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TMI Blog2008 (11) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (H-IV) dated 26.12.2007 passed by the Commissioner of Central Excise, Customs and Service Tax (Appeals-II) Hyderabad. 2. Shri G. Shiva Dass, the learned Advocate, appeared on behalf of the appellants and Smt. Joy Kumari Chander, the learned JCDR, for the Revenue. 3. We heard both sides. 4. The issue relates to the refund of credit on input services utilized in the service exported by the appellants. A portion of the refund claim has been rejected. The refund, which is rejected is relatable to export through Satyam Computers (India). The denial of the refund is on the ground that the payment for services rendered by the appellant was not received in convertible foreign exchange. According to the Revenue, unless the payment for services rendered is in convertible foreign exchange, the appellants would not be entitled for the refund in terms of Rule 5 of Cenvat Credit Rules read with Notification 5/2006-CE (NT) as well as Rule 5 of Export of Service Rules, 2005. 5. Shri Shiva Dass explained that the appellants rendered services to parties situated outside India. On this point, there is no dispute. All these parties were sponsored by Satyam (India). In other words, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; 6.3 It was argued that the above proviso to Rule 3 (3) (ii) (i) will have no applicability to the appellant for the following reasons: a) The taxable services are provided to a recipient located outside India in relation to commerce or industry b) The recipient, as could be seen from the work orders, does not have any commercial or industrial establishment or any office relating thereto in India c) The orders were placed from USA/Australia/other foreign country and they were executed directly by Nipuna either as "onsite" overseas activity or delivered to the overseas party located outside India. There was no interaction in relation to these work orders with any office in India or any commercial or industrial establishment in India. 6.4 An amendment was carried out to the EOS Rules by Notification No. 26/2005-ST dated 07.06.2005. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough raised in US dollars but consideration received in Indian rupees that the Department has denied the refund. The Tribunal in the case of PSA Sical Terminals Ltd. Vs. CC Tuticorin, 2004 (165) ELT 109 (Tri.-Chennai) held that such payment should also be considered as receipt in foreign currency. 9. If it is taken that Satyam is acting as an agent for the appellant for procurement of orders and for receipt of payment from the service receiver, then also the appellant is eligible for refund. The relation between the appellant and Satyam is clearly evident from Clause 2 of the Alliance agreement which clearly shows that Satyam is working for promoting the business of appellants only and not as a principal. In the present case, Satyam has procured orders as an agent against commission and which have been executed by Nipuna. In consideration of the services rendered by the appellant, Satyam, as an agent, has received the payment on behalf of the appellant from the service receiver and in return Satyam has received commission for his agency services from the appellant. (Clause 3 of the Alliance agreement). Similar to Agency contract, the entire responsibility for the execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned order upholding the order of the Original Authority. A very important legal point involving interpretation of Rule 5 of the Cenvat Credit Rules/Rule 3 of EOSR has been raised. 12. In order to have clarity, we have to go through the provisions of Export of Service Rules right from the date of inception of the said rules. The point made by the learned Advocate is that prior to 01.03.2007, there was no requirement at all in respect of the services rendered by them to have received payment in foreign exchange to qualify as Export of Service in terms of EOSR. Let us examine the entire thing to see if the contention of the appellant is sustainable. 13. The Export of Services Rules, 2005 was notified by Notification No. 9/2005-ST dated 03.03.2005. It was effective from 15.03.2005. The main rule is Rule 3. For clarity we are reproducing the said Rule as notified on 03.03.2005. 3. Export of taxable service. - The export of taxable service shall mean, - (1) in relation to taxable services specified in sub-clauses (d), (p), (q). (v) and (zzq) of clause (105) of Section 65 of the Act, such taxable services as are provided in relation to an immovable property which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18th July, 1986 and S.O. 643 (E), dated the 19th September 1996. 13.1 The above rule gives the meaning of export of taxable service. There are presently more than 100 taxable services. It is necessary to have a very clear concept of export of services. In respect of goods, it is not very difficult to understand what is meant by export. Goods are tangible objects. For e.g. when we say export of sugar, the sugar bags have actually moved out from our country to some destination abroad. What about services? When do we say they are exported? In these days of internet and information technology, it would be very difficult to give a precise definition of export of services. However, Rule 3 reproduced above, attempts to categorize the taxable services into three categories. We can observe that there is Rule 3 (1) we have 3(2) we have 3(3). Why such categorization? 13.2 A careful reading would reveal that Rule 3(1) relates to certain taxable services provided in relation to an immovable property situated outside India. The said services are specifically mentioned in the said Rule. For e. g. Insurance cover is given to immovable property. When the said immovable property is situated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is satisfied. The recipient of services should be located outside India. This condition is also satisfied. However, the condition relating to receipt of payment in convertible foreign exchange in terms of the proviso is applicable only and if only the recipient has any establishment in India. As far as the appellants are concerned, their service recipients do not have any office in India. Therefore, the requirement of receipt of convertible foreign exchange as mentioned in the Rule 3 (3) (ii) (i) would not be applicable to them. What emerges from this analysis is that in terms of Export of Service Rule, 2005, as it then stood, there is no requirement for the appellant to receive payment in foreign exchange. 13.5 Now, we have to understand how far the position as per the above rules got modified subsequently due to further amendments. Summing up, as far as the Export of Service Rules 2005 is concerned, only in respect of services relating to 3 (3) (ii) (i), where the recipient has office in India, the requirement of payment in convertible foreign exchange is a must to deem such services as Export of Services. In other words, as long as the services specified in 3 (3) are pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2), we can state that there have been additions of certain more taxable services. We need not discuss them here, as they are not relevant. But, the other important changes are the insertion of following conditions. (a) Such service is delivered outside India and used in business or for any other purpose outside India (b) Payment for service provided is received by the service provider in convertible foreign exchange 14.2 We had already stated in the earlier paragraph that EOSR 2005 categorized the services into three categories. By this amendment, in respect of the services relating to categories in Rule 3 (1) and 3 (2), the above conditions have been inserted to deem such services as export of service. It is very clear that the services rendered by the appellants would not come under Rule 3 (1) and Rule 3 (2) of EOSR, 2005. Consequently, the condition with regard to the receipt of payment in convertible foreign exchange would continue to inapplicable. We mentioned that there was some change in sub rule (3) but that change is not relevant for us. Thus, it can be seen the Government has deliberately not amended Rule 3 (3) while amending Rule 3 (2) and 3 (1) providing for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses (d), (zzzc) and (zzzr) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service: Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India. (2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, 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. Explanation.- For the purposes of this rule "India" includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublication in the Official Gazette. 2. In the Export of Services Rules, 2005, in Rule 3, for sub-rule (2); the following sub-rule shall be substituted, namely: '(2) The provision of any taxable service specified in sub-rule (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. Explanation.- For the purposes of this rule "India" includes the designated areas in the continental shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O. 429 (E), dated the 18th July, 1986 and S.O. 643 (E), dated the 19th September, 1996.' 17.1 A scrutiny of the above amendment reveals that the condition enumerated in sub-rule 2 are applicable to the services mentioned in sub rule 1. This notification is effective from 01.03.2007. In other words, all the services which are mentioned in sub-rule 1 including the services rendered by the appellant would be deemed to be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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