Custom, Excise & Service Tax Tribunal
Ford India Private Ltd vs Commissioner Of Central Excise-Ltu, ... on 8 March, 2010
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No.ST/MISC/255/09, ST/S/119/09 & ST/198/09
[Arising out of Order-in-Original No.LTUC/205/2008-C dated 29.12.08 passed by the Commissioner of Central Excise, LTC, Chennai]
For approval and signature:
Honble Ms.JYOTI BALASUNDARAM, Vice-President
Honble Dr. CHITTARANJAN SATAPATHY, Technical Member
1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? :
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? :
3. Whether the Members wish to see the fair copy of
the Order? :
4. Whether Order is to be circulated to the Departmental
Authorities? :
Ford India Private Ltd.
Appellant/s
Versus
Commissioner of Central Excise-LTU, Chennai
Respondent/s
Appearance :
Shri Sriprakash, Advocate Sri Savith V.Gopal, Advocate Shri V.V.Hariharan, JCDR For the Appellant/s For the Respondent/s CORAM:
Honble Ms.Jyoti Balasundaram, Vice-President Honble Dr. Chittaranjan Satapathy, Technical Member Date of hearing : 8.3.2010 Date of decision : 8.3.2010 Final Order No.____________ Per Jyoti Balasundaram After hearing both sides for some time on the application for waiver of predeposit of service tax together with interest and penalties, we found that it was possible to decide the appeal itself at this stage and hence proceeded to do so with the consent of both sides, after granting the prayer for stay.
2. The brief facts of the case are that during the period 1.7.04 to 18.4.06 the appellants, who are engaged in the manufacture of passenger cars and are registered Central Excise assessees, provided low cost sourcing and supply chain management services (hereinafter referred to as services) to M/s.Ford Motor Co., USA (hereinafter referred to as FMC) that involved evaluation of prospective vendors/manufacturers and reports of such evaluation were sent by them to FMC which thereafter had the option/discretion to choose any of the vendors in respect of whom reports were submitted by the appellants. As and when FMC decided upon a particular vendor/manufacturer in India, they directly placed purchase orders on such vendors /manufacturers, and consideration for such sale was directly received by the vendors/manufacturers from FMC. For the services of evaluation and identification of prospective vendors/manufacturers, the appellants raised manual debit notes upon FMC and FMC effected payments to the appellants in convertible foreign exchange. Upto the period 3.3.05, the appellants claimed the benefit of exemption in terms of Notification No.21/03-ST dt. 20.11.03 and for the period 3.3.05 to 18.4.06, the appellants proceeded on the basis that they were not liable to pay service tax, in view of Export of Service Rules, 2005. The department, however, was of the view that above mentioned service fell under the category of Business Auxiliary Service as per Section 65 (19) of the Finance Act, 1994 and not covered under the Export of Service Rules, 2005 which came into effect from 15.3.05. Hence a show-cause notice dt. 13.3.08 was issued proposing levy of service tax and interest and imposition of penalties upon the appellants. The notice was adjudicated by the Commissioner, confirming the demand of Rs.90,19,554/- (Service tax of Rs.88,42,700 + Education Cess of Rs.1,76,854) as raised in the notice, together with interest at appropriate rates and imposed penalty at the appropriate rate under Section 76 and penalty equal to the tax amount under Section 78 of the Finance Act, 1994. Hence this appeal.
3. We have heard both sides. The issues in dispute are whether services rendered during the year 2005-06 (prior to 19.4.06 from which date the assessees started paying service tax) would fall within the scope of the Export of Service Rules, 2005, and whether the amounts received during the year 2005-06 in respect of services rendered prior to 15.3.05 would be eligible for exemption under Notification No.21/03 dt. 20.11.03 inasmuch as the amounts had been received in convertible foreign exchange.
4. Export of Service Rules were introduced vide Notification No.9/2005 dt. 3.3.2005. Rule 3 (3) reads as under :-
(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 immovable 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 provision of 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.;
The rules were amended w.e.f. 16.6.2005 vide Notification No.28/2005-ST dt.7.6.05 whereby no major change was effected to sub-rule 3(3). Vide Notification No.13/2006-ST dt. 19.4.06, new Rule 3 replaced the old one and the new rule reads as under :-
(1) Export of taxable services, shall in relation to taxable services
(i) .
(ii) .
(iii) specified in clause (105) of section 65 of the Act, but excluding, -
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (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 table 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.
5. The Commissioner had called for copies of the agreement between Ford and foreign entity, purchase order received therefrom, invoice raised on the foreign entity and document evidencing receipt of consideration in foreign exchange. Based on the documents furnished as above, the Commissioner has come to the conclusion that personnel have been hired locally to perform the job of low cast sourcing and supply chain management in India and has concluded that a separate MIS office of the foreign client in India on whom bills have been raised, existed, so as to apply the proviso to Rule 3 (3) and since the assessees did not fulfil the condition prescribed in the proviso that the order for rendering of service should have been made from the office of the foreign client outside India and the service should have been delivered and used outside India, they were not covered under the Export of Service Rules and, therefore, the assessees were liable to pay service tax.
The plea of the assessees that the impugned order has been passed in contravention of the principles of natural justice for the reason that they were not heard on the question as to whether the recipient of their services had a commercial or industrial establishment or office in India merits acceptance. It is their submission, as brought out in the MISC application, that recipient abroad did not have office in India. In this connection, an affidavit of Shri Preetam Singh Khera, India Tax Manager of the assessees has been filed. The affidavit is reproduced herein below :-
I, Preetam Singh Khera, son of late Shri Harbhajan Singh Khera, aged about 38 years, residing at Block No.5, Flat No.1C, Ceebros Orchid, Velachery Main Road, Chennai-42, do hereby solemnly affirm and sincerely state as follows :-
1. I am the India Tax Manager of the Appellant-herein and know the facts of the case.
2. I submit that the data base of the Appellant is divided into three categories.
i. Car Data Base ii. Parts Data Base iii. Non-production Data Base Each of the aforesaid data bases contain the following details:
Car Data Base: Here, details of all direct expenses and income from sale of cars are recorded. Every account has always had a separate code and data base. As a result, all transactions are recorded based on such separate codes and accounts. Under this category, there has always been a specific code and account for M/s.Ford Motor Company, U.S.A (hereinafter referred to as FMC). That code is US.
Parts Data Base: Here details with respect to all direct expenses and income from sales of car parts are recorded. In this case also, every account has always had a separate code. Transactions are recorded on the basis of such distinct codes and accounts.
Non-production Data Base: Here, details of all indirect expenses incurred in connection with the production of cars are recorded. Besides, details of other income are also recorded. Other income included in income from sources other than income from sale of cars and parts. Income from low cost sourcing and supply chain management services (LCS/SCM) provided to FMC was recorded under this data base. This database, did not have specific codes for some customers including M/s.FMC. Name of one such customer is illustrated hereunder :
1. Easa mohideen, Pune In such cases, the computer generated debit memos had employed the words MIS supplier, Chennai, India. One such computer generated debit memo raised on Easa Mohideen, Pune is annexed to this affidavit. The application is allowed by taking on record the above affidavit. The interest of justice require that the case be decided afresh by the adjudicating authority after extending reasonable opportunity to the assessees to explain the significance of the documents produced by them in response to the Commissioners e-mails dt. 12.11.08, 20.11.08 and 25.11.08 and to satisfy the adjudicating authority that the foreign recipient did not have any commercial or industrial establishment or office in India. We, therefore, set aside the impugned order and remit the case to the jurisdictional Commissioner for fresh decision in the light of the above directions. The assessees are at liberty to raise all pleas including that of limitation. Fresh orders shall be passed after extending sufficient opportunity to the assessees of being heard in their defence.
6. The appeal is thus allowed by way of remand.
(Operative part of the order was pronounced
in open court 8.3.2010)
(Dr.CHITTARANJAN SATAPATHY) (JYOTI BALASUNDARAM)
TECHNICAL MEMBER VICE-PRESIDENT
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