No.9/2005 ST dated 03.03.2005. Rule 3 defines what is export of taxable service. The definition was substituted with effect from 19.04.2006. The export of taxable service in relation to taxable services which have been referred to in clause (i) of subrule (1) of Rule 3 is in relation to an immovable property situated outside India. 59 Then comes Rule 3(1)(ii) and which relates to taxable service specified in subclauses of clause (105) of Section 65 of the Finance Act, 1994. However, the services referred therein are those which are performed outside India. The first proviso below th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relating thereto in India, then, such taxable services shall be treated as export of service only if the order for provision of such service is made from any of its commercial or industrial establishment or any office located outside India. The service so ordered is delivered outside India and used in the business outside India and payment of such service provided is received by the service provider in convertible foreign exchange. Then, there is broad category referring to such taxable services which are provided and used other than in or in relation to commerce or industry, if the recipient of taxable services is located outside India at the time when such services are received. 61 There is substitution as we have said above and what we find is that below Rule 3(1) and it's clauses, Rule 3(2) has been substituted with effect from 01.03.2007 by Notification No.2/2007ST dated 01.03.2007. Rule 3(2)(a) has been omitted with effect from 27.02.2010. The words "such service is provided from India and used outside India; and" were omitted with effect from 27.02.2010 by Notification No.6/2010ST dated 27.02.2010. Thereafter, the only condition remained to be satisfied and for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers are abroad and the services provided to them are also not rendered from India. In such circumstances the reasoning in paragraphs 5.5 and 5.6 of the impugned order cannot be said to be perverse or vitiated by any error of law apparent on the face of record. Any larger controversy as held above need not be addressed. 63 We are not with Mr.Sridharan in his submission that the amendments/ deletions made with effect from 27.02.2010 are clarificatory and would govern all pending claims as well. For the reasons that we have assigned and finding that the omission was made with effect from 27.02.2010 so also the reasons for the same that this contention of Mr.Sridharan cannot be accepted. 64 Finally with regard to the claims of refund what we find is that the Appellants had not invoked any specific provision and made an application under the same to claim refund. They could not have invoked Section 11B of the Central Excise Act, 1944 during the course of the proceedings. In the facts and circumstances of the present case Mr.Kantharia is right in urging that the reasons assigned in paragraph 5.9 of the impugned order by the Tribunal cannot be faulted. There is no application made in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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