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TMI Blog2020 (6) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI Regulations, there was a requirement of such an agreement under law and the permission of the RBI has to be obtained before remitting the foreign exchange. That issue does not arise in the present case and the provisions of the Service Tax Act does not impose such a condition. In any event, as we have held that the basis of the circular, which is clarified that Notification Nos. 6/99, dated 9-4- 1999, 9/01, dated 16-7-2001, 13/02, dated 1-8-2002 and 2/03, dated 1-3-2003 would not apply to export of service, the question of receiving the payment in convertible foreign exchange does not arise. Even the Export of Service Rules, 2005 does not put an embargo in relation to taxable service as specified in Rule 3(3)(i), (ii) and (iii) of the Export of Service Rules. The Hon ble High Court of Madras in SUPRASESH GENERAL INSURANCE SERVICES BROKERS PVT. LTD. VERSUS THE COMMISSIONER OF SERVICE TAX, CUSTOM, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL [ 2015 (9) TMI 1219 - MADRAS HIGH COURT] has held that such cases amount to export of service and that the amounts which have been retained as brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Tri.-Chen.)] held that reinsurance brokerage received in Indian rupees does not amount to export of services because the amount has not been received in convertible foreign exchange and confirmed the service tax on such amounts. Accordingly, the show cause notice demanded service tax on the amounts received as brokerage reinsurance for the period April 2004 to March 2009, along with interest, under section 75 and also proposed to impose penalties upon the appellant under sections 77 & 78 of the Finance Act, 1994. 5. After following due process, the Ld. Additional Commissioner in his Order-in-Original confirmed the demands along with interest and imposed penalties under sections 77 & 78 of the Finance Act, 1994. Aggrieved, the appellant appealed to the first appellate authority who, by the impugned order, upheld the order of the adjudicating authority and rejected the appeals. Hence this appeal. 6. At the outset, Ld. Counsel for the appellant would submit that the show cause notice specifically mentions that the amounts have been received in Indian Rupees by the appellant as reinsurance brokerage from the reinsurance companies located abroad. It further states that in terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting his commission, the reinsurance broker then passes on the premium to the reinsuring foreign company. This is contrary to the normal practice with brokers. If 'A' sells his flat to 'B' which is mediated by broker 'C', 'B' gets the flat and pays 'A' the sale price. 'C' only get his brokerage. The cost of the flat is not paid to the broker 'C'. Reinsurance business is different and the amount is routed through the broker. 9. The fact that the assessee in this case is a reinsurance broker and he arranges reinsurance for the Indian company with the overseas insurers by identifying the insurer and negotiating with them, is not in dispute. It is also not in dispute that the brokerage is received for this service from the overseas insurers. There is no doubt that the services of the appellant are beneficial both to Indian insurance company and the foreign reinsurer as the former gets the benefit of reinsurance and the latter gets the business of reinsurance. The question in this case is whether the service is being provided to the Indian company who hires them or the foreign company with whom a deal is finally reached. This is significant because if the service is being rendered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee that in Swiss Re's non-life branches manual with regard to re-insurance matters, the role of the re-insurance broker has been described as follows : "6.4 Role and function of the reinsurance broker The role of the reinsurance broker has been described as being : "....to professionally advise clients concerning the optimal reinsurance programme, proper retentions and adequate capacity based upon the broker's experience and knowledge of market availability. The resulting programme is then placed for the client with secure markets at competitive price or terms." As an intermediary, the reinsurance broker seeks suitable reinsurers, on behalf and in the interest of primary insurers and their reinsurance requirements. He advises the primary insurer on adequate risk coverage, negotiates and finalises the placement of reinsurance contracts and handles administrative issues related to the reinsurance contract. In collaboration with the reinsured, the broker prepares all the details of the reinsurance submission (general information on the market and the reinsured, portfolio profile, exposure data, statistics, terms and conditions) and identifies the reinsurance mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend to produce lower brokerage rates. In rare instances, brokerage is linked to treaty results. Brokerage is not an integral part of the contractual relationship between reinsured and reinsurers. However, when quoting for NP business, it constitutes one of the pricing elements used by the reinsurer. Treaties placed through brokers usually include an intermediary clause for which two types with commentaries are included in section 2.3.8, General treaty clause." (emphasis supplied) 55. We find that the functions of the re-insurance broker is no different from the definition contained in Swiss Re's non-life re-insurance manual. The assessee in this case has been conducting affairs of insurance and reinsurance for and on behalf of New India Assurance Co. Ltd. in terms of Rule 4(c), (d), (e), (f), (g) and (h) of the IRDA (Insurance Brokers) Regulations, which are as follows : "4. Functions of a re-insurance broker. - the functions of a re-insurance broker shall include any one or more of the following : (a) .... (c) rendering advice based on technical data on the reinsurance covers available in the international insurance and the reinsurance markets; (d) maintaining a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the Indian Insurance Company and therefore, it is not an export of service. 57. That finding is a fallacy in the light of the findings given by the Supreme Court in J.B. Boda's case (supra), as also the provisions of the Service Tax Act, more particularly, the binding circular of the Reserve Bank of India dated 25-4-2003. On the issue of non-receipt of the commission or brokerage in convertible foreign exchange, the Adjudicating Authority as well as the Tribunal have time and again misdirected themselves to hold that since the New India Assurance Co. Ltd. have paid the premium amount, it cannot be treated as receipt of amount in convertible foreign exchange and for this, Mr. M. Santhanaraman, learned Standing Counsel appearing for the Department submitted that there is no specific agreement as in the case of J.B. Boda (supra) and therefore, it stands distinguished. 58. Under RBI Regulations, there was a requirement of such an agreement under law and the permission of the RBI has to be obtained before remitting the foreign exchange. That issue does not arise in the present case and the provisions of the Service Tax Act does not impose such a condition. In any event, as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 307,138/- and calculated the net amount to be remitted to M/s Helvetia. In view of above, we find that the transactions in the present appeal are similar to the transactions in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. (supra) inasmuch as the appellant was hired by the Indian Insurance company for identifying proper reinsurers and negotiating deals with them and have received from the Indian insurance company the entire amount due to the overseas reinsurers, out of which they have deducted their brokerage and remitted the rest to the overseas insurance company. The Hon'ble High Court of Madras has held that such cases amount to export of service and that the amounts which have been retained as brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving back foreign currency should be treated as receipts for export in foreign currency. Hon'ble High Court of Madras has decided that the demand of service tax on such amounts is not sustainable. This judgment of Hon'ble High Court is now binding on us as no contrary decision has been passed by any superior Court, although the appeal has been admitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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