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TMI Blog2019 (10) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... India used in Rule 3(2)(a) of Export of Services Rules, 2005 from 19.04.2006 to 28.02.2007, extant and scope of phrase services provided from India and used outside India used in Rule 3(2)(a) of Export of Services Rules, 2005 from 01.03.2007 onwards and also Whether the services rendered to foreign entity located outside India for development of its business in India will qualify as Export of Service in terms of the above phrases used in the Export of Services Rules, 2005 from time to time and the decision of Apex Court in case of GVK INDUSTRIES LTD. ANOTHER VERSUS THE INCOME TAX OFFICER ANOTHER [ 2015 (2) TMI 730 - SUPREME COURT] ? - Service Tax Appeal No. 88483 of 2014 - INTERIM ORDER NO. 48/2019 - Dated:- 4-7-2019 - Mr. S.K. Mohanty, Member (Judicial) And Mr. Sanjiv Srivastava, Member (Technical) For The Appellant : Shri Vinay Jain, Advocate For The Respondent : Shri M.K. Sarangi, Authorised Representative ORDER PER: SANJIV SRIVASTAVA This appeal is directed against order in appeal No 543/PD/14 dated 22.04.2014 of Commissioner Central Excise and Service Tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the scope of show cause notice issued and hence the order of adjudicating authority is bad in law and could not have been sustained by the Commissioner (Appeal). Reliance placed on decisions in case of Balakrishna Industries Limited [2013 (297) ELT 257 (T-Del)], NTB International Private Limited {2013 (296) ELT 271 (T-Del)], ii. The services provided by the appellant will qualify as export of service under the export of service Rules, 2005 and therefore appellants are not liable to pay service tax. iii. Appellants satisfy the Condition 1 that is recipient of the service is located outside India and Condition 2 that service is used outside India. Reliance is placed on the following decisions: a. Blue Star Ltd. [2008 (11) STR 23 (T-Bang)], b. ABS India Ltd [2009 (13) STR 65 (T-Bang)], c. National Engg Industries Limited [2008 (11) STR 156 (T-Del)] d. KSH International Pvt Ltd. [2010 (18) STR 404 (T-Mum)] e. Mapal India Private Ltd [2011 (22) STR 454 (T-Bang)] iv. Reliance placed by the Commissioner (Appeal) on decision in case of Microsoft Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced on Circular No 111/5/2009-ST dated 24.05.2009, wherein it has been clarified that in respect of services falling under category III, the relevant factor is location of service receiver. vii. They satisfy the condition 2 of Rule 3(2), as the payments against the services provided by them have been received in convertible foreign exchange. viii. They rely on the following decisions which have decided the issue- a. Paul Merchant Ltd [2013 (29) STR 257 9TDel)] b. ABS India Ltd [2009 (13) STR 65 (T-Bang)] c. Gap International Sourcing (India) Pvt Ltd {2015 (37) STR 757 (T-Del)] d. ATE Enterprises Pvt Ltd [2017 SCC Online Bom 8759] ix. Commissioner (Appeal) has in the impugned order referred to decision of Tribunal in case of Microsoft Corporation India Pvt Limited [2009 (15) STR 680 (T-Del)]. Since then the matter has been finally decided by the tribunal holding as follows: customer who paid for impugned service of sale promotion was foreign company and not person who bought its product in India, though he may also be a beneficiary of such servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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,- ( i) 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 India; and ( c) payment for such service provided is received by the service provider in convertible foreign exchange; ( ii) such taxable services which are provided and used, other than in or in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied, namely:- ( a) such service is delivered outside India and used outside India; and ( b) payment for such service provided outside India is received by the service provider in convertible foreign exchange. The sub-rule 2 to Rule 3 was again substituted by Notification No 2/2007-ST dated 1sT March 2007 as follows: ( 2) The provision of any taxable service specified in subrule (1) shall be treated as export of service when the following conditions are satisfied, namely:- ( a) such service is provided from India and used outside India; and ( b) payment for such service provided outside India is received by the service provider in convertible foreign exchange. The clause (b) of sub rule 2 to Rule 3 was further amended by Notification No 30/2007-ST dated 22nd May 2007, omitting the phrase provided outside India from that clause. By Notification No 20/2008-ST dated 10th may 2008, one more proviso was inserted after the existing proviso to (iii) to sub rule 1 of Rule 3 as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. The services provided should have been consumed outside India. c. Payment against the services provided should be received in convertible foreign exchange. 5.7 They have relied upon series of case law to justify their stand to state that the services provided by them are consumed by the service recipient outside India. a. Blue Star Ltd. [2008 (11) STR 23 (T-Bang)], b. ABS India Ltd [2009 (13) STR 65 (T-Bang)], c. National Engg Industries Limited [2008 (11) STR 156 (T-Del)] d. KSH International Pvt Ltd. [2010 (18) STR 404 (T-Mum)] e. Mapal India Private Ltd [2011 (22) STR 454 (TBang)] f. Paul Merchant Ltd [2013 (29) STR 257 9TDel)] g. Gap International Sourcing (India) Pvt Ltd {2015 (37) STR 757 (T-Del)] h. ATE Enterprises Pvt Ltd [2017 SCC Online Bom 8759] 5.8 Revenue do not dispute that the services have been provided by the appellant to AMSI, France which is located outside India and also the fact that payment against said services were received in convertible foreign exchange. However they dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has 193 members. With the efflux of time, there has been birth of nation States which enjoy political independence and that has led to cross border and international trade. The State trade eventually has culminated in formulation of principles pertaining to international taxation jurisdiction. It needs no special emphasis to state that the said taxation principles are premised to promote international trade and to allocate taxation between the States. These rules help and further endeavour to curtail possibility of double taxation, tax discrimination and also to adjudicate resort to abusive tax avoidance or tax evasion practices. The nation States, in certain situations, resort to principle of tax mitigation and in order to protect their citizens, grant benefit of tax abroad under the domestic legislation under the bilateral agreements. 24. The two principles, namely, Situs of residence and Situs of source of income have witnessed divergence and difference in the field of international taxation. The principle Residence State Taxation gives primacy to the country of the residency of the assessee. This principle postulates taxation of world-wide income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Permanent Establishment; Erosion of Tax Treaty Principle on the ground that profits of business enterprise are mainly the yield of an activity, for capital is profitable to the extent that it is actively utilised in a profitable manner. To this extent, neither the activity of business enterprise nor the capital made, depends on residence. 27. The purpose of adverting to these aspects is only to highlight that the source rule has been accepted by them in the UN Commentaries and the Organisation of Economic Corporation and Development (OECD) Commentaries. It is well known that what is prohibited by international taxation law is imposition of sovereign act of a State on a sovereign territory. This principle of formal territoriality applies in particular, to acts intended to enforce internal legal provisions abroad. [See the Introduction in Klaus Vogel on Double Taxation Convention, South Asean, Reprint Edition (2007)]. Therefore, deduction of tax at source when made applicable, it has to be ensured that this principle is not violated. In view of the principle of law stated by the Apex Court in the above decision its crystal clear that the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as export and is not taxed in India as the destination of the service provided and its use is outside India. In a reverse case, when the service provided by a person from outside India, is consumed and used by a person in India, it is taxed in India under reverse charge mechanism of Section 66A of the Finance Act, 1994. Thus the scheme of levy of service tax according to which - ( a) when the service provider and service receiver, both, are in India, service tax is charged in India from the service provider; ( b) when service provider is in India and service recipient is located abroad, no service tax is charged from the service provider, and ( c) when service provider is abroad, not having any establishment or branch in India, and the service recipient is in India, service tax is charged from the service recipient under reverse charge mechanism; is in accordance with the principle laid down by the Apex Court that service tax is a destination based tax on consumption. In this regard, service tax is similar to other indirect taxes like Central Excise and Customs duties; as Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of foreign entity in India, then how can the same be said to be used/ consumed outside India. Similar is the view expressed in the case of ABS International. 5.11 Appellant counsel have in written submissions filed relied heavily on the decision of Tribunal in case of Mapal India Pvt Ltd. holding as follows: 4.1 As per Notification No. 13/2003-S.T., dated 20-6- 2003, a commission agent is a person who causes sale or purchase of goods, on behalf of another person for a consideration which is based on the quantum of such sale or purchase. The revenue has no case that MIPL was not a commission agent as per the above definition. Therefore, during the period 1-7-2003 to 20-11-2003, the services rendered by MIPL could not have been validly found to be liable to Service Tax paid by the assessee. As per the Circular also, since the assessee received consideration in foreign exchange, the impugned services continued to be exempt during the period 1-3-2003 to 20-11-2003. As for the period 15-3-2005 to 30-11-2006, the recipient of the impugned services involved was located outside India. As per Circular No. 111/5/09-S.T., dated 24-2-2009 clarifying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has chosen to make the said circular applicable from 2003 onwards. Such an approach is contrary to the law laid down by the Apex Court in case of Ratan Wire Melting [2008 (231) ELT 22 (SC)] stating as follows: 6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law. Since the view that we propose to take is contrary to the views expresse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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