Custom, Excise & Service Tax Tribunal
M/S. Support.Com India Pvt. Ltd vs The Commissioner Of Service Tax on 27 June, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: ST/20175 to 20184/2017-SM; ST/20914/2016 [Arising out of (i) Order-in-Appeal No. 1726 to 1735/2016 dated 7.12.2016 & (ii) Order-in-Appeal No.651/2016 dated 10.5.2016; both passed by the Commissioner of Service Tax (Appeals), Bangalore.] M/s. Support.com India Pvt. Ltd. 3rd Floor, Salapuria Senate Koramangala Industrial Layout 4th Cross, 5th Block, Koramangala Bangalore 560 095. Appellant(s) Versus The Commissioner of Service Tax Commissionerate-II TTMC/BMTC Building, 3rd Floor Above BMTC Bus Stand, Domlur Bangalore 560 071. Respondent(s)
Appearance:
Mr. K. Krishnamurthy, Consultant For the Appellant Mr. Parasivamurthy N.K, AR For the Respondent Date of Hearing: 21.06.2017 Date of Decision: 27.06.2017 CORAM:
HON'BLE SHRI S.S GARG, JUDICIAL MEMBER Final Order No. _20964 - 20974_ / 2017 Per : S.S GARG The appellants have filed these 11 appeals against the impugned order dated 7.12.2016 and 10.5.2016 passed by the Commissioner (A) whereby the Commissioner (A) has upheld the Orders-in-Original and rejected the appeals of the appellant. The issue in all the 11 appeals is common and therefore, all the 11 appeals are being disposed of by this common order.
2. For the sake of convenience, the facts of appeal No. E/20175/2017 are taken.
2.1 Briefly the facts of the case are that the appellant is registered with the Service Tax Department for providing taxable services i.e., Information Technology Software Services and also registered with the Software Technology Park of India (STPI) as a 100% Export Oriented Unit (EOU). Appellants have filed refund claim for Rs.4,81,361/- for the period January 2013 to March 2013 being unutilised CENVAT credit paid on inputs services used for providing the output services exported under Rule 5 of CENVAT Credit Rules (CCR), read with Notification No.5/2006-CE dated 14.3.2006 as amended from time to time. The refund claim was rejected by the Assistant Commissioner on the ground that as per FIRCs, the payment is received in Indian rupees and hence Rule 3(2)(b) of Export of Service Rules, 2005 is not satisfied. Aggrieved by the said order, the appellant filed appeal before the Commissioner (A) on the ground that the realisation is in foreign exchange so as to protect from the exchange rate fluctuations for which their bankers had been instructed by them to convert foreign exchange realisation into Indian rupee and credit to their account. The Commissioner (A) upheld the order of the lower authority and rejected the appeal and hence, the present appeals.
3. Heard both the parties and perused the material on record.
4. Learned consultant for the appellant submitted that the impugned order rejecting the refund only on the ground that payments have been received in Indian rupee which does not satisfy the requirement of Rule 3(2)(b) of Export of Service Rules, 2005 and therefore, the appellants are not entitled to refund. He further submitted that impugned order is contrary to the binding judicial precedent on the same issue. He further submitted that the appellants have realised the entire proceeds in the Indian rupees as permitted by Reserve Bank of India. Further, the appellants have submitted the Certificate of Foreign Inward Remittances issued by their banker. He also submitted that in view of the exchange rate fluctuations, the appellants have instructed their bankers to convert the foreign exchange realisation into Indian rupees and credit their account in Indian rupees. Appellants have also referred to various provisions of The Foreign Exchange Management Act, 1999 to canvass their argument that the Reserve Bank of India permits the appellant to receive the remittances in Indian rupee. He further submitted that this issue has been considered by the Tribunal in various decisions and it has been consistently held that if the payment is received in Indian rupee for which FIRC issued by the Bank and the payment is routed through foreign bank, then in that case it satisfies the condition of payment in convertible foreign exchange. In support of this submission, he relied upon the following decisions:
* BNY Mellon International Operations (I) Pvt. Ltd. vs. CCE, Pune-III: 2016-TIOL-2828-CESTAT-MUM.
* CST, Mumbai vs. M/s. PMI Organisation Centre Pvt. Ltd.: 2015-TIOL-2570-CESTAT-MUM * M/s. AGM India Advisors Pvt. Ltd. vs. CST, Mumbai-I: 2015-TIOL-2775-CESTAT-MUM.
* M/s. Affinity Express India Pvt. Ltd. vs. CCE, Pune-I: 2015-TIOL-2441-CESTAT-MUM.
* Sun-Areas Real Estate Pvt. Ltd. vs. CST, Mumbai-I: 2015-TIOL-956-CESTAT-MUM.
He further submitted that there is no dispute about the export of services and also there is no dispute that the input services, for which the appellant claim refund are not used in providing output service.
5. On the other hand, the learned AR defended the impugned orders and submitted that in the present cases, the remittances have been received in Indian rupee and not in convertible foreign exchange and the same is in violation of the conditions laid under Rule 3(2)(b) of Export of Service Rules, 2005.
6. After considering the submissions of both the parties and perusal of the material on record, and the various judgments relied upon by the appellant, I find that this issue has been considered by various Benches of the Tribunal and it has been held consistently held that merely because payment is received in Indian rupee, it cannot be said that payment against export has not been received in convertible foreign exchange as provided in Export of Service Rules, 2005. Since the Indian rupee is received from the recipient of services through their foreign bank, Silicon Valley Bank of USA, the receipt of Indian rupee shall be treated as convertible foreign exchange. Further, it is also clearly certified in the FIRC issued by the Standard Chartered Bank that remittances are in convertible foreign exchange. In the case of CST vs. PMI Organization Centre Pvt. Ltd. cited supra, the Tribunal in Para 6 has observed as under:
6. From the records, I find that it is apparent that except two invoices No. 10/2009 dated 31/10/2009 and 11/2009 dated 31/11/2009 in all other cases refund were filed within one year from the date of receipt of foreign remittance towards services provided, therefore I find that only refund claim on these two invoices are not admissible and in rest of cases refund is well within time limit prescribed, therefore remaining refund claim is admissible. As regard payment received in Indian Rupees, I am of the view that merely because the payment is received in Indian Rupees it cannot be said that payment against export has not been received in Convertible Foreign exchange, as provided in the Export of Services Rules, 2005. Since the Indian Rupees is received from the recipient of the services through their foreign bank i.e. Wachovia Bank N.A. USA receipt of Indian Rupees shall be treated as 'convertible foreign exchange'. It also clearly certified in the FIRC issued by the HDFC Bank that remittance is in convertible foreign exchange. This Tribunal in the case of Sun-Area Real Estate Pvt Ltd vs. Commissioner of Service Tax, Mumbai-I - 2015-TIOL-956-CESTAT-MUM giving detailed findings held that Indian Rupees received against export of services through foreign bank is convertible foreign exchange and the same is in compliance of the condition provided in the Export of Services Rules, 2005. The relevant paras of the order of Sun-Area Real Estate Pvt Ltd case are reproduced below:
"5. I have carefully considered the submissions made by both the sides. It is not in dispute that the remittance towards the payment of service was received in Indian rupees. However, though the payment is received in Indian rupees but the bank has issued "Foreign Inward Remittance Certificate". Clause 3A.6(i) of the Exchange Control Manual is reproduced below:
"3A.6 (i) Authorised dealers should issue certificates in form BCI against receipt of inward remittances or realisation of foreign exchange on security paper if the amount exceeds Rs.15,000/- in value, bearing distinctive serial numbers and reference numbers. In case the amount of inward remittance or realisation of foreign exchange is upto Rs.15,000/-certificates in form BCI with serial numbers and reference numbers may be issued on the letter-head of the authorised dealer (with their 'Logo' printed on it). Since inward remittances received for opening of or credit of Non-Resident (External) accounts/FCNR accounts can be repatriated freely, authorised dealers should not issue certificates against such remittances."
6. From the above provision it is clear that Foreign Inward Remittance Certificate (FIRC) is issued only in respect of foreign exchange. In the present case, FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees, which establishes that the payment received and mentioned in the FIRCs are other than non-convertible foreign exchange, in other words, the payment is in convertible foreign exchange. I have gone through the Notification No. FEMA 9/2000-RB dated 3rd May, 2000, the relevant para No.4 of the said Notification is reproduced below:
"4. Manner of Repatriation :-
(1) On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring into, or receive in, India and-
(a) sell it to an authorised person in India in exchange for rupees; or
(b) retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve Bank; or
(c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the manner specified by the Reserve Bank.
(2) A person shall be deemed to have repatriated the realised foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorised dealer."
From the sub-para (2) of para 4 above it is very clear that, when a person receives in India payment in rupees from the account of a bank situated in any country outside India maintained with an authorised dealer, the payment in rupees shall be deemed to have repatriated the realized foreign exchange to India. In the present case, the payment in Indian rupees was received from foreign country through Deutsche Bank. Therefore, the said Indian rupee is nothing but foreign exchange repatriated from foreign country to India. Therefore, such payment in rupees is equal to the foreign exchange. The manner of receipt of foreign exchange is provided under Notification No. FEMA 14/2000-RB dated 03/05/2000 issued by Reserve Bank of India. Regulation No.3 of the said Notification is reproduced below:
3. Manner of Receipt in Foreign Exchange:-
(1) Every receipt in foreign exchange by an authorised dealer, whether by way of remittance from a foreign country (other than Nepal and Bhutan) or by way of reimbursement from his branch or correspondent outside India against payment for export from India, or against any other payment, shall be as mentioned below:
Group Manner of receipt of foreign exchange (1) member countries in the Asian Clearing Union (except Nepal) namely, Bangladesh. Islamic Republic of Iran, Myanmar, Pakistan and Sri Lanka
a) payment for all eligible current transactions by debit to the Asian Clearing Union dollar account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the Asian Clearing Union dollar account of the authorised dealer maintained with the correspondent bank in the member country; and
b) payment in any permitted currency in all other cases (2) all countries other than those mentioned in (1).
a) payment in rupees from the account of a bank situated in any country other than a member country of Asian Clearing Union or Nepal or Bhutan; or
b) payment in any permitted currency (2) In respect of an export from India, payment shall be received in a currency appropriate to the place of final destination as mentioned in the declaration form irrespective of the country of residence of the buyer."
7. From the above regulation and serial No. (2) of the Table, it is very clear that the payment in rupees from the account of a bank situated in any country (other than a member country of Asian Clearing Union or Nepal or Bhutan) is a manner of receipt of foreign exchange. In the present case, as evident that the Indian rupees was received thru the account of Deutsche Bank which is situated in foreign country. Therefore, in terms of Regulation 3 made under Section 47 of the Foreign Exchange Management Act, 1999, in the present case the foreign remittance in Indian rupees through Deutsche Bank is the receipt of payment in convertible foreign exchange.
8. I have gone through the hon'ble Supreme Court's judgment in the case of J.B. Boda a nd Company (supra) wherein it was held that:
"12. The facts brought out in this case, are clear as to how the remittance to the foreign reinsurance company is made through the Reserve Bank of India in conformity with the agreement between the appellant and the foreign reinsurer, and that the remittance that the amount due to the foreign re-insurers as also the brokerage due to the appellant and the balance due to the foreign reinsurer is remitted (and expressed so) in dollars. It is common ground that the entire transaction effected through the media of the Reserve Bank of India is expressed in foreign exchange and in effect the retention of the fee due to the appellant Is dollars for the services rendered. This, according to us, is receipt of income in convertible foreign exchange. It seems to us that a "two way traffic", is unnecessary. To insist on a formal remittance to the foreign reinsures first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case. On a perusal of the nature of the transaction and in particular the statement of remittance filed in the Reserve Bank of India regarding the transaction filed in the Reserve Bank of India regarding the transaction, we are unable to uphold the view of the respondent that the income under the agreement is generated in India or that the amount is one not received in convertible foreign exchange. We are of the view that the income is received in India in convertible foreign exchange, in a lawful and permissible manner through the premier institution concerned with the subject-matter - the Reserve Bank of India.
In this view, we hold that the proceedings of the Central Board of Direct Taxes dated 11.3.1986, declining to approve the agreements of the appellant with M/s Sedgwick offshore Resources Ltd. London for the purposes of section 80-0 of the Income-tax Act, are improper and illegal. We declare so. we direct the respondent to process the agreements in the light of the principles laid down by us herein above. The appeal is allowed. There shall be no order as to costs."
9. From the above judgment it is observed that out of the total payment to be made by the insurance broker in India to the foreign insurer was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in the foreign exchange. The issue was whether the brokerage in Indian rupees retained by the Indian Insurance broker shall be treated as foreign exchange or otherwise. The hon'ble Supreme Court has held that the said amount of brokerage retained by the Indian insurance broker from the total amount due to the foreign insurer shall be treated as foreign exchange. In view of the above judgment, I am of the view that when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. For example, if any payment is made from India to any foreign country, it is to be made in foreign exchange and thus there is a outflow of foreign exchange but if the payment is made in Indian rupees, there is a saving of foreign exchange and if the said Indian rupees is received in India, the same is in lieu of foreign exchange which was saved at the time of repatriation of Indian rupees to foreign country. On this logic under the Foreign Exchange Management Act also it provided that if the payment in India rupees is received in India through banking channel it is deemed to be convertible foreign exchange.
10. As regard the judgments relied upon by the learned counsel, I have gone through the same. However, same are need not be discussed, in view of my above discussion and the statutory provisions of the Foreign Exchange Management Act and hon'ble Supreme Court's judgment, I am of the considered view that even though the appellant received the payment in Indian rupees but the same is deemed to be convertible foreign exchange and accordingly the condition as provided under Rule 3(ii) of Export of Service Rules, 2005 stand complied with. The appellant filed the appeal in respect of the total amount of Rs. 12,62,158/-. However, from the Order-in-Appeal, I find that an amount of Rs. 1,64,081/- was held as admissible. Therefore, the appellant should not be aggrieved with this part of the amount.
11. On the other issues of admissibility of input service credit in respect of security services and air travel services, first of all, this issue of admissibility as input service was not raised in the show cause notice. Therefore, denial of refund of Rs.7,747/- and Rs. 1,051/-respectively is not correct. Secondly, the appellant is providing export services and for which they are using security services and air travel services, which in my view, has a direct nexus with the export services, accordingly the same are admissible input services.
12. In view of my above discussion, I am of the considered view that the impugned order deserves to be modified inasmuch as the impugned order in respect of Rs.1,64,081/- is upheld and the order rejecting refund of an amount of Rs. 10,98,077/- is set aside.
6.1 Further, in the case of Nipuna Services Ltd. vs. CCE: 2009 (14) STR 706 (Tri.-Bang.) wherein it is held that Revenue is denying the refund for the simple reason that the appellant themselves had not directly received the payment in foreign currency. In our view, the stand of the Revenue is not sustainable. If Revenues contention is accepted, it amounts to levying service tax on services exported. It is axiomatic that goods and services exported would not be subjected to local taxes. Denying the refund would violate this fundamental principle of taxation.
6.2 Further, in the case of Sun-Areas Real Estate Pvt. Ltd. cited supra, it has been held that even though the appellant received the payment in Indian rupees but in view of the FEMA Notifications issued by the RBI, the same is deemed to be in convertible foreign exchange and accordingly the condition as provided under Rule 3(2) of Export of Service Rules, 2005 stands complied.
7. From the above decisions of the Tribunal, it is clear that payment received in Indian rupee for which FIRC issued by the Standard Chartered Bank and the payment is routed through foreign bank, shall fulfil the condition of payment (convertible foreign exchange) and therefore, the denial of refund on this ground is not sustainable. In view of my discussions above, I am of the considered view that the impugned orders are not sustainable in law and therefore, I set aside the same by allowing all the appeals, with consequential relief, if any.
(Order was pronounced in open court on 27/06/2017.) S.S GARG JUDICIAL MEMBER rv 2 1