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TMI Blog2019 (12) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... yment for such services should be received by the service provider in convertible foreign exchange. Commissioner has in impugned order found that both these conditions were satisfied in respect of the transactions under question and has accordingly held that the services provided by the appellant are export of services. Revenue has not disputed by stating that the conditions specified by the Export of Service Rules, 2005 were not satisfied, they have sought to state that the Commissioner should have decided the matter independently without referring to these rules, in terms of general definition of exports ort by referring to Article 286 of Constitution. Intermediary services - HELD THAT:- The term intermediary has been defined by the Rule 2(f) ibid and the phrase intermediary services used in Rule 9(c) will have to be interpreted accordingly. Revenue has not shown as to how the Appellant has acted as intermediary between the two persons namely service provider and service receiver of the main service - Since the nothing has been brought on record to show that appellants were providing the intermediary services to the recipient in manner as defined by Rule 2(f) we do not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73,08,04,871 10.36 7,52,72,902 2012-13 96,45,27,000 12.36 11,92,15,537 Total 2,61,53,31,871 28,92,48,439 2.3 Explaining the said receipts respondents claimed that these amounts were received by them from their fellow subsidiary company M/s Abbott Logistics B V Netherland (ALOG) in respect of the losses incurred by them as per their mutual consent letter dated 26.09.2011. Respondents were trading in nutritional products in India. In order to increase its market share they had incurred certain operating expenses like advertisement for products traded by it and hiring marketing executives to manage its existing sales. However they incurred losses as the price at which they had imported the goods from ALOG and the operating expenses incurred by them was higher than the price at which the goods were sold by them. The said recoveries were made by them from ALOG in accordance with and to comply with Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73(1) of the Finance Act, 1994. iii. Interest at appropriate rate for the delayed payment of Service Tax should not be demanded from them under Section 75 of Finance Act, 1994. iv. Penalty should not be imposed upon them under the provision of section 76 of the Finance Act, 1994 for failure to pay Service Tax in accordance with the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. v. Penalty should not be imposed upon them under the provision of sub-section (1) of Section 77 of the Finance Act, 1994 for failure to obtain registration under Section 69 of the Finance Act, 1994 read with rule 4 of Service Tax Rules, 1994. vi. Penalty should not be imposed upon them under section 78 of the Finance Act, 1994 for suppressing the value of the taxable service with intent to evade payment of service tax. 2.6 After considering the submissions made by the respondents in their reply and during the course of personal hearing Commissioner had adjudicated the show cause notice as per impugned order, referred in para 1, supra. 2.7 Aggrieved by the order of Commissioner, revenue has preferred thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Finance Act, 1994. v. Meaning of export and existence of two termini is prerequisite for export of service. The assessees were intermediary to provide the service of trading of goods from abroad to the Indian market consumers and were producing advertising and publicity and other services for the goods supplied by the foreign principal. 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 the Hon ble Apex Court in the case of All India Federation of Tax Practitioners [2007 (7) STR 625 (SC)]. The adjudicating authority has failed to appreciate that the place of origin and termination of service is also decisive to determine the nature of service whether export and provision of taxable service as well as consumption thereof equally contribute to determine incidence of levy. vi. The issue can be appreciated by likening the instance of service to a similar activity if hypothetically taken in context of export of goods. Just suppose the situation of export of goods, the equivalent scenario emerging would be like this. If an entity in India procures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned Authorized Representative reiterated the grounds taken in the appeal. He submitted that in the present case the services provided by the respondents to ALOG cannot be considered as export of services in view of the arguments given in the appeal, and if the same are not export of service the same needs to be considered a service provided by them to the recipient of service within India and hence should be subject to levy of service tax. Order of Commissioner cannot be sustained because Commissioner has while holding that the services provided are within the category of taxable services, had allowed the benefit of export of service to the respondents. 4.3 Arguing for the respondents learned counsel submitted that issue i. Is squarely covered by the decision of tribunal in case of Paul Merchants. The decision of tribunal in case of Paul Merchants had been followed in the decisions of {Microsoft Corporation India Pvt Ltd. [2014-TIOL-1964-CESTAT-Del], Gap International Sourcing (India) Pvt Ltd [2014-TIOL-465-CESTATDEL], Vodafone Essar Cellular Ltd [2013-566- CESTAT-Mum], Bayer Material Science Pvt Ltd [2014-TIOL-1084-CESTAT-Mum], Alpine Modular Interiors (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt by them extended period could not have been invoked as has been held by the following decisions: a. Studioline Interior Systems Ltd [2006 (201) ELT 250 (T-Bang)] b. TISCO Ltd [2006 (199) ELT 855 (T-Mum)} c. Jalla Industries [2000 (117) ELT 429 (T)} d. Parasad Polypack Company [2008 (224) ELT 326 (T-Chennai)] e. Rivaa Textile Industries Ltd [2006 (197) ELT 555 (T-Mum0] f. Mopeds India Ltd 1991 (56) ELT 241 (T)] g. Trinity Auto Components Ltd [2010 (257) ELT 548 (T-Mum)] 5.1 We have considered the impugned order with the submissions made in appeal and during the course of argument. 5.2 The very basis on which the appeal has been filed by the revenue is by establishing the case for export of service on the basis of some analogy drawn by them in respect of export of goods. Further they have referred to Article 286 (1) (b) to define the exports. They have also submitted that the issues in hand should have been decided by the Commissioner on the basis of these and not on the basis of Export of Services Rules, 2005. There cannot be argument as repugnant as this and that too from the revenue, seeking to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its existing trading business, as required under the Income Tax Act. Thereafter in para 33 he examines the various agreements dated 29.09.2010, 26.09.2011, 25.09.2012 and 11.09.2013 and in para 34 he observes: 34. On examining these agreements, it becomes clear that the noticee is a distributor for ALOG s products in India. The noticee imports them at a pre-determined price and distributes/ sells them in India. The noticee pays ALOG the price of the goods which it purchased from them. These facts are not in dispute. The noticee claims the same to be a principle to principle transaction. I see no cause to dispute the same at this stage. The noticee imported goods from a different entity and distributed/ sold it in India at a price which it deemed fit. In normal course of things the transaction would terminate here. Then in para 37 and 38 he observes: 37. Having observed the above, it is plain view that the noticee apart from being a distributor for ALOG also provided the services necessary to expand their business in India. Given the fact that the noticee and ALOG have mutual interest in as much as the noticee distributes the products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by them to ALOG. There is no ambiguity here. Further, the contention of the noticee that the said payments were made to ensure that the notice continued to earn an arm s margin appears to be incorrect and flawed. It is clear from the above note given by Chartered Accountant that the quantum of remuneration paid by ALOG to the noticee as reimbursement was merely consistent with the arm s length standard as against the noticee s claim during these proceedings that the payment was made to ensure that the noticee earned an arm s length margin. These two claims are distinct from one another. 39. Given the above, I find that the payments made by ALOG to the noticee were reimbursement for services rendered by them and the same happens to be consistent with the arms length standard. It is not the case that these payments have been made by ALOG to the noticee for them to earn at an arm s length margin, as claimed by the noticee. Mere insertion of a clause in an agreement, which in fact details the nature of services to be provided and the reimbursement of its expenses, to the effect that the amount required to be paid should not be construed to be towards any supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the services rendered would not fall within the purview of the definition of BAS is incorrect. It is anybody s guess here as to whether ALOG would have paid the noticee these amounts in the event of noticee having failed to render the services mentioned in the agreements. I find that ALOG by virtue of the agreements referred to earlier, paid the noticee for the services that are elucidated therein. Them being associated enterprises would not alter this transaction as that between a service provider and a client. This is abundantly proven by the noticee s claim in the case of their business of distributing products procured from ALOG, which they claimed as a transaction on a principal to principal basis, which in effect implies that in that particular transaction the noticee was ALOG s client. Thus, if the relationship between the noticee and ALOG can be that of a client and supplier in the distributorship business, the same would hold good in the case of services rendered by the noticee to ALOG too, wherein the roles would be reversed. The submissions of the noticee that a client has to necessarily be an external person would not hold good. In view of the above discussions, I ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quid pro qua for rendering such a service. 25 . This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Subsection (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider. 29 . In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with consideration is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant factor is the location of the service receiver and not the place of performance. Commissioner thus applied the said circular to hold that the services prior 27.02.2010 were exported as the recipient of service provider was outside India. The fact not disputed by the revenue in their appeal. Thus we do not find any infirmity in the order of Commissioner for the period prior to 27.02.2010. 5.8 From 27.02.2010, the condition in respect of provision of service in India and usage outside India was omitted from the Export of Service Rules, 2005 in respect of category III services. Thus for determining whether a service provided which falls in Category III is Export of Service or not the relevant conditions to be satisfied were that- The services should be provided in relation to business or commerce to a recipient located outside India; and Payment for such services should be received by the service provider in convertible foreign exchange. Commissioner has in impugned order found that both these conditions were satisfied in respect of the transactions under question and has accordingly held that the services provided by the appellant a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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