Custom, Excise & Service Tax Tribunal
Pune Iii vs Hsbc Software Development (India) Pvt. ... on 19 August, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/269/2011
CROSS-OBJECTION NO: E/CO-55/2011
[Arising out of Order-in-Original No: 9-14/P-III/STC/COMMR/2010-11 dated 02/02/2011passed by the Commissioner of Central Excise, Pune III.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Commissioner of Central Excise
Pune III
Appellant
versus
HSBC Software Development (India) Pvt. Ltd.
Respondent
Appearance:
Ms P V Sekhar, Commissioner (AR) for the appellant Shri Harish Bindumadhavan, Advocate for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 19/08/2015 Date of decision: 19/08/2015 ORDER NO: ____________________________ Per: C J Mathew:
Appeal is filed by Revenue against order-in-original no. 9-14/P-III/STC/COMMR/2010-11 dated 2nd February 2011 passed by Commissioner of Central Excise, Pune III covering six show cause notices in connection with 369 projects executed by the respondent, M/s HSBC Software Development (India) Pvt Ltd.
2. The impugned order has confirmed tax demand of ` 5,42,40,164/- while dropping the demand for ` 1,27,12,457/- in show cause notice dated 5th August 2008 and dropping proceedings entirely in the other five show cause notices. The dropped demand in the first show cause notice relates to technical testing and analysis service while the confirmed demand relates to maintenance or repair service and Revenue seeks quashing of that portion of the demands that were dropped and setting aside the recourse to section 80 of Finance Act, 1994 in the impugned order. M/s HSBC Software Development (India) Pvt Ltd has filed cross-objection under section 86(4) of the Finance Act, 1994 and accordingly this is also taken up as an appeal filed by the assessee.
3. M/s HSBC Software Development (India) Pvt Ltd undertakes software development and software implementation for the HSBC group companies across the globe. In the course of handling these projects, their activities include technical testing and analysis agency service and maintenance and repair service. In terms of the Export of Service Rules, 2005 which has, with effect from 15th March 2005, fine-tuned the ambit of export of services beyond the hitherto existing concept of receipt of consideration in convertible foreign currency, show cause notices (i) dated 5th August 2008 for the period from April 2005 to September 2007 20 for demand of ` 6,69,52,621/- (Rs 1,27,12,457 under technical testing and agency service and Rs 5,42,40,164 under maintenance and repair service ), (ii) dated 15th April 2009 for the period from October 2007 to March 2008 for demand of ` 65,91,310/- under technical testing and agency service, (iii) dated 20th April 2009 for March 2008 for demand of ` 45,42,812/- under maintenance and repair service, (iv) dated 23rd October 2009 for the period from April 2008 to March 2009 for demand of Rs 1,27,68,912 under technical testing agency service, (v) dated 22nd October 2009 covering the period from April 2008 to September 2008 for demand of Rs 81,13,754 under maintenance and repair service and (vi) dated 15th April 2010 covering the period from October 2008 to March 2009 for demand of Rs 1,31,12,461 under maintenance and repair service were issued. Revenue contends, in the grounds of appeal, that the adjudicating authority has not considered the specific requirement as per Rule 3(1)(ii) of Export of Service Rules, 2005 that performance of service , even partly, out of India is a necessary condition for treating the rendition of both these services as exports. It is claimed that the activities in relation to testing of software and maintenance/repair of software is executed off-site i.e from India and hence the services are taxable.
4. According to the respondent in appeal of Revenue, 97% of their services are rendered to foreign clients and are provided by accessing the server/system of the client located outside India through internet and that, to the extent that these services have the effect of making the software functional at the clients end, at least a part of the service is performed outside India. According to the assessee, the reasoning of the adjudicating authority was no less applicable for the period prior to 1st March 2008 also in relation to management, maintenance or repair service.
5. Learned Authorized Representative has taken us through the various allegations in the show cause notices and the specific grounds on which appeal has been preferred. Learned Counsel for the respondent cited the decision of the Honble High Court of Bombay in Commissioner of Service Tax v SGS India Pvt Ltd [2014(34)STR 554 (Bom)], and those of this Tribunal in Commissioner of Service Tax, Ahmedabad v BA Research India Ltd [2010(18)STR 439 (Tri-Ahd)] which was followed in Commissioner of Central Excise Ludhiana v Nestle India Ltd [2014(36)STR 563(Tri-Del)], in C3i Consultants India Pvt Ltd v Commissioner of Central Excise, Customs & Service Tax, Hyderabad II [2014 (35) STR 556 (Tri-Bang)] and in Commissioner of Central Excise, Pune v Aztecsoft Ltd [2014(33) STR 257 (Tri-Mumbai)].
6. We have considered the rival submissions and contentions. On a careful perusal of the grounds of appeal, we note that the cogent are reasoned findings of the adjudicating authority, in relation to technical testing and analysis service and management, maintenance and repair service for the period after 1st March 2008, have not, even peripherally, been countered in the grounds of appeal. Mere assertion that performance in India is the meaning assigned to it by the reviewing Committee will not suffice to overrule the provisions of the law and precedent judgements examined in the impugned order. Indubitably, the incorporation of information technology software in section 65 (106) of Finance Act, 1994 defining technical testing and analysis can have no implication other than it being outside the tax net prior to 16th May 2008. That the activity of the respondent is in relation to software has been accepted by Revenue. The reliance placed by the original authority on the amendment to the statutory provision with effect from 1st March 2008 viz. second proviso to Rule 3(1)(ii) of Export of Service Rules, 2005 deeming the use of internet and electronic network in relation to certain specified services performed on goods et al located outside to drop the demands for the period after the amendment can only be endorsed. When there is a specific deeming of exports in a particular circumstance that squarely fits the activities of the respondent, reference to the meaning of a specific phrase in the general provision is irrelevant.
7. We now turn to the taxability of management, maintenance or repair service rendered by the respondent prior to the amendment of Export of Service Rules, 2005 discussed supra. That export of taxes along with commodity or invisible exports renders them unviable in the international market place and handicaps exporters, so vital to robustness of the domestic economy, is an accepted parameter that governments build into policy and framework of taxation. Consequently, within the rigour of tax administration, the tax collector is mandated assume the existence of such relief to the exporter, identify it and apply it to the assessment instead of relying upon the first provision or construct available to deny that relief. This is the fundamental principle evident in the various decisions of the Tribunal cited supra: that except in few commodities or services, and with deliberate intent, some instrument is promulgated by government to ensure non-taxability of exports.
8. Whether it is technical testing and analysis or management, maintenance or repair that is performed on software of the clients of the respondent, it is accepted that expert employees sitting in India have to access the servers/computer networks abroad. The performance of these operations is manifested in the efficient and smooth working of the software in the operations of the client. The location of the client cannot be uncoupled from the performance of the service. And as at least some portion of the service is, thereby, rendered outside the country and hence renders these services outside the ambit of taxation even before 1st March 2008. The Honble High Court of Bombay in Commissioner of Service Tax v SGS India Pvt Ltd [2014(34)STR 554 (Bom)] has clarified the range of activities in rendering such services thus:
18.?The Tribunal has found that the clients of the respondents are located abroad. The tests reports may have been prepared in India. The tests may have been conducted in India. However, the certificates have been forwarded to the clients of the respondent abroad. It is in such circumstances the Tribunal concluded that the facts in the case of Commissioner of Service Tax, Ahmedabad v. M/s. B.A. Research India Limited which is a Tribunals decision and reported in 2010 (18) S.T.R. 439 (Tribunal-Ahmedabad) which was followed by the Tribunals single member in the case of KSH International Pvt. Ltd. v. Commissioner of Central Excise, Belapur reported in 2010 (18) S.T.R. 404 (Tribunal-Mumbai) are identical.
19.?The respondent before us had exported the services by way of testing and analysis in India and transmitting the test report/analysis report to the foreign clients. The service was complete when the report was delivered to the foreign client. Since the delivery of the report to the foreign client was considered to be an essential part of the service that the demand of Service Tax was set aside.
20.?This view of the Tribunal is in accord with the statutory provision and particularly the circular relied upon. In the circular which is relied upon and at page 17 of the paper book, the Government of India in the Ministry of Finance (Department of Revenue) exempted the taxable service specified in sub-section (48) of Section 65 of the Finance Act, 1994 provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the Service Tax leviable thereon under Section 66 of the said Act. The proviso to this exemption notification is not attracted to facts of our case. It is conceded before us that the respondent received payment in India in convertible foreign exchange and that this payment is not repatriated by the respondent from or sent outside India.
21.?
22.?
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24.?In the present case, the Tribunal has found that the assessee like the respondent rendered services, but they were consumed abroad. The clients of the respondents used the services of the respondent in inspection/test analysis of the goods which the clients located abroad intended to import from India. In other words, the clients abroad were desirous of confirming the fact as to whether the goods imported complied with requisite specifications and standards. Thus, client of the respondent located abroad engaged the services of the respondent for inspection and testing the goods. The goods were tested by the respondents in India. The goods were available or their samples were drawn for such testing and analysis in India. However, the report of such tests and analysis was sent abroad. The clients of the respondent were foreign clients, paid the respondent for such services rendered, in foreign convertible currency. It is in that sense that the Tribunal holds that the benefit of the services accrued to the foreign clients outside India. This is termed as export of service. In these circumstances, the Tribunal takes a view that if services were rendered to such foreign clients located abroad, then, the act can be termed as export of service. Such an act does not invite a Service Tax liability. The Tribunal relied upon the circulars issued and prior thereto the view taken by it in the case of KSH International Pvt. Ltd. v. Commissioner and B.A. Research India Ltd. The case of the present respondent was said to be covered by orders in these two cases. To our mind, once the Honble Supreme Court has taken the view that Service Tax is a value added tax which in turn is destination based consumption tax in the sense that it taxes non-commercial activities and is not a charge on the business, but on the consumer, then, it is leviable only on services provided within the country. It is this finding and conclusion of the Honble Supreme Court which has been applied by the Tribunal in the facts and circumstances of the present case.
25.?The view taken by the Tribunal therefore, cannot be said to be perverse or vitiated by an error of law apparent on the face of the record.
9. Accordingly the truncated demand for tax and interest in the impugned order does not also survive. The question of penalties does not arise. For these reasons the appeal of Revenue is rejected and that of assessee is allowed.
(Pronounced in Court) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 10