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TMI Blog2022 (5) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... ng them as import of services. Thus these services are input services to the appellant for providing the services to their client overseas. Whether CENVAT credit has been correctly disallowed by the Ld. Respondent in respect of various input services procured domestically? - HELD THAT:- The case of revenue is that the Commissioner (Appeal) has erred while determining the total turnover by deducting the value of onsite services provided by the overseas subsidiaries / branches directly to their clients, which do not qualify as export of services from the value of total turnover. The stand is itself erroneous, the said services which were not provided by the appellants cannot be treated as part of total turnover of the Appellant and the hence the order of Commissioner (Appeal) cannot be faulted on this account. Appeal dismissed - decided against Revenue. - Service Tax Appeal No. 85229-85232 of 2015, 85613 of 2015, 86387 of 2015, 86711 of 2015, 87194 of 2015 - A/85255-85262/2022 - Dated:- 4-3-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND MR. P. DINESHA, MEMBER (JUDICIAL) Shri Shambhoo Nath, Principal Commissioner, Authorised Representative, for the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Tax Registration. Besides this, they are also engaged in exporting Information Technology Software Services which is a taxable service under the Finance Act, 1994 (hereinafter referred to as the Act). 2.2 They filed refund Claims under the provisions of Rule 5 of CENVAT Credit Rules, 2004 read with Notification No. 27/2012- CE (NT) dated 18.06.2012, pertaining to the period as mentioned in the Table below, on the ground that during the said period they had exported taxable output services and due to exports they were not in a position to utilize the said CENVAT Credit availed on Service Tax paid on input services which were used in providing the output services exported without payment of Service Tax. 2.3 Original authority after considering the nature of supply of services, i.e. onsite and offshore, the value of onsite supply of services was not treated as export and the same was excluded from the Export turnover. The Total turnover was taken as declared by the Appellant which included onsite turnover, offshore turnover, link charges, India Income, Onsite FMBT, Software Product Sale and Domestic Service Sale. Further, CENVAT credits availed on the invoices pertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arguing for the revenue learned authorized representative while re-iterating the submissions made in appeals, submits that as regards Model-I, the Commissioner (Appeals) has erred in treating that the value of 'on-site services' provided to overseas clients by the subsidiary of the appellant located outside India, is to be considered as export. Appellant and their subsidiaries or branches are two separate legal entities, and that they had entered into agreement to perform the services outside the territorial boundary of India, i.e. on-site, since certain services involving activities such as clients requirements study, implementation up-gradations, testing and certification, maintenance and repairs etc. are to be performed physically onsite and cannot be performed from India. The total activity related to the onsite services are outsourced by the assessee to their subsidiaries as it is physically not viable to be performed from India. Further, since the activities of the subsidiaries are separate and are carried out by a different legal entity, that part of the services which are performed outside the territorial boundaries of India i.e. on-site, do not qualify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applicable to the overseas subsidiary and is required to be considered only in respect of the assessee in the taxable territory of India and would not apply to the person (subsidiary or branch) outside India. Consequently, the conclusion of the Commissioner (Appeals) that the assessee has satisfied the condition (a) of Rule 6A of Service Tax Rules, 1994, appears to be incorrect and not legal. Similarly, as regards condition (e) of Rule 6A of Service Tax Rules, 1994, that the payment for such service has been received in convertible foreign exchange, the onsite component of the service is rendered/ performed by the overseas subsidiary or branch and as the assessee in India is not fulfilling the condition (a) of Rule 6A of Service Tax Rules, 1994, therefore, even though they have received payment in convertible foreign exchange for onsite services, they are not actual service provider. Therefore, the conclusion of the Commissioner (Appeals) that the appellant has satisfied condition (e) of Rule 6A of Service Tax Rules, 1994, is incorrect As all the six conditions of Rule 6A are not fulfilled by the assessee in respect of onsite services provided under Model-I, the onsite se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ica) . This relationship clause implies that the export turnover claimed by the appellants would be restricted to the extent of those work orders executed by the appellants themselves for their overseas clients. It would not include the part of work orders executed by the on-site/overseas subsidiary. Hence, the export turnover related to the onsite services performed by the subsidiary is liable to be severed from the calculation of the eligibility of refund claim erroneously granted by the Commissioner Appeals. This will therefore not get covered in the ambit of 'Export of Services Rules; 2005, as they do not qualify as exports having been performed by another person and also outside the taxing jurisdiction of Indian Territory. The nexus with the export activity in relation to the above services are not established in the appellant's subject case, hence the question of further going into the merits of the other clauses, such as whether the amounts received by assessee are remitted in convertible foreign exchange to qualify as exports, would not arise under Export of Service Rules 2005. Since the services of the subsidiaries of the assessee cannot be treated as 'expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded para 5 onwards rejecting the said submissions. A proper appreciation of the said order has been done by the Commissioner (Appeal) in his order. Hence the appeals filed by revenue on these ground needs to be dismissed. Against the order of tribunal both revenue and them-selves had filed the appeals before Hon ble Bombay High Court. Appeals filed by both have been dismissed by the Hon ble High Court upholding the order. The position has not changed after introduction of negative list regime of taxation of services and introduction of Rule 6A in Service Tax Rules, 1994. Since the position do not change the said decision is squarely applicable in present proceedings too. The appeals filed by the revenue need to be dismissed following the decision referred above. In their appeal they have mainly challenged the imposition of interest on the erroneous refund in terms of Section 11AA, granted to them earlier. They do not dispute any other findings in the said order, as the amount of refund which was denied to them they have already taken the credit and transferred the same to their GST account. matter in respect of imposition of interest needs to be reconsidered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transactions under Model-I. Therefore, I proceed to discuss the eligibility of refund in respect of onsite services provided by the Appellant under both the Models, one by one. 20. In Model-I, the Appellant enters into a direct contract with the overseas client and invoices are raised for the entire value of services, i.e. onsite and offshore services, against which payment is received by the Appellant from the overseas client for the full value of invoices raised by them as per the contract. The services which are provided onsite are provided by the Appellant through their subsidiary / branch as per the Ld. Respondent. The Appellant have contested the same on facts. They have contended that in respect of the said onsite services, provided through their subsidiary, there is another contract between the subsidiary and the Appellant in respect of the said onsite services; that as per that contract, the onsite services are provided at the client's site abroad but the invoices are raised for the said services by the subsidiary on the Appellant and there is no contract between the subsidiary and the overseas client. Further, the Appellant have contended that in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the service is located outside India, (c) The service is not a service specified in the Section 66D of the Act, (d) The place of provision of the service is outside India, (f)The provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act. I have examined the factual position and I find that the above conclusions of Ld. Respondent are correct. 22. Only in the case of clauses (a) and (e) of the said Rule 6A of the Service Tax Rules 1994, the Ld. Respondent has held that the Appellant have not fulfilled the conditions mentioned therein. Clause (a) requires that the provider of service should be located in the taxable territory. In this regard, I find that as per the definition of the Service contained in clause (44) of Section 65B of the Finance Act, 1994, service means any activity carried out by a person for another, for consideration. As there was no contract between the subsidiary and the overseas client in Model-I, no invoice was issued by the subsidiary to the overseas client and the subsidiary had not received any considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided under Model-I and accordingly their value is includable in the 'Export Turnover', as defined under clause (D) of Rule 5(1) of the CCR. Further, as stated above, since in Model-I there is no contract between the subsidiary and the overseas client, accordingly no invoices are raised by the subsidiary in the name of the overseas client. From this factual matrix it clearly emerges that under Model-1, the foreign subsidiary of the Appellant acts as sub-contractor of the Appellant for providing the onsite component of the entire set of Information Technology Software Services for which the Appellant have entered into the contract with the overseas client. Thus, I find that there is neither any documentary basis (like contract or invoice between the subsidiary and the overseas client) nor the statutory provisions support the conclusion of the Ld. Respondent that the onsite services were provided by the subsidiary to the overseas client of the Appellant. Accordingly for Model-I, I conclude that the entire services were exported by the Appellant to their overseas client, as per their contract and the entire payment has been received by the Appellant from the said overse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided from India nor the payment was received in India nor the entity which provided the service (subsidiary) was located in India (i.e. in the taxable territory). As the contract between the subsidiary and the foreign customer is the primary contract between the provider of service and the receiver of service, it needs to be discussed in a bit detail, followed by discussion on the contract between the Appellant and the subsidiary i.e. the back to back contract). 25. With their appeal memorandum, in respect of Model-II transactions, the Appellant have submitted sample copies of 'Contract Service Provider Agreement between the Appellant and their subsidiary and 'Master IT Services Agreement between subsidiary and the foreign customer. On perusal of Master IT Services Agreement between M/s YTL Communications SDN. BHD., Malaysia and M/s Tech Mahindra SDN. BHD., Malaysia which was made on 12.04.2011, it is noticed that in para 4 of the said agreement, obligations of the parties are described. As per sub para 4.1, it is clear that the entire responsibility for carrying out and completion of the service order is on the subsidiary (Tech Mahindra SDN. BHD., Malaysia). Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary has also simultaneously issued invoices in the name of the Appellant for the onsite component of the said services after adding their mark. up as a percentage of value of onsite services. (For various subsidiaries incorporated in various countries, the said mark up varies between 5% and 7%. However, as this mark up is not the value of onsite services provided by the subsidiary to the foreign customer, it will not form part of the value of onsite services provided by the subsidiary). Thus, due to this arrangement, under Model-II, there is one set of invoices raised by the Appellant on their subsidiaries (for full value of services, i.e. onsite plus offshore), and simultaneously another set of invoices raised by the subsidiary on the Appellant for the value of onsite services alone. Against these two sets of invoices, payments in convertible foreign currency had accordingly come into the Appellant's account and had gone out of the Appellant's account, respectively. This unusual accounting method between the Appellant and their subsidiary has to be considered by understanding the true nature of these invoices and the value of onsite services has to be deducted from the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Appellant's claim that the component of onsite services actually provided the subsidiary to the overseas client directly under a valid contract between those two legal entities (subsidiary and overseas client), is an input service imported by the Appellant, is a hollow claim when examined in light of the factual position, as described above. Accordingly, for Model-II, I conclude that the onsite services were not provided by the Appellant to the foreign customer and the value of the onsite services is not includable in the 'Export Turnover? as defined under clause (D) of Rule 5(1) of the CCR. Further, since the said onsite services were actually provided by the subsidiary (a distinct legal entity) and were not provided by the Appellant, to the foreign customer, the same cannot be part of the value of total turnover of the Appellant for the relevant period. In other words the value of the said onsite services provided under Model-II will be required to be deducted from the value of export turnover as well as from the value of total turnover of the Appellant for the relevant periods. The same has been done in the calculations for admissible refund as per Annexure &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2012 with the introduction of Negative list of services and the introduction of POP Rules. Simultaneously, the Export of Service Rules, 2005 were rescinded and Rule 6A of the Service Tax Rules, 1994 was introduced. Further Section 65B was inserted in the Finance Act, 1994, w.e.f. 01.07.2012 and 'Service was defined under clause (44) of the said Section 65B. In addition, in the PoP Rules introduced w.e.f. 01.07.2012 the terms 'Location of Service Provider' and 'Location of Service Receiver' were also defined vide clause (h) and clause (i) of Rule 2 of the POP Rules. Further, Rule 5 of the CCR was also substituted w.e.f. 01.04.2012. Thus, it is clear that the entire gamut of legal provisions in the context of which the said decision were given by the Hon ble CESTAT/ High Court, have undergone complete overhaul. Therefore the ratio of the said decision of the Hon ble CESTAT/ High Court is not applicable on the present appeals and the conclusion of the respondents in this regard is correct. 4.3 From the facts as above we refer to the decisions of the CESTAT relied by the revenue in their appeal, Tech Mahindra [2014 (36) S.T.R. 332 (Tri. - Mumbai)]. Rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court of India, - In construing a statutory provision the first and foremost rule of construction is the literary construction. All that the Court has to see at the very outset is what does the provision say. If the provision is unambiguous and if from the provision, the legislative intent is clear, the Court need not call into aid the other rules of construction of statues. The other rules of construction are called into aid only when the legislative intent is not clear. The principle of strict interpretation of taxing statutes is best enunciated by Rowlatt J., in his classic statement : In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It is these principles that one has to adopt while interpreting the scope of the term exports as defined in the Export of Service Rules, 2005 and none else. 5.4 From the legal provisions as extracted above, it may be seen that for the period post 27-2-2010, the only condition required to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from India. It is clear that in respect of overseas customers, the subsidiaries performed the onsite services on behalf of the appellant at the customers premises abroad. The appellant s subsidiaries located outside India are independent entities and they are not appellant s agents. This position is clear from the agreement entered into between the appellant and its subsidiary in America, namely, Tech Mahindra America dated 27- 3-2008. Para 19 of the said agreement specifically states that all dealings between the parties shall be in accordance with the arms length standard and nothing contained herein shall be construed as constituting any relationship of agency or Joint venture or partnership between the parties or the management of any operation of TML in America relating to this agreement or otherwise by TM Inc. America. This clause in the agreement clearly evidences the fact that the subsidiary located in America is an independent contractor and is providing software development service to the appellant s overseas customers as such. Therefore, it cannot be said that the onsite services provided by the subsidiary have been rendered from India to the appellant s customers abro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of claiming export benefits. To a specific query raised by the bench during the course of arguments, it was clarified that while the off-shore services have been certified as export by the competent authorities (softex bills of export certified by the competent authorities), no such certification exists for the on-site services rendered abroad. This also corroborates the fact that on-site services are not exported from India. 5.7 The appellant has relied on a number of provisions/decisions pertaining to Customs, EXIM policy, Income-Tax, OECD guidelines, decision of the European Court, etc. in support of the contention that onsite services performed abroad amounts to export. However, these decisions are of no consequence in the present case. Firstly, these laws/decisions are not pari materia to the Service Tax provisions applicable in India. Secondly, the Export of Service Rules, 2005 defines what constitutes exports for different categories of services. Thus the definition of export given in the said Rules alone shall apply and export of service has to be construed and interpreted in terms of the provisions of the said Rules as they stood at the relevant tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces are partly performed in India and partly abroad, then the services performed abroad cannot be said to have been performed from India and we hold accordingly. The appellant has also sworn an affidavit wherein they have categorically stated that when the onsite services are performed by their branches abroad, they pay the local taxes there and does not treat the transaction as having been provided from India. If that be so, why should the same transaction be treated differently as export merely because it is performed by the appellant s subsidiaries. It is highly illogical to determine the situs of a service based on the status of the service provider as contended by the appellant, especially when TML themselves are treating the transactions differently. 5.8 In view of the above, we are of the considered opinion that the appellant has not satisfied the terms and conditions of export as defined in the Export of Service Rules, 2005, in respect of onsite services for the period prior to 27-2-2010 and therefore, they are not eligible for refund of Service Tax in respect of such services rendered abroad. Accordingly, Order No. PIII/VM/227- 280/2010, dated 20-10-2010 passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services in relation to immovable property and based on that the arguments are canvassed. We are of the view that there was no Rule 3(1)(ii) of the Export of Services Rules, 2005 as initially introduced. There was Rule 3(1)(i) and (iii). We are not in agreement with Mr. Sridharan that the business establishment of the service provider is in India and final consumption and consumer is outside India. We find that the provider of service is also a subsidiary outside India and recipient is also outside India. In such circumstances we do not see any reason for placing reliance on these Rules and the Tribunal has rightly negatived such arguments in paragraph 5.5 of the impugned order. The view taken is in consonance with the material placed on record including clauses of the agreement. Apart from the fact that the subsidiaries are being termed as independent entities what we find that onsite services provided admittedly by them have not been rendered from India. The Appellants customers 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 vitiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as exports under the above stated rule. 4.6 Commissioner (Appeals) has in respect of Model I specifically concluded that the services provided by the appellants to their overseas clients through their subsidiaries and branch offices located outside the taxable territory were in fact the services provided by the appellants to their client for which they were billing their clients and receiving the Foreign Exchange from their clients. The subsidiaries/ branch offices did not raised any bill/ invoice on the recipient of the services or received any payments from them. All the services provided by the appellant to their overseas client have been provided under umbrella of a single contract. The subsidiaries/ branch offices of the appellants located overseas do not provide any service to the clients of the appellant independently. No such contractual agreement exists between the subsidiaries/ branch offices of the appellant with the service recipient. The subsidiaries/ branch offices provide the said services to the appellant and raise bill for the same on appellant for which the appellant are also discharging the service tax on reverse charge basis treating them as import of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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