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TMI Blog2018 (1) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... - decided against Revenue. - D. B. Central/Excise Appeal No. 22 / 2016, D. B. Central/Excise Appeal No. 47 / 2016 - - - Dated:- 7-12-2017 - K. S. Jhaveri And Vijay Kumar Vyas, JJ. For the Appellant : Mr. Sidharth Ranka For the Respondent : Mr. Mahesh Sharma JUDGMENT 1. In both these appeals since identical questions of law and facts are involved, they are decided by this common judgment. 2. By way of these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee. 3. This court while admitting the appeals framed the following question of law:- D.B. Central Excise Appeal No. 22/ 2016 47/2016 1. Whether a service not being delivered outside India and not used outside India can be termed as export in violation of provisions of Export of Service Rules, 2005 and whose effective use and enjoyment was in India, in terms of the Board Circular No.141/10/2011-ITU dated 13.05.2011. 4. The facts of the case are that proceeding is initiated in view of Show Cause Notice issued under C. No. V(H)ST/Adj- I/49/2007/1483-15 dated 21/05/07 to M/s National Engineering Industries Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency. Where the Indian buyer pays that portion of price which represents commission, directly to assessee in that case NEI do not get commission from seller in foreign currency but gets from the Indian buyer either directly or through the route of foreign seller. The commission received by NEI in foreign currency from the foreign seller is from foreign currency remitted by the Indian buyer. The order for import are procured in India and goods against such orders are imported into India and the portion of commission in foreign currency gets remitted from India which is received back in India. Thus the cycle of service starts from India and finishes in India. In other words it is the same foreign currency remitted out of India is rotating back to India. Such a service cannot qualify to be the export of service for exemption from service tax. 12. The Distributor agreement also has a provision that where the assessee itself purchases product from foreign principles as a buyer in that case they do not get any commission from the seller. The reason is that assessee do not remit that portion of the price to the seller which represents their commission, therefore, the seller do not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having service receiver s office in India. NTN, Singapore is not a third person ut is a direct party in the common agreement for promotion of sale of products of NTN as well as its subsidiaries. Therefore, a subsidiary which is a party to the combined distribution Agreement and has an office in India shall satisfy to the fact that the recipient of service has an office in India. In this case a party to the common agreement has their office in New Delhi, India. Therefore, on this account also the Assessee is liable to pay service tax in respect of amounts received from all or any one of the parties to the common agreement. 6. He has also taken us to the order of Commissioner (Appeal) wherein it has been observed as under: I have also gone through the written submission referred to above and hold that the Board Circular dated 24.02.2009 referred to above is applicable to such cases where services were provided on or after 1.3.2007 when Export of Services Rules, 2005 were amended by Notification No.2/2007 ST dated 1.3.2007. The consequences of these amendments were that the words such service is delivered outside India and used outside India were replaced by the words such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paul Merchants (supra). Even in the other situation where the commission is paid by the indian buyers to the appellant as per arrangement with the foreign supplier instead of the commission alongwith price being first remitted to the foreign supplier and then the foreign supplier sending the commission to the appellant, in effect the commission was paid to the appellant on behalf of the foreign supplier only and can be deemed to have been paid in foreign exchange as the buyers would have had to remit the commission part also to the foreign supplier who would have in turn sent it to the appellant. This arrangement thus makes the procedure simpler without any material difference with regard to foreign exchange implication to India. We find that in the case of J.B. Boda 1997 (229) ITR 271 (SC) the Supreme Court has deemed such payments to be in foreign exchange. Thus we find that the issue is covered in the appellant s favour by the judgment of CESTAT in the case of Paul Merchants (supra) read with judgement of the Supreme Court in the case of J.B. Boda 1997 (229) ITR 271 (SC). Accordingly, we do not find the impugned order to be sustainable. The appeal is allowed. 8. The basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to taxable services, other than,- (i) the taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (p), (q), (s), (t), (u), (v), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy); and (ii) the taxable service specified in sub-clause (d) as are provided in relation to an immoveable property, of clause (105) of section 65 of the Act,- (iii) such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India: Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if- (a) order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India; (b) service so ordered is delivered outside India and used in business outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than business or commerce to a recipient located outside India at the time when such services are provided. 3. It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within a legislation. Keeping this principle in view, the meaning of the term used outside India has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(1) (ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of the service. For example effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place. 4. This, however should not apply to services which are merely performed from India and where the accrual of benefit and their use outside India are not in conflict with each other. The relation between the parties may also be relevant in certain circumstances, for example in case of passive holding/ subsidiary companies or associated enterprises. In order to establish that the services have not been used outside India the facts available should inter-alia, clearly indicate that only the payment has been received from abroad and the service has been used in India. It has already been clarified that in case of call centers and similar businesses which serve the customers located outside India for their clients who are also located outside India, the service is used outside India. 12.1. He has also pointed out decision of the Supreme Court in All India Federation of Tax Practitioners and Ors. vs. Union of India (UOI) and Ors. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected on the ground that Entry 60 of List II refers to 'Tax on employments', as such. So long as a person is in the employment, he does not earn pension. He earns pension only on retirement. On retirement, he ceases to be in the employment, therefore, on retirement the receipt of pension constitutes 'income' in the hands of the pensioner and, therefore, Parliament had legislative competence to enact Income Tax Act, 1961 under which pension was taxable as income. This example demonstrates the meaning of the word 'Taxes on professions, callings, trades and employments'. It also indicates two aspects of the same item, namely, pension. One aspect falls in the category of 'employment', the other falls in the category of 'income'. Therefore, there is no merit in the contention advanced on behalf of the appellant that the widest possible interpretation should be given to the word 'profession' in Entry 60 List II. We have to keep in mind while interpreting the Entries in the three Lists the distinction between the general entry and the taxing entry. 38. According to the appellant, Western India Theatres were entertainment providers; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rliament by resort to Entry 97 List I, the legislative competence of the State Legislature must be established. Entry 97 itself was specific. In that, a matter can be brought under that Entry only if it is not enumerated in Lists II or III, and in the case of a tax, if it is not mentioned in either of those Lists. We do not dispute the above proposition. That proposition is well settled. This Court is concerned with the application of the said principle in this case. In the present matter, as stated hereinabove, the State Legislature is empowered to levy tax on professions, trades, callings etc., as such and, therefore, the word 'services' cannot be read as synonymous to the word 'profession' in entry 60. Therefore, tax on services do not fall under Entry 60 List II. That, service tax would fall under Entry 92C/Entry 97 of List I. 36. In the case of Sodan Singh and Ors. v. New Delhi Municipal Committee and Ors. : reported in [1989]3SCR1038 the appellants claimed a right to engage in trading business on the pavements of Delhi city. In that context, it was held by the Constitution bench of this Court that, the guarantee under Article 19(1)(g) extends to practise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, service tax would fall under the residuary Entry 97 read with Entry 92C after 2003. This position is also made clear by Article 268A, inserted by the Constitution (Eighty-eighth Amendment) Act, 2003. 22. As stated above, the source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of Service Industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of Article 268A in the Constitution 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 bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installation services, warranty services, advertising services etc. for the foreign principal. These services can be rendered by the appellant only within the territorial jurisdiction assigned which is in India and by the very nature of the services rendered, it is clear that the services were used within the territory of India. 7. Prior to 1-7-2003, Notification No. 6/99-S.T., dated 28-2-1999 exempted services provided to any person in respect of which payment is received in Indian in convertible foreign exchange. The said notification was rescinded and subsequently re-issued vide Notification No. 21/2003-S.T., dated 20-11-2003 and this Notification remained in force till 14-3-2005. During the intervening period i.e., from 1-3-2003 to 19-11-2003, the Board clarified vide Circular dated 25-4-2003 that Service tax is a destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No. 6/99, dated 9-4-1999. in the light of this clarification issued by the Board, the assessee has a, prima facie, case for waiver of pre-deposit of dues adjudged for the period 1-7-2003 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principals abroad amount to delivery of service outside India and therefore, satisfies the definition of 'export of service' and, hence, no service tax is leviable. As regards SGS India Pvt. Ltd. (cited supra) the issue pertained to the period from 1-7-2003 to 19-11-2003 and based on the C.B.E. C. Circular cited above, relief was granted. In the instant case also, we have already granted benefit of C.B.E. C. Circular for the period 1-7-2003 to 19-11-2003. As far as the demand for the period thereafter, there is no delivery of service abroad in the instant case. When the appellant is undertaking the promotional activities by way of demonstration and installation of the foreign manufacturer's product in India and trains the customers in India for its use, there is no delivery outside India. Similarly when warranty services are undertaken, the usage of the service is in India. So is the case when advertising the product in India is done. Thus the facts involved in the present case before us are substantially different and therefore, the ratio of the above cited judgments can not be adopted. 10. As regards the appellant's reliance of the Board's circular i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place. This, however, should not apply to services which are merely performed from India and where the accrual of benefit and their use outside India are not in conflict with each other........................... In order to establish that the services have not been used outside India, the facts available should inter alia clearly indicate that only the payment has been received from abroad and the services have been used in India. The above clarification makes it very clear that to be considered as used outside India , the effective use and enjoyment should be outside India. In the case of promotion/marketing of goods/services in India, which promotes the business in India of the client (who is located outside India), can it be said that the effective use and enjoyment is outside India. In our considered view, such an interpretation would be totally irrational and illogical. 11. The Hon'ble Apex Court in the case of All India Federation of Tax Practitioners [MANU/SC/3283/2007MANU/SC/3283/2007 : 2007 (7) S.T.R. 625 (S.C.)] consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o General Agreement on Trade and Tariff. In the 8th round of the GATT (Uruguay Round), negotiations were carried out in the area of services which led to the General Agreement on Trade in Services (GATS) to which India is a signatory. This Agreement recognized four modes of delivery of services in the case of exports. These are - 1. Cross Border - The service itself crosses the border 2. Consumption Abroad - The consumer travels across the border 3. Commercial Presence - Establishment of an office or industry 4. Movement of Natural Persons - The service supplier travels across the border. These principles can be diagrammatically represented as follows:- User In India Outside India Use In India 1 (Taxable ) 2(Taxable ) Outside India 3(Taxable ) 4 (Export) Thus only when the user and the use of the service are located outside India, the transaction amounts to export and not otherwise. In the case under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, and if paid, or required to be paid by Manufacturer, the amount thereof shall be added to and become part of the amounts payable by Distributor hereunder. The above clause in the agreement itself should have alerted the appellant about their tax liability and they should have taken appropriate steps to ascertain their liability either from the department or from experts on the subject. Further it is on record that the appellant is registered with the Service Tax Department for other services such as maintenance and repair and installation during the relevant period. Therefore, it can not be said that they were ignorant of the provisions of law relating to service tax. The appellant failed to obtain service tax registration under business auxiliary service, failed to pay service tax and also failed to file statutory returns for the said services. They did not disclose to the department about the existence of the agreement with VIASYS and receipt of consideration towards the services rendered. These acts of the appellant clearly constitute suppression of facts on their part, thereby attracting the invocation of extended period of time for demand of service tax. 15. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge. 16. He contended that in view of this, the services rendered by the assessee is required to be taxed. 17. He also relied upon another Bombay Tribunal judgment in Yamazaki Mazak India Pvt. Ltd. vs. Commissioner of C. Ex., Pune-I (03.02.2014 - CESTAT - Mumbai) : MANU/CM/0731/2014 wherein it has been held as under:- 9. We have gone through the Agreements entered by the applicant with the Singapore firm which were entered into in 2009. As per one Agreement, the applicants undertake the marketing technical service of CNC machines, spares and accessories in India. In the second Agreement the applicants undertake the activity of promoting and marketing of spares and accessories in India manufactured and supplied by the Singapore firm. In respect of installation and commissioning of CNC applicants have paid appropriate Service Tax as provider of erection and commissioning service. The dispute in respect of other activities undertaken by the applicants on behalf of the Singapore firm such as sales and promotion of spare parts and accessories in India. The contention is that the service recipient is located outside India and service is used outside India, therefore as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers. In other words, there is no obligation of collective of YMT Receivables as the activity is specifically excluded for performance by YMIN. 2. Obligation/Functions to be performed by YMT. The key functions to be performed by YMT are: i. Deciding upon the spares which will meet the requirements of the customer; ii. Deciding upon the creditworthiness of the customer, including deciding upon customer acceptance; iii. Determining the pricing of the spares to be sold in India, including the associated terms and conditions, and customer negotiations wherever essential; iv. Communicating with customer in India either directly or through YMIN. 10. Applicants cited various decisions of the Tribunal after taking into consideration the terms and conditions held in favour of the assessee. In those cases the Tribunal was taking into consideration the activity undertaken by the assessee in respect of sale and promotion of the goods supplied by the foreign manufacturer. As per the terms and conditions of the Agreements in question, in addition to sale and promotion of the suppliers applicants activity in evaluating the creditworthiness of potential custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken us to the show cause notice which reads as under: M/s National Engineering Industries Ltd. Khatipura Road, Jaipur are also required to produce at the time of showing cause all the evidence upon which they intend to rely in support to their defence. They are also required to state whether they wish to avail the opportunity to be heard person before the case is adjudicated, if no mention is made in the written reply. It will be presumed that they do not desire any personal hearing. If no cause is shown against the action proposed be taken with in 30 days of receipt of this notice, or they do not appear before the adjudicating authority when the case is posted for hearing, the case will be decided ex-parte on the merits. This show cause notice is issued without prejudice to any other action that may be taken against the recipient of the notice or any other person concerned with the act and rules as mentioned in the notice or any other law for the time being force in India. 21. He has also relied on decision of the Supreme Court in Union of India and others vs. Garware Nylons Ltd. Etc. [1996] 0 AIR (SC) 3509 wherein it has been held as under:- 15. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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