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TMI Blog2023 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... approached by Arcelor India or a prospective customer contacts Arcelor India regarding stainless steel requirement, but in either case the request is forwarded by Arcelor India to the foreign steel mills with the technical requirements of the Indian customer. Once the foreign mills and the Indian customer come to an understanding on the terms and conditions of supply, a written contract is executed between the Indian customer and the foreign mills or a purchase order is placed on the foreign mills. The documents are prepared by the foreign mills in the name of the Indian customer and the Indian customer, in turn, pays the foreign mills. Thus, the goods directly pass from the foreign mills to the Indian customer. 2. A part of the commission received by Arcelor France, as the main agent, from the foreign mills is paid to Arcelor India based on the volume of sales in each quarter in convertible foreign currency. A dispute arose in relation to such commission received by Arcelor India from Arcelor France for the period from April 2005 to January 2009. According to Arcelor India, there is no privity of contract between it and the steel mills located outside India and it received the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption of service by the service recipient. If the consumption of service is in relation to the activities of foreign entity/ resident located outside but for his business in India, then the appellant will not be entitled to the benefit of export of service as the service is not exported as provided for by the Export of Service Rules, 2005 as they existed at material time." (emphasis supplied) 5. The division bench, after noting that the aforesaid view expressed by it would run contrary to the views expressed earlier by the division benches of the Tribunal in M/s. Gap International Sourcing (India) Pvt. Ltd. vs. Commissioner of service Tax 2015 (37) S.T.R. 757 (Tri. - Del.), Blue Star Ltd. vs. Commissioner of Central Excise, Bangalore 2008 (11) STR 23 (Tri. Bang.), and Mapal India Private Ltd vs. Commissioner of C. Ex., Bangalore 2011 (22) S.T.R. 454 (Tri. - Bang.), observed as follows: "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: ***** The said decision relies upon the decisions in case of Blue Star and ABS International and also two circular issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the payment received in convertible foreign exchange was sent outside India. This notification dated 09.04.1999 was subsequently rescinded by a notification dated 01.03.2003. 9. There was an apprehension in the industry that "export of services‟ will become taxable because of the withdrawal of the aforementioned notification dated 09.04.1999. The Central Board of Excise and Customs CBEC , thereafter, issued a Circular dated 25.04.2003 to clarify the position with regard to the 'export of service‟. It clarified that since service tax is a destination based consumption tax, it would not be applicable on "export of services‟ and these services would continue to remain tax free even after the withdrawal of the notification dated 09.04.1999. The relevant extract of the Circular is as follows: "The Central Government has issued Notification No. 2/2003 dated 1-3-2003 in the current year‟s Budget rescinding the earlier Notification No. 6/99 Service Tax dated 9-4-99 which exempted taxable services from payment of service tax so long as payment for services rendered is received in convertible exchange which is not repatriated outside India. Consequent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India." 12. The aforesaid Notification was, however, rescinded by Notification dated 03.03.2005 and the Export of Service Rules, 2005 were framed in exercise of the powers conferred by section 94(2)(g) of the Finance Act, 1994 the Finance Act to achieve the destination based consumption tax concept and consequently provide exemption from payment of service tax to service exported out of India. 13. The main allegation in the show cause notice issued to Arcelor India is that the condition specified in the 2005 Export Rules that the order for provision of service should be made by the recipient of such service from offices located outside India is not fulfilled since there is no written contract between Arcelor India and Arcelor France and the condition that the service is delivered outside India and is used outside India is also not fulfilled. 14. The adjudicating authority found that the requirement of rule 3(2) of the 2005 Export Rules was not satisfied since Arcelor India had performed service in India for ultimate consumption in India. In this context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible foreign currency in two different situation, in respect of the orders booked by the prospective customers with the foreign supplier directly, but through the Appellants, whereby the goods are directly exported by the supplier outside India and payments are made to them directly by the customers in India and in another situation where the goods are imported directly by the Appellants for trading purposes for which they are holding dealers‟ Registration under Central Excise. Thus, I am of the view that the Appellants had performed the service in India for ultimate consumption thereof in India by its customers in India." (emphasis supplied) 16. The submissions advanced by Shri V. Sridharan, learned senior counsel for the appellant assisted by Shri Vinay Jain and Shri Somesh Jain, and Shri Anand Kumar, learned authorized representative appearing for the department have been considered. 17. It is not in dispute that Arcelor India is a sub-agent of Arcelor France, which is the main agent of the steel mills located outside India. The services provided by Arcelor India would, therefore, be covered by the definition of "business auxiliary service BAS defined under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service when the following conditions are satisfied: (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" (emphasis supplied) 21. Rule 3(2) was thereafter amended by Notification dated 01.03.2007 and the relevant portion of the Notification is reproduced below: "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.- ********" (emphasis supplied) 22. Rule 4 of the 2005 Export Rules provides that any service, which is taxable under clause (105) of section 65 of the Finance Act, may be exported without payment of service tax. 23. The Circular dated 24.02.2009 issued by CBEC deals with applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(I)(ii)] arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase "used outside India‟ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BAS. The dispute, however, was whether the services qualified as export of service in terms of the 2005 Export Rules and, therefore, not taxable in India. It is in this context that the Tribunal held that the services provided by the appellant in India were obviously meant for and were used by GAP, USA for their business and, therefore, these services would be treated as exported out of India. The contention of the department that the condition "used outside India" was not satisfied as they were being performed in India was not accepted by the Tribunal and the relevant portions of the decision of the Tribunal are reproduced below: "6. The service provided by the appellant to M/s GAP, U.S.A., is in relation to procurement of goods from India. For this purpose, the appellant conduct the survey of the manufacturers of various products required by M/s GAP, U.S.A., and recommend the vendors who can supply the goods of the desired quality. xxxxxxx. Thus, the services being provided by the appellant to their principal are the services in relation to procurement of the goods and there is no dispute that these services are Business Auxiliary Services covered by Section 65 (105) (zzb) rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he persons in India and not M/s GAP, U.S.A. for whom all these services provided by the appellant are meant, who have used these services for their business and have made payment for these service in convertible foreign exchange." (emphasis supplied) 27. In Commissioner of Service Tax, Mumbai-VI vs. A.T.E. Enterprises Pvt. Ltd. 2018 (8) G.S.T.L. 123 (Bom.), the substantial question of law framed by the Bombay High Court was whether the services provided by the respondent, in accordance with various contracts entered into with overseas manufacturers, is classifiable under BAS and if so, whether the said services provided can be treated as export of services or not. To answer this question of law, the High Court referred extensively to the findings recorded by the Tribunal as also the decisions relied upon by the Tribunal in Paul Merchants Ltd. vs. Commissioner of C. Ex., Chandigarh 2013 (29) S.T.R. 257 (Tri. - Del.) and GAP International and held that no case had been made out by the appellant -Commissioner of Service Tax, Mumbai to interfere with the reasoning of the Tribunal. The reasoning contained in the decision of the Tribunal against which the appeal was filed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India was receiving commission from foreign based principals for promotion of sale of the products/goods in India. The Department was of the view that the services provided by the respondent would fall under the category of BAS chargeable to service tax. The case of the respondent-assessee, however, was, and which case was accepted by the Commissioner of Service Tax, that the services rendered by the respondent to its foreign principals would constitute export of service covered by the 2005 Export Rules, and so no tax could be levied. The Bombay High Court, after referring to the decision of the Bombay High Court in A.T.E Enterprises and the Circular dated 24.02.2009, dismissed the appeal that had been filed by the department. The relevant portion of the decision of the High Court is reproduced below: "8. We find that the issue raised herein is no longer res integra. An identical nature of services as rendered by the respondent to its foreign clients, had come up for consideration before this Court in Commissioner of Service Tax, Mumbai v. ATE Enterprises (P) Ltd., 2018 (8) G.S.T.L. 123 (Bom.). This Court followed its earlier decision in SGS India (P) Ltd. v. Commissioner of Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it from service in India, it is an export of service." 51. In the considered view of the Court, the judgment of the CESTAT in Paul Merchants Ltd. v. CCE, Chandigarh (supra) is right in holding that "The service recipient is the person on whose instructions/orders the service is provided who is obliged to make the payment from the same and whose need is satisfied by the provision of the service." The Court further affirms the following passage in the said judgment in Paul Merchants Ltd. v. CCE, Chandigarh (supra) which correctly explains the legal position: "It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/subagents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. This para has not been referred to by the Commissioner (Appeals) in his order at all. On the basis of the records, I am convinced that the services rendered have been exported in terms of Rule 3(2) of the Export of Services Rules, 2005. Hence, the appellants are entitled for the refund of the Service Tax already paid. Therefore, I allow the appeal with consequential relief, if any." 32. In Mapal India, the appellant identified customers for the goods manufactured in Germany for the Indian customers to place purchase orders on the German company, for which the appellant received commission in convertible foreign exchange. The Tribunal held that the appellant had exported service. 33. The aforesaid decisions clearly hold that where persons residing in India provide service to foreign entities to enable them to book orders for supply of material to customers in India, the person residing in India would render BAS to the foreign entities and such service would be treated as export of service under rule 3(1)(iii) of the 2005 Export Rules since the foreign entities are located outside India and the payment is received by such persons in India in convertible foreign exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax liability would not arise under the Income Tax Act. The issue framed by the High Court was whether "success fee‟ payable by GVK Industries to NRC, Switzerland was chargeable to tax under the provisions of the Income Tax Act. This issue was answered by the High Court in favour of the department by placing reliance upon section 9(1)(vii)(b) of the Income Tax Act in the following manner: "Thus from a combined reading of clause (vii)(b) Explanation (2) it becomes clear that any consideration, whether lump sum or otherwise, paid by a person who is a resident in India to a non-resident for running any managerial or technical or consultancy service, would be the income by way of fees for technical service and would, therefore, be within the ambit of "income deemed to accrue or arise in India". If this be the net of taxation under Section 9(1)(vii)(b), then "success fee‟, which is payable by the petitioner-company to the NRC as fee for technical service would be chargeable to income tax thereunder. The Income-tax officer, in the impugned order, held that the services offered by the NRC fell within the ambit of both managerial and consultancy services. That order of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(vii) of the Act. The said expression means any consideration, whether lump sum or periodical in rendering managerial, technical or consultancy services. It excludes consideration paid for any construction, assembling, mining or like projects undertaken by the non-resident that is the recipient or consideration which would be taxable in the hands of the non-recipient or non-resident under the head "salaries". In the case at hand, the said exceptions are not attracted. ********* 37. As the factual matrix in the case at hand, would exposit the NRC had acted as a consultant. It had the skill, acumen and knowledge in the specialized field, i.e., preparation of a scheme for required finances and to tieup required loans. The nature of activities undertaken by the NRC has earlier been referred to by us. The nature of service referred by the NRC, can be said with certainty would come within the ambit and sweep of the term "consultancy service‟ and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head "fee for technical service‟. Once the tax is payable the grant of "No Objection Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treating extra-territorial transactions as taking place in India. The only issue in the present appeal is regarding the interpretation of the phrase "such service is delivered outside India and used outside India‟ used in rule 3(2)(a) of the 2005 Export Rules from 19.04.2006 to 28.02.2007 and the phrase "services provided from India and used outside India‟ used in rule 3(2)(a) of the 2005 Export Rules from 01.03.2007 onwards. Any reference to GVK Industries, which decision is based on a deeming fiction under section 9(1)(vii)(b) of the Income Tax Act is, therefore, misplaced. 42. Having extensively referred to the relevant provisions of the 2005 Export Rules, the decisions relied upon by the learned senior counsel for the appellant and the learned authorized representative appearing for the department and the Circular dated 24.02.2009, it would be appropriate to now answer the reference. 43. It needs to be remembered that service tax is a value added tax which is a destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer. Service tax is levied at the place where the service is consumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he phrase "delivered outside India‟ in rule 3(2)(a) did not provide clarity with respect to intangible services, this expression was replaced w.e.f. 01.03.2007 by "is provided from India and used outside India‟. The Circular dated 29.04.2009 issued by CBEC clarifies that the relevant factor is the location of the service receiver and not the place of performance and the phase "used outside India‟ is to be interpreted to mean that the benefit of the service should accrue outside India. The term "used outside India‟, therefore, means that the service is provided to such a service recipient who is located outside India. It is the location of the service-recipient which determines where the service is used. The use of intangible services should be seen with respect to the location of the service recipient and not the place of performance. 47. In the present case, Arcelor India is a sub agent of Arcelor France which is an agent for the steel mills situated outside India. For procuring sale orders for the products manufactured by the foreign mills from customers in India, the requests of prospective customers identified by Arcelor India is forwarded to the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t factor is the location of the service receiver. In other words, the place of performance of the service or the place where the customers of the service receiver are located is irrelevant. 52. As noticed above, it was the consistent view of the High Courts and the Tribunal that export of service would take place under rule 3(1)(iii) of the 2005 Export Rules if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India. This is for the reason that the foreign entity is located outside India and the payment is received by the person residing in India in convertible foreign exchange. 53. The division bench, while making the reference, intended to deviate from this settled position of law only because, in its considered view, the decision of the Supreme Court in GVK Industries. The division bench, after recording a finding that there was no dispute that Arcelor India was providing BAS to Arcelor France, noted that the dispute was only as to whether the service rendered by Arcelor India will qualify as export of service in terms of the 2005 Export Rules. The division bench concluded that since the services provided to Arcelor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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