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TMI Blog2024 (6) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... of FIRCs were not filed along with the claim and filed only along with their reply to the notice. Therefore, the order issued cannot be held as having traversed beyond the notice. Whether the appellant satisfied the conditions of Rule 5 of the Cenvat Credit Rules, 2004 read with the Export Service Rules, 2005? - HELD THAT:- In the instant case, admittedly, the services are not provided from India but are provided from their subsidiary units situated in Australia, USA and China. Even with regard to the payments, the Commissioner (Appeals) has observed that the remittances for the output services that were rendered by establishments situated outside India, remittance instructions for depositing in Bank of America, Chicago and the Deutsche Bank Amsterdam, which has not been disputed by the appellants. Therefore, having not satisfied the conditions laid down in the Export of Service Rules, 2005, the appellants cannot claim that they have exported the services for the period October 2008 to June 2009. Correlation between the inputs and output services - Board vide Circular dated 19.1.2019 - HELD THAT:- The Board vide Circular dated 19.1.2019 suggested that in Budget 2009, the scheme was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r No.111/5/2009-ST dated 24.02.2009 and Board Circular No. 120/1/2010 dated 19.01.2010 rejected all the three (3) refund claims. Aggrieved by this order, the appellant is in appeal before us. 3. The learned counsel submits that the Appellant enters into various agreements with foreign customers including banks and financial institutions for the purpose of providing information technology software services and various other services in relation to information technology software . In terms of these agreements, the Appellant is contracted to render, provide and execute information technology software services of varied nature including software development, software implementation, consultancy, advice and assistance in relation to information technology software, study, design and programming of IT software, providing right to use IT software, etc. These services are rendered predominantly from the business premises situated in India by employing thousands of employees, software experts, technicians, engineers, etc. In terms of the global agreements with their overseas customers services are rendered from their offshore development centres (i.e., from various business premises situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information and all the details, copies of documents, etc., were furnished. The authorities however rejected all the claims on the following grounds: (i) the export invoices do not indicate the classification/description of services exported and in the absence of which taxability of the service cannot be determined; (ii) nexus between input service and output service could not be established; (iii) the condition envisaged in Rule 3(2) of Export Services Rules, 2005 was not established. 3.2 The learned counsel submits that the refund claims have been rejected on unsubstantiated and frivolous findings. It is submitted that during the period of dispute the services rendered and exported by them were taxable service in terms of section 65(105) and self-assessed in ST-3 returns were filed with the Department. These returns clearly stated that they were providing and exporting taxable services under the categories of ITSS u/s 65(105)(zzzzj) read with Section 65(53a); Management, maintenance or repair of software u/s 65(105)(zzg) read with Section 65(64); Management Consultancy services under Section 65(105)(r) read with Section (65) and technical inspection and certification services und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envat Credit Rules, 2004 have been sanctioned. The very same adjudicating authority had passed three Orders-in-Original vide 575/2011 and 576/2011 both dated 9.9.2011 and No.136/2012 dated 6.2.2012, had allowed refund and no refund claims were rejected on the ground that conditions envisaged in Rule 3(2) of the Export of Services Rules, 2005 were not fulfilled. These Orders-in-Original were not challenged in further appeals by the revenue and hence have attained finality. Thus, it is claimed that for the prior period (i.e., May 2008 to September 2008) and for the subsequent periods (i.e., July 2009 to December 2010), the revenue allowed the refund holding that the Appellant had fulfilled the conditions in Rule 3(2) of the Export of Service Rules, 2005 and Rule 6A of the Service Tax Rules, 1994. It is only for the in-between period i.e., period of dispute in the present appeals from October 2008 to June 2009, the refunds have been rejected in the impugned orders inter alia on the ground of non-fulfillment of conditions in Rule 3(2) of the Export of Services Rules. It is well settled principle that when the facts have not undergone any change and there is also no change in the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible and also many times it is imperative for various business reasons that a portion of the activities is outsourced or sub-contracted. Even in respect of outsourced and/or sub-contracted activities the Appellant is the main service provider and the Appellant is answerable and accountable for anything relating to quality of the service. Besides in respect of sub-contracted activities and the consideration paid therefor, the Appellant has been paying service tax under section 66A under RCM and these are nothing but input services since the sub-contracted activities are used for the purpose of exported services only . There is absolute nexus between the sub-contracted activities and the export of services by the Appellant. Therefore, factually, the Appellant has provided taxable services from India and they have fulfilled the condition envisaged in rule 3(2) of the Export of Services Rules, 2005 and even the nexus between input services and the export services are also established. The impugned orders are therefore untenable in law in holding that the Appellant has not fulfilled the conditions of Rule 3(2) of the Export of Services Rules, 2005. 3.6 The learned counsel for the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the appellant that they obtained any services from the vendor in Australia. The obvious conclusion is that the vendor provided the said services in Australia only to the clients not to the appellant. Thus, the specified services were provided by the vendor Incorporated and located in Australia. These services are provided in Australia and the recipient were also in Australia therefore by no stretch of imagination it can be said that the services were exported from India. c. As per the payment terms Vendor in Australia shall receive 93% of the contract value as per the agreement between the appellant and the client. The contract value is expressed as hourly on-site rate in the case of Time and Material projects and the proportionate value of work executed in Australia in the case of fixed-price projects. Thus, the payment terms are with respect to the work executed that is service provided in Australia. As the amount attributable to appellant s own services exported abroad the original authority observed that the appellant has not furnished the exact quantum of such exports and linking the input and output services was not possible based on export invoices produced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attained finality but the claim of the appellant that the rejection of refund only for the intervening period is not legally sustainable cannot be accepted because the earlier orders did not consider the aspect of Rule 3(2) as is discussed in detail in the impugned order. The earlier orders failed to consider the vital point that affected the grant of refund. The fact that the same have not been appealed against cannot be held against the impugned order in as much as there is no reason to reject the basic principle flowing from para 6.2 of the impugned order. h. It is further submitted that in respect of services rendered by the subsidiaries of the appellant, there is no dispute the said services were provided and received in the respective countries, the same could not have been imported into India. The appellant has only through documentation tried to prove that the output services have been exported from India whereas physically the services were rendered and received in the respective countries. Accordingly, payment of service tax on services provided by the subsidiaries by RCM is itself not legally correct and proper. The amount so paid cannot be regarded as service tax since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be performed and any related deliverables and other materials to be supplied by the Vendor (i.e. Infosys Technologies Australia Pvt. Ltd) shall be in accordance with the project requirements and directions given by Customer s (i.e. the Appellant) authorized representatives from time to time . From this Clause, it is clear that above foreign company has agreed to render in accordance with project requirements and directions of the Appellant. Also, as per Clauses 3 4, the foreign company shall raise an invoice on the Appellant and the Appellant shall pay the foreign company for the services rendered by it as per rates agreed between the parties. Therefore, the foreign company viz., Infosys Technologies Australia Pvt. Ltd has rendered services to the Appellant, has raised invoice on the Appellant at the agreed rates and the Appellant has to pay the invoiced amount. Since the foreign company (i.e., Infosys Technologies Australia Pvt. Ltd) has rendered IT services (which is one of the specified taxable service as per section 65(105) of the Finance Act, 1994 and the Appellant is the recipient of the said service and the provisions of section 66A read with Taxation of Services (Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and foreign subsidiary company was not involved in the above decision. It is stated that the claims cannot be accepted in view of the judgment of the Hon ble Supreme Court in the case of Mohinder Singh Gill v. Chief Election Commission, AIR 1978 SC 851, 858 wherein it was observed thus When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may by the time it comes to court on account of a challenge, get validated by additional grounds later brought out . 6. Heard both sides. The issues before us are: (i) Whether the appellant has satisfied the conditions of Rule 5 of the Cenvat Credit Rules 2004 read with the Export of Service Rules, 2005. (ii) Whether the refunds for earlier period and later period being sanctioned can it be rejected for the interim period. (iii) Whether the Order-in-Original was beyond the scope of the show-cause notice. 7. The appellant filed the following refunds claims . Appeal Nos. Period Involved OIO Ref. Refund claimed Refund Sanctioned Refund Rejected Remarks May ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly due to very high volume of transactions covering about 45,000 export invoices, equal number of input invoices and certified copies of FIRCs were not filed along with the claim and filed only along with their reply to the notice. Therefore, the order issued cannot be held as having traversed beyond the notice. 9. The second issue is whether the appellant satisfied the conditions of Rule 5 of the Cenvat Credit Rules, 2004 read with the Export Service Rules, 2005. Rule 5 of the Cenvat Credit Rules, 2004 reads as under: - RULE 5. Refund of Cenvat credit. - Where any input or input service is used in the final products which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of, (i) duty of excise on any final products cleared for home consumption or for export on payment of duty; or (ii) service tax on output service, and where for any reason such adjustment is not possible, the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 2006 In exercise of the powers conferred by rule 5 of the CENVAT Credit Rules, 2004 (hereinafter referred to as the 'said rules'), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.11/2002 - Central Excise (NT), dated 1st March, 2002, published in the Gazette of India Extraordinary, vide number G.S.R. 150(E), dated 1st March, 2002, the Central Government hereby directs that refund of CENVAT credit shall be allowed in respect of : (a) input or input service used in the manufacture of final product which is cleared for export under bond or letter of undertaking; (b) input or input service used in providing output service which has been exported without payment of service tax, subject to safeguards, conditions and limitations, set out in the Appendix to this notification. (Emphasis supplied) Appendix 1 The final product or the output service is exported in accordance with the procedure laid down in the Central Excise Rules, 2002, or the Export of Services Rules, 2005, as the case may be. 2. The claims for such refund are submitted not more than once for any quarter in a calendar year Provided that where, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and non-excisable goods cleared, including the value of goods exported; The value of bought out goods sold, during the given period. 6. The application in Form A, along with the prescribed enclosures and the relevant extracts of the records maintained under the Central Excise Rules, 2002, CENVAT Credit Rules, 2004, or the Service Tax Rules, 1994, in original, are filed with the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, before the expiry of the period specified in section 11B of the Central Excise Act, 1944(1 of 1944). 7. The refund of excise duty or service tax is allowed by the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be. ANNEXURE FORM 'A' (See paragraph 3 of the Appendix) Application for refund of CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004 (Refund relating to the given period i.e. quarter or month ________) To The Deputy Commissioner / Assistant Commissioner of Central Excise, Sir, I/We have exported, the final products or output services of under-mentioned description, value, quantity to _________ during the given period. I/We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E) Amount Of Refund Claimed: Rs (in figures and in words) 9.2 From the above Rules and the Notification, it is clear that the output service is exported in accordance with the procedure laid down in the Export of Services Rules, 2005, and the input credit used in these exported services have to be clearly accounted for. Therefore, its necessary to examine whether the services exported were in accordance with the Export of Services Rules, 2005. 9.3. The Commissioner (Appeals) in the impugned order observes The main contention of the appellant is that service is ultimately rendered to the customer outside India for which payment is received by them in convertible foreign exchange. I find that it is true that services have been provided to a foreign based client but at the same time it is also true that majority of the said services were not provided from Indian territory by the appellant but by their subsidiaries elsewhere. Further to avail the benefit of exemption of export of services under Export of Services Rules 2005 it has been stipulated in clear terms that the following 2 conditions that is a b have to be satisfied. It is an undisputed fact that in this case the payment of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services are provided by the vendor to the client who is also outside India. Thus, there is no dispute that though the agreement is between the customer (Infosys India) and the client is situated abroad, the services are actually rendered by the vendor (Infosys Australia) to the client abroad, that is services are rendered outside India and the recipient is also outside India. Hence, these services under no circumstances can be termed as Export of Services as per Rule 3(2) of Export of Service Rules, 2005. Coming to the payments, at Para 4.1 of the above Agreement, it states that the vendor will raise all the invoices in electronic form and payment shall be made by the customer in accordance with the instructions provided on vendor s advice. At para 4.3 of the Agreement, it says that the vendor shall receive 93% of the contract value as per the Agreement between customer and client. Similarly, the subcontracting agreement between Infosys India and Infosys China which is entered into on 1st October 2005, at para 2 states that all services to be performed and any related deliverables and other materials to be supplied by vendor shall be in accordance with the project requirements and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zt), (zzv), (zzw), (zzx) and (zzy) of clause (105) of section 65 of the Act, such services as are performed outside India: Provided that if such a taxable service is partly performed outside India, it shall be considered to have been performed outside India; (3) in relation to taxable services, other than,- (i) the taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (p), (q), (s), (t), (u), (v), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy); and (ii) the taxable service specified in sub-clause (d) as are provided in relation to an immoveable property, of clause (105) of section 65 of the Act,- (i) such taxable services which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India: Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if- (a) order for provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. 9.6 As seen from the above amended rules the services to be qualified as export services have to be necessarily provided from India and used outside India as seen from the amended rules (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 9.7 In the instant case, admittedly, the services are not provided from India but are provided from their subsidiary units situated in Australia, USA and China. Even with regard to the payments, the Commissioner (Appeals) has observed that the remittances for the output services that were rendered by establishments situated outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas transactions liable to tax in India. e. Section 64 of the Finance Act, 1994 makes it clear that the Act applies to India. Foreign territories cannot be brought under the taxable jurisdiction of the Indian Government, by virtue of the above mandate read with the provisions of the Indian Constitution. f. A foreign branch is treated as a separate legal entity by Section 66A itself, which is in tune with Section 64, and this being the position, services consumed by and rendered to such a separate entity outside of India jurisdiction, cannot be subjected to tax in India, for mere fund transfers made to such separate entity by the HO which is treated as a different/separate legal entity by the very mandate of Section 66A. The Order-in-Original and show cause notice have in fact brought out the separateness aspect in law, but ignored the legal effect thereof. g. The impugned orders are wrong in assuming that the branches have rendered services to the HO, whereas the branch merely performs the same activity at the behest of the HO, and the HO instead of exporting from India, has an extended arm in the form of branches to perform on-site activities which cannot be taxed in India, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has arisen on two grounds viz. the appellant has incurred foreign exchange expenditure towards services received by sub-contractors/ branches and the payments made by the appellant directly or through branches can be said to have been made for services received. He has observed that services have been received by the appellant from the sub-contractors through their branches only on the ground or on the basis of payments in foreign exchange made. 7.3 We considered a sub-contracting agreement between AG Tech USA Inc. and branch office of the appellant at Plano, TX 6100 Tenniyson Parkway Suite 200 Plano TX 75024 dated 1st January, 2009. In this agreement, the definition of services means the services provided to the appellant s branch. Appellant also produced a sample invoice issued by AG Tech. The invoice dated 2-2-2010 shows that it has been issued by AG Tech to Infosys Technologies Ltd. Branch Office at Plano and heading is US sub-contractor payments. The charges made are towards consultancy charges in relation to DBA support for SAP Basis. Another invoice in relation to Purchase Order dated 31-12-2009 also is similarly made on the branch office of Infosys. 7.4 Another sub-contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore the fact that appellants have made payment from EEFC account and not from funds in the hands of Infosys in India would go to show that whatever payments were made were made from export earnings only. This would mean that services were paid for by the earnings abroad. In a similar case in the case of KPIT Cummins Infosystems Ltd. v. CCE, Pune-I in the Final Order No. A/676/2013/CSTB/C-I, dated 6-3-2013 [2014 (33) S.T.R. 105 (Tri.-Mum.)], the Tribunal had taken the view that in such cases there will be no liability of Service Tax on the assessee in India as a receiver of service. In that case in Para 5.1 the Tribunal observed as follows :- 5.1 The provisions of Section 66A are attracted only when services are received in India by a person situated in India even if such persons may have permanent establishment abroad. In the present case, the appellant has provided services through their branches abroad to customer located abroad. Therefore, it is not a case of the appellant receiving the services but it is a question of rendering services abroad. Further, the appellant has not made any payments for the receipt of any services whereas on the other hand, the appellant has receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the assessee gets the job done through these branches. The branches in turn use the service of sub-contractors and get the job done. The payments to the sub-contractors are done by the assessee through their EEFC account in foreign currency. It is evident from the trail of transaction that services are received by the assessee from the sub-contractors through their overseas branches and payments have been made by the assessee to the overseas sub-contractors. Hence services have been received by the assessee through their overseas branches and payments for such services have been made by the assessee which is evident from the expenditure incurred to the tune of Rs. 259,08,53,512/- for the period from 16-5-2008 to 31-3-2009. When this is compared with paragraph 71, it can be seen that except omission of some words which does not affect the contents and substance at all, the same is reproduced as findings. This is the reason why there is no discussion about the agreement or invoice or the taxable event in the impugned order. Again in paragraph 75, the conclusion has been reached after reproducing statutory provisions and the conclusion is the reproduction of a portion of subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations and discussions, we find that Revenue has not been able to show that ITSS has been received through their branch office in India and in the absence of receipt of service, in our opinion, there is no taxable event and therefore there is no liability on the receiver to pay tax. Therefore, the entire demand of Rs. 132,35,71,266/- cannot be sustained and has to be set aside and is set aside. 10.1 The Tribunal with regard to payment of Service Tax at para 7.5 observed that: If the service has been rendered in USA or Canada received by the branch office of the appellant in USA or Canada and utilised by the branch office at USA or Canada and paid for out of the foreign exchange earned, unless the Revenue is able to show that the service has been received in India, or the benefit of service rendered abroad has been received in India, the tax, in our opinion, would not be payable . On the same analogy, Infosys India and Infosys Australia are two different entities independent of each other and the services rendered by Infosys Australia cannot be deemed to have rendered from Infosys India when the payments for such services are also received by Infosys Australia and not by Infos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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