Custom, Excise & Service Tax Tribunal
M/S Paul Merchants Limited vs Cce, Chandigarh on 6 April, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
COURT NO. II
Date of Hearing : 6.4.2011
Date of Pronouncement:
Coram:
Honble Shri D.N. Panda, Judicial Member
Honble Shri Mathew John, Technical Member
1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Whether their Lordships wish to see the fair copy of the order?
4. Whether order is to be circulated to the Department Authorities?
Service Tax Appeal No. 311 of 2009
(Arising out of Order-in-Original No.03/STC/CHD/2009 dated 3rd Feb. 2009 passed by the Commissioner of Central Excise, Chandigarh)
M/s Paul Merchants Limited Appellant
Vs.
CCE, Chandigarh Respondent
Appearance:
Appeared for Appellant : Sh. Joseph Vallaypally, Sr. Advocate, Sh.
S. Malhotra, Advocate, Sh. Regvesh
Singh & Sh. Rajesh Chhibber, Advocates
Appeared for Respondent : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs
Service Tax Appeal No. 285 of 2009
[Arising out of the Order-in-Appeal No. 769/CE/Appl/Jal/2008 dated 16.12.2008 passed by the Commissioner (Appeals), Central Excise, Chandigarh] M/s Banwari Trading Co. Appellant Vs. CCE, Chandigarh Respondent Appearance:
Appeared for Appellant : Shri Atul Khullar, Advocate
Appeared for Respondent : Shri Sumit Kumar, SDR & Sh. B.L.
Soni, SDR
Appeal No. 520 of 2010
M/s Novelty Finance Ltd. Appellant
Vs.
CCE, Chandigarh Respondent
Service Tax Appeal No. 833-837, & 652 of 2008
M/s Bhatia Money Changer Appellants
Shadiram Jagan Nath
Akal Money Changer
Vijay Money Changer
Krishan Money Changer
Vs.
CCE, Jalandhar Respondent
Appearance:
Appeared for Appellant : Sh. Joseph Vallaypally, Sr. Advocate, Sh.
S. Malhotra, Advocate, Sh. Regvesh
Singh & Sh. Rajesh Chhibber, Advocates
Appeared for Respondent : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs
Service Tax Appeal No. 14 of 2009
(Arising out of Order-in-Appeal No. 770/CE/Appl/Jal/08 dated 16.12.2008 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) M/s Sonu Forex Services Appellant Vs. CCE, Jalandhar Respondent Service Tax Appeal No. 423 of 2009 (Arising out of Order-in-Appeal No.21/ST/Appl/Jal/09 dated 26.2.2009 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) M/s Diamond Enterprises Appellant Vs. CCE, Ludhiana Respondent Service Tax Appeal No. 206 of 2010 (Arising out of Order-in-Original No. 43/PKJ/CCE/ADJ/09 dated 29.9.2009 passed by the Commissioner of Central Excise, New Delhi) M/s Transcorp International Ltd. Appellant Vs. CCE, New Delhi Respondent Appearance:
Appeared for Appellant : Sh. Rajesh Chhibber, Advocate Appeared for Respondent : Sh. B.L. Soni, SDR Service Tax Appeal No. 224 of 2010
(Arising out of Order-in-Appeal No. 40/ST/Appl/Chd-II/09 dated 1.1.2010 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) Rana Money Changer Appellant Vs. CCE, Chandigarh Respondent Service Tax Appeal No. 230 of 2010 (Arising out of Order-in-Appeal No. 39/ST/Appl/Chd-II/09 dated 1.1.2010 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) A-One Forex Dealer Appellant Vs. CCE, Chandigarh Respondent Appearance:
Appeared for Appellant : Shri S. Malhotra, Advocate Appeared for Respondent : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Service Tax Appeal No. 10 of 2009
(Arising out of Order-in-Appeal No. 701/CE/Appl/Jal/2008 dated 4.11.2008 passed by the Commissioner (Appeals), Central Excise, Jalandhar) CCE, Jalandhar Appellant Vs. Vijay Money Changer Respondent Service Tax Appeal No. 20 of 2009 (Arising out of Order-in-Appeal No. 752/CE/Appl/Jal/2008 dated 14.11.2008 passed by the Commissioner (Appeals), Central Excise, Jalandhar) CCE, Jalandhar Appellant Vs. M/s Bhatia Money Changer Respondent Service Tax Appeal No. 107 of 2010 (Arising out of Order-in-Appeal No. 204/CE/LDH/2009 dated 12.10.2009 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Paradise Radio Respondent Appearance:
Appeared for Appellant :Shri Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent :None Service Tax Appeal No. 240-241 of 2008
(Arising out of Order-in-Appeal No.162-163/CE/CHD/2008 dated 20.2.2008 passed by the Commissioner (Appeals), Central Excise, Chandigarh) CCE, Chandigarh Appellant Vs. M/s Rambel Consumer Services Respondent M/s Jolly Enterprises Appearance:
Appeared for Appellant : Shri Fateh Singh, SDR Appeared for Respondent : None Service Tax Appeal No. 274-278 of 2010
(Arising out of Order-in-Appeal No. 156-159/CE/LDH/2009 dated 27.8.2009 passed by the Deputy Commissioner, Central Excise, Phagwaea) CCE, Ludhiana Appellant Vs. M/s Ghotra Enterprises Respondents M/s Prince Departmental Store M/s Bagga & Co, M/s Tejinder Medicos Service Tax Appeal No. 298 of 2010 with COD No.75 of 2010 (Arising out of Order-in-Appeal No. 160/CE/LDH/2009 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Sangha Flight Centre Respondent Service Tax Appeal No. 300 of 2010 with COD No. 77 of 2010 (Arising out of Order-in-Appeal No. 119/CE/Ldh/2009 dated 22.6.2009 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Makhija Enterprises Respondent Service Tax Appeal No. 314-315 of 2010 with COD No. 78-79 of 2010 (Arising out of Order-in-Appeal No.138-139/CE/LDH/2009 dated 24.7.09 passed by the Commissioner, Customs & Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Punjab Kashmir Finance Ltd. Respondents M/s PHF Leasing Ltd.
Service Tax Appeal No. 316-317 of 2010 with COD No. 80-81 of 2010 (Arising out of Order-in-Appeal No. 132-133/CE/LDH/2009 DATED 22.7.2009 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Shree Ganesh Hire Purchase Respondents M/s Babu Gift Centre Appearance:
Appeared For Appellant : Shri Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent: Shri Harinder Singh, Advocate Service Tax Appeal No. 321-323 of 2010 with COD No. 84-86 of 2010 (Arising out of Order-in-Appeal No. 153-55/CE/LDH/2009 dated 26.8.2009 passed by the Commissioner (Appeals), Customs & Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Chadha Forex Respondents M/s Krishna Forex M/s Chadha Forex Service Tax Appeal No. 359 of 2010, COD NO. 93 of 2010 and Stay No. 578 of 2010 (Arising out of Order-in-Appeal No., 162/CE/LDH/2009 dated 31.8.09 passed by the Commissioner (Appeals), Central Excise, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Hira Jewellers Respondent Appearance:
Appeared for Appellant : Shri Sumit Kumar & Sh. B.L. Soni, SDRs Service Tax Appeal No. 296-297 of 2010 with Stay No. 526-527 of 2010 (Arising out of Order-in-Appeal No. 136-137/CE/LDH/2009 dated 24.7.2009 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Sharma Enterprises Respondents M/s City Heart Money Changer Service Tax Appeal No. 1085 of 2010 with Stay No. 2175 of 2010 (Arising out of Order-in-Appeal No. 136/CE/LDH/2010 dated 20.4.2010 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Anmol Money Changer Respondents Appearance:
Appeared for Appellant : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent : Sh. S. Malhotra, Advocate Service Tax Appeal No. 802 of 2010 with Stay No. 1504 of 2010
(Arising out of Order-in-Appeal No.253/CE/LDH/2009 dated 10.12.09 passed by the Commissioner of Central Excise, Ludhiana) CCE, Ludhiana Appellant Vs. M/s Capital Photo Store Respondent Appearance:
Appeared for Appellant : Shri Fateh Singh, SDR Appeared for Respondent : Shri Harvinder Singh, Advocate Service Tax Appeal No. 810 of 2010 with Stay No.1538 of 2010
(Arising out of Order-in-Appeal No. 80/CE/LDH/2010 dated 15.3.2010 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Capital Local Area Bank Respondent Appearance:
Appeared for Appellant :Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent :Sh. Harvinder Singh, Advocate Service Tax Appeal No. 388 of 2010
(Arising out of Order-in-Appeal No. 255/CE/LDH/2009 dated 10.12.09 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Modern Sahota Money Changer Respondent Appearance:
Appeared for Appellant : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent : None Service Tax Appeal No. 1019 of 2010
(Arising out of Order-in-Appeal No. 127/CE/LDH/2010 dated 6.4.2010 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s R.K. Enterprises Respondent Appearance:
Appeared for Appellant : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs Appeared for Respondent : None Service Tax Appeal No. 380-381 of 2010
(Arising out of Order-in-Appeal No.03-04/CE/LDH/10 dated 7.1.2010 passed by the Commissioner (Appeals), Central Excise & Customs, Chandigarh) CCE, Ludhiana Appellant Vs. M/s Lovely Money Exchanger Respondents M/s Chawla Forex Appearance:
Appeared for Appellant : Sh. Sumit Kumar & Sh. B.L. Soni, SDRs
Appeared for Respondent : None
Order No.dated.
Per Mathew John:
In this proceeding 10 COD applications, 6 stay applications and 42 appeals are being decided. Out of these 42 Appeals 15 are filed by assesses where the main issue is decided against the assessees and 27 by Department where the main issue was decided against the department. The facts and issues involved are common except that the facts and issues relating to M/s Paul Merchants Ltd (hereinafter referred to as PML) are slightly different from that of others because PML is a main agent to Western Union Network Ltd. (hereinafter referred to as Western Union) and others are sub-agents to PML or to other main agents of Western Union similarly placed as PML. Appeal No. ST-311/2009 filed by PML
2. The dispute relates to the period 01-07-2003 to 30-06-07.
3. PML entered into an agreement with M/s Western Union Network Ltd, Ireland a company engaged in money transfer from persons located in one country to persons located in any country. PML was executing part of the activities, in territory assigned to PML in India, necessary for Western Union to carry out its business. The contract entered into between the two parties deals with remittances from persons abroad to persons located in India as well as remittances from persons located in India to persons located outside India. However it is affirmed by PML that they have not done any business of the latter type because such business requires permissions from RBI which they have not got. So it is asserted that the dispute before the Tribunal is in relation to remittance from persons abroad to persons in India. This statement is not contradicted by Revenue. In this business the person located abroad approaches any of the offices of the Western Union or its agents and give money to be remitted to a person in India. The office abroad charges the person abroad commission for remitting money to India. They convert the foreign exchange into Indian rupees and pay the recipient in India following a system to ensure the identity of the person to whom the money is delivered. No charges are levied from the recipient of money in India. PML gets their remuneration from Western Union by sharing the commission collected from the person abroad. They also make some profits due to changes in exchange rate between the date of receipt of money abroad and date of delivery of equivalent Indian Rupees in India. However this profit is subject to the risk of loss if the exchange rate changes adversely for the Western Union and its agents.
4. PML does some promotional activities like advertising, organizing promotional programs, distributing promotional material etc. The amount incurred by PML for promotional activities was reimbursed by Western Union to the extent of Rs. 1,02,08,980/- during the relevant period. On this amount received service tax amounting to Rs.11,69,838/- is demanded
5. PML appointed sub-agents within the territories allotted to them to establish a large number of outlets in the area to make it easy for the recipient in India to get the money easily without much travel and hassles. PML compensates these sub-agents by sharing the commission received by them from Western Union which commission itself is received from the person located abroad remitting the money to India.
6. The crucial question is whether PML should pay service tax amounting to Rs. 3,23,72,254/- on the commission amounting to 28,10,71,565/-received by them in this business during the period 01-07-2003 to 30-06-07. A Show Cause Notice issued by the Directorate General of Anti-evasion alleging that service tax is to be paid on such commission and re-imbursements has been adjudicated by the impugned order confirming tax demand of Rs.3,35,42,092/-against PML with applicable interest. Penalty equal to the duty confirmed was imposed under section 78 of the Finance Act 1994 in addition to penalties under sections 76 and 77 of the Finance Act. Aggrieved by this order PML is before this Tribunal. The SCN and the impugned order classified the service provided by PML as Business Auxiliary Service as defined under section 65(105) (zzb) of Finance Act, 1994.
7. It may be convenient to record the main points argued by the Appellants before getting into details of the arguments. The main arguments are the following:
(i) The service rendered by them are more akin to Banking and Financial Service and it is covered under this category from 01-05-2006 after amendment made by section 68 of Finance Act 2006 in 65(12) of Finance Act 1994. So it is to be presumed that prior to this date this service was not taxable under Banking and Financial Service or any other entry like Business Auxiliary Service
(ii) Whatever be the classification of services the service was rendered to clients located outside India and hence were exported. There cannot be any service tax on services exported.
(iii) The question whether the services has been exported has been decided by taking law as was in force for a fraction of the period in question and applying it for the entire period ignoring different laws in existence for different periods.
(iv) The demand is time barred because the entire matter arises out of different interpretations of law and not on account of any suppression on the part of PML and hence extended period cannot be invoked.
(v) There is no such demand issued to various banks which were doing the same service during the relevant period.
(vi) No tax has been demanded for services prior to the period specified in the SCN and for period after the period specified in the SCN. The nature of service has remained the same. The laws have changed only marginally by way of some clarificatory amendments. Since no tax is being demanded for the current period it is obvious that Revenue is conceding that the service in question is exported.
Classification of the service during the relevant period
8. As already explained the argument of PML is that their activity is specifically covered under Banking and Financial Services w.e.f 01-05-2006 consequent to amendment carried out by Finance Act, 2006. Since the intrinsic nature of the service is that of Banking and Financial Service and it was not covered till 01-05-06 under the entry for Banking and Financial Service as defined, the service could not have been covered under the heading for Business Auxiliary Service which is in the nature of a residuary heading.
9. Revenue argues that PML was undertaking the service promised by the Western Union to the person remitting money from abroad and thus was doing a services on behalf of their client as envisaged in clause (vi) of section 65(19) of Finance Act, 1994 for Business Auxiliary Service.
10. They further point out that they were doing advertising of the services of Western Union, distributing promotional literature and holding promotional activities as envisaged in clause (ii) of section 65(19) and activities incidental to such promotion as envisaged in clause (vii) of 65(19). The fact that from 01-05-2006 the service is covered by the entry for Banking and Financial Service cannot imply that the service was not covered by another entry for the previous period. This issue has to be seen with reference to the definition of the service for the relevant time.
11. As argued by Revenue, PML was providing service on behalf of Western Union when delivering money to the recipient in India, was providing the service of money transfer undertaken by Western Union abroad when it accepted money from a customer abroad. In fact PML was acting using the name and style of Western Union and there is hardly any scope to doubt the argument that PML was providing service to a customer on behalf of Western Union and their activity came within the definition at clause (vi) of section 65(19). PML was also doing activities of promotion and marketing of services provided by Western Union and hence covered also under clause (ii) of 65(19). However for the period after 01-05-2006, the service is covered under Banking and financial service as defined in 65(105) (zm).
The Issue whether the service provided by PML was exported?
12. Services being intangible, what constitutes export of services is difficult to conceive and define unlike in the case of goods which are tangible. There appears to be difficulty in identifying its direction of movement. But the matter has been receiving attention of world trading community and norms have evolved. Based on such norms, on 03-03-2005, Government of India notified Export of Services Rules, 2005 to prescribe the Rules in this regard which rules came into force on 15.3.2005. So from 15-3-2005 the matter is to be tested in terms of the rules laid down in the said Rules and not according to the varying opinions of individuals. The period under dispute starts from 01-07-2003. So there is some dispute as to what should be the criteria to be adopted for the period prior to 15-03-2005. In fact one of the major contentions of the PML is that the case has been adjudicated without considering different laws that existed for different parts of the period in question. It is also relevant to note that after 15-03-2005 there have been few amendments in Export of Services Rules, 2005. So even after 15-03-2005 the issue may have to be examined for different periods.
13. After hearing both sides at length on the issue whether the service is exported or not, it is seen the contrast in the arguments on both sides is as under:
(i) PML argues that it is providing services to Western Union situated abroad with whom PML is having a contract for providing services and PML gets its remuneration from Western Union. Further the ultimate beneficiary of the service is the person situated abroad who approaches the office of Western Union abroad and who pays for the services. So this is a case of Export of Services as laid down in Export of Services Rules, 2005.
(ii) The Revenue contests that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. The receiver of its service is the person receiving the remittance in India. The Revenue argues that no part of the service done by PML is exported. To buttress this argument the Ld. SDR relies on clauses 1, 3,4A and 4B of the contract. However there is no need to reproduce these clauses in this order because there is no contest on the issue that the activities of PML are carried out in India.
14. Now it is beneficial to study the Export of Services Rules, 2005. As per these Rules, taxable services are categorized into three categories and for different categories different criteria are laid down to decide whether the service is exported. The position is explained below.
(In the discussion below it may be noted that the Rule numbers are quoted with reference to the position after amendment of the Export of Service Rules by notification 13/2006-ST dated 19-04-2006. The Rule 3 (1) (i) corresponded to Rule 3 (1) earlier Rule 3 (1) (ii) corresponded to Rule 3 (2) earlier and Rule 3 (1) (iii) corresponded to Rule 3 (3) earlier.) 14.1 Category-I i.e. For Services specified in Rule 3 (1) (i) For services specified under this sub-rule, export of services shall be provision of services as are in relation to an immovable property situated outside India.
14.2 Category-II i.e. For Services specified in Rule 3 (1) (ii) For services specified under this sub-rule, export of taxable services shall be provision of such services as are performed outside India. There are some additional conditions specified which are not relevant to the dispute at hand and hence not elaborated.
14.3 Category-III-i.e. For Services Specified in Rule 3 (1) (iii) For services specified under this sub-rule the export of taxable services shall be when such services are provided in relation to business or commerce and when provision of such service is to a recipient located outside India at the time of provision of such service. It needs to be recorded that Business Auxiliary Service defined at 65(105) (zzb) falls in this category and there is no dispute about it. So is the case of Banking and Financial Service defined at section 65(105) (zm). There are additional conditions which need to be examined. There is also the complication that these additional conditions were changed from time to time during the disputed period.
15. In the matter of services rendered by intermediaries like that of a stock broker, commission agent, insurance agent etc there are two sets of beneficiaries of the activity of the intermediary. In the case of a stock broker the buyer and seller of the stock are beneficiaries. In the case of a commission agent also the buyer and seller are beneficiaries. In the case of insurance policy, the insurer and the insured are beneficiaries. In the scheme of service tax levy, there is tax only if any remuneration is received by the person providing service. In the case of stock broker, commission is paid by both the buyer and the seller and both the commissions are subject to tax. In the case of insurance policy only the insurer pays commission and not the insured. The commission paid by the insurer is subject to tax. In the case of impugned service the recipient of money in India is not paying any commission. So we are clearly not dealing with the service rendered by PML to the receiver of money. The entire discussion is about the commission received from Western Union and this commission is obviously for the service rendered to Western Union. Once it is recognized that service and consideration paid for such service flows in opposite directions, so long as the arrangement for payment is bonafide and is in the ordinary course of business, the entire issue can be dealt with clarity. Once this clarity is achieved the other issues that emerge can be very easily sorted out.
16. The entire argument of Revenue is based on the fact that the activities of PML are performed in India though words like used in India are used while arguing the point. We say so because there is no doubt that the use of the service is by the person paying for it that is Western Union and through them the person abroad who wants to remit the money and hence the use is outside India. But Revenue wants that the issue of export should be decided with reference to place of performance of service by PML, ignoring the fact that Business Auxiliary Service is not specified at Rule 3 (1) (ii) where performance of service is the criterion but specified at Rule 3 (1) (iii) where in criteria are different. If performance is the criterion to be adopted for deciding what constitutes export for Business Auxiliary Service what is required is to specify the service defined at section 65(105) (zzb) in Rule 3 (1) (ii) of the Export of Service Rules, 2005. It is a different matter that even under Rule 3 (1) (ii), the criteria laid down indicate that if the service is performed partly outside India, it will be considered that the service is performed outside India and specifying the service under Rule 3 (1) (ii) itself may not result in the outcome as desired by the ld. SDR. At any rate, after specifying it in Rule 3 (1) (iii), it is fallacious to argue that the criterion applicable for services at Rule 3 (1) (ii) should be applied for this service.
17. Though the issue is fundamentally clear from what is stated above it is necessary to deal with the matter in more detail because of the cob-web accumulated by the arguments of Revenue. It is also appropriate to note that the issue has been clarified by the Ministry vide Circular No.111/05/2009-ST dated 24-02-2009 which is reproduced below:
Subject: Applicability of the provisions of the Export of Services Rules, 2005 in certain situations In terms of rule 3 (2) (a) of the Export of Services Rules 2005, a taxable service shall be treated as export of service if such service is provided from India and used outside India Instances have come to notice that certain activities, illustrations of which are given below, are denied the benefit of export of services and the refund of service tax under rule 5 of the Cenvat Credit Rules, 2004 [notification No. 5/2006-CE (NT) dated 14.03.2006] on the ground that these activities do not satisfy the condition used outside India,-
(i) Call centres engaged by foreign companies who attend to calls from customers or prospective customers from all around the world including from India;
(ii) Medical transcription where the case history of a patient as dictated by the doctor abroad is typed out in India and forwarded back to him;
(iii) Indian agents who undertake marketing in India of goods of a foreign seller. In this case, the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange;
(iii) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organisation to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organisation in foreign exchange for the entire activity being undertaken in India. (emphasis supplied) The departmental officers seem to have taken a view in such cases that since the activities pertaining to provision of service are undertaken in India, it cannot be said that the use of the service has been outside India.
2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories:
(i) Category (I) [Rule 3(1)(i)] : For services (such as Architect service, General Insurance service, Construction service, Site Preparation service) that have some nexus with immovable property, it is provided that the provision of such service would be export if they are provided in relation to an immovable property situated outside India.
(ii) Category (II) [Rule 3(1)(ii)] : For services (such as Rent-a-Cab operator, Market Research Agency service, Survey and Exploration of Minerals service, Convention service, Security Agency service, Storage and Warehousing service) where the place of performance of service can be established, it is provided that provision of such services would be export if they are performed (or even partly performed) outside India.
(iii) Category (III) [Rule 3(1)(iii)] : For the remaining services (that would not fall under category I or II), which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable (such as, Banking and Other Financial services, Business Auxiliary services and Telecom services), it has been specified that they would be export,-
(a) If they are provided in relation to business or commerce to a recipient located outside India; and
(b) If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided.
3. It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within a legislation. Keeping this principle in view, the meaning of the term used outside India has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the 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(1)(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 other Category III [Rule 3(1)(iii)] services as well.
4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned. These instructions should be given wide publicity among trade and field officers.
5. Please acknowledge receipt.
6. Hindi version follows.
18. Because of the confusion that was building on the interpretation of Export of Service Rules, GOI amended Export of service rules vide Notf. 6/2010-ST dated 27-02-2010 and also issued Circular vide Letter D.O.F. No. 334/1/2010-TRU dated 26-02-2010. Some relevant extracts from the letter are given below:
7. AMENDMENT TO EXPORT OF SERVICE RULES, 2005 7.1 Export of Service Rules, 2005 have been amended as follows:
The taxable service, namely Mandap Keeper Service has been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely Chartered Accountant Services, Cost Accountant Services and Company Secretarys Services, have been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(iii) [residual category of services]. Notification No.6/2010-ST, dated 27th February 2010 refers. Identical changes have been made under the Taxation of services (Provided from Outside India and Received in India) Rules, 2006 as well (Notification No.16/2010-ST, dated 27th February 2010 refers); The condition prescribed under rule (2) (a) i.e. such service is provided from India and used outside India has been deleted (Notification No.6/2010-ST, dated 27th February 2010 refers). 6.1 (sic) These changes have been carried out keeping in view of certain difficulties that were faced by the trade while following the aforesaid rules.
19. The Ld. Representative of the Department feels that these clarifications are not in conformity with the Rules and legal principles at large because service tax is a destination based consumption tax as held by the Honourable Supreme Court in All India Federation of Tax Practitioners Vs. UOI-2007 (7) STR 625(SC) and the service is consumed in India and the service is terminated in India according to his perception. (This perception needs testing against the fundamental postulate that the taxable part of the service provided by the service provider to the two parties and payment in consideration flows in opposite directions, so long as there is nothing artificial about the funds flow). At any rate the Ld. SDR has serious reservation in applying these clarifications issued in 2009 and 2010 to a dispute for the period 2003 to 2007. Even with the clarification he has an argument because he does not agree that benefits of these services accrue outside India. The matter has also been decided by the Bangalore Bench of the Tribunal in Muthoot Fincorp Ltd Vs. CCE Vishakhapatanam-2010 (17) STR 303. But the Ld. SDR has serious reservations in accepting this decision. He argues that this decision relies on the decision of Nipuna Services-2009 (14) S.T.R. 706 (Tri. - Bang.) which deals mainly with the issue whether the payments were received in foreign exchange and does not deal with the issue whether service was utilized outside India and that decision does not give any ratio applicable for this case. The reservation of the Ld. SDR in accepting the decision in Muthoot Fincorp Ltd is so vociferous that this bench is of the view that a second examination of the issue without any reference either to the Boards Circular or the decision of the Tribunal in the case of Muthoot Fincorp Ltd. may help in avoiding such arguments in future on the same issue.
20. For this the legal position prior to notification of Export of Service Rules, 2005 on 03-03-2005 and amendments made in the said Rules after 03-03-2005 need to be stated and examined.
20.1 From 09-04-1999 to 28-02-2003 The service was exempt under Notification 6/99-ST 09-04-99 so long as payment for the service was received in convertible foreign exchange. The impugned order is bad in law because the matter relating to this period is not examined with reference to this notification.
20.2 From 01-03-2003 t0 19-11-2003 Notification 6/99-ST dt 09-04-99 was rescinded by Notification 2/03-ST dated 01-03-03. But Board issued a clarification vide Circular 56/05/2003-ST dated 25-04-03. Para 3 is reproduced below.
3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination-based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax-free even after withdrawal of notification no. 6/99 dated 9.4.99. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed at present as inter-sectoral tax credit between services and goods are not allowed. 20.3 From 20-11-2003 to 02-March 2005 The exemption was restored under Notf 21/2003-ST dated 20-11-2003 subject to the condition that payment is received in foreign exchange. The impugned order is bad in law because the matter relating to this period is not examined with reference to this notification.
20.4 Position from 03-03-2005 to 15-06-2005.
For services specified under this sub-rule the taxable services shall be considered as exported if,-
(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;
(ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received.
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 Nos. S.O.429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996. The Ld. SDR is harping on the condition (i) (b) as highlighted above which is applicable only if such recipient has any commercial or industrial establishment or any office relating thereto, in India. There is no case that Western Union had an office in India and the order the agreement was signed by any office of Western Union in India. Of Course the notification as amended for later periods this condition was made applicable without reference to office in India.
20.5 Position from 16-06-2005 to 18-04-2006 After the first proviso, the following proviso shall be inserted namely :-
Provided further that for the purposes of this sub-rule, any taxable services provided shall be treated as export of services only if-
(a) such service is delivered outside India and used in business or for any other purpose outside India; and
(b) payment for such service provided is received by the service provider in convertible foreign exchange. 20.6 Position from 19-04-2006 to 28-02-2007 The provision of any taxable 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. 20.7 Position from 01-03-2007 to 31-03-2008 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.
21. It may be seen that the phrase delivered outside India used initially could not have been understood clearly in the case of services which is intangible and so the expression was replaced by is provided from India which is an expression better understood. However the meaning of the expression used outside India continued to create interpretational difficulty till this expression also finally got deleted on 27-02-2010. PML argues that their services are used in the business of Western Union in their business outside India. Revenue argues that the service is utilized in the business of Western Union in India, because all the activities of PML are carried out in India. Here it is to be noted that Revenue is equating used with performed though they are directly not stating so. After having used the word performed in Rule 3(1) (iii) of Export Rules, if the same word is not used and a different word is used in Rule 3 (1) (iii) it is obvious that the words are not interchangeable. Further as already explained PML is getting their payment from Western Union located abroad and it is very obvious that the service is used by the person making the payment and not the recipient of money in India who does not make any payment. The Western Union is getting their payment from the person remitting money abroad and hence obviously the services rendered by PML is ultimately used by the person remitting the money from abroad. So we come to the conclusion that the impugned service is used outside India and would qualify as export of services as per conditions laid down in Rule 3 (1) (iii) of Export of Services Rules, 2005. These arguments are equally applicable for the period from 01-05-2006, since when the service is classifiable as Banking and Financial Services, because this service is also specified under Rule 3 (1) (iii) of Export of Service Rules, 2005 and not under Rule 3 (1) (ii).
22. Now there is the issue whether any tax has to be paid on the amounts reimbursed by Western Union for expenses incurred in promoting the business of Western Union in India. In the context these services PML makes it clear that for the advertisements given, the advertising agency has charged service tax from them and they have paid such tax. These services allegedly provided by PML to Western Union are also sought to be classified under Business Auxiliary Services and hence the arguments given in respect of commission received from Western Union is equally applicable to these reimbursements also. So there is no scope for any separate examination of this issue.
23.1 Having formed our views we have checked whether our views are in conformity with the previous decisions of this Tribunal. We find that in the matter of classification of service the Tribunal in the case of Muthoot Fincorp Ltd. had not given any specific ruling. We have ruled that the service was classifiable as Business Auxiliary Service prior to 01-05-2006 and as Banking and Financial Service from 01-05-2006. At any rate this finding is not of consequence to the final outcome of the dispute.
23.2 In the matter whether the service was exported the finding is the same as in previous decisions though the reasoning used and presentation of such arguments for arriving at the finding are different. The finding is essentially that the issue should be decided using the parameters specified in the relevant law, specifically the Export of Services Rules 2005 after its notification and not according to any other criteria that may appear appealing to common sense. The ruling is also that the service is used by the person paying for the service and hence in this case it is used by persons abroad and as per provisions of laws in existence prior to 15-03-2005 and for the period thereafter as per provisions of Export of Service Rules 2005, the services are exported. The Appeal could have been disposed of by such brief observations and relying on the following decisions of the Tribunal namely,-
(i) Nipuna Services Ltd. v. Commissioner-
2009 (14) S.T.R. 706
(ii) Muthoot Fincorp Ltd. v. CCE Vizag-
2010 (17) S.T.R. 303 23.3 Instead we have given more elaborate arguments to reaffirm the finding in the above decisions with the hope that it will clear up the cob-web in the ideas relating to the issue of export of services and will help in deciding such disputes in future.
23.4 There are difficulties in defining what constitutes export of service. Law in this regard has to evolve based on internationally accepted principles. GOI is taking adequate steps in this regard by making clarificatory amendments in laws. The case laws in this regard also are evolving in a consistent direction. The consistent progress in one direction cannot be reversed to support the enthusiasm of Revenue to book one or two cases involving a few crores. If the Revenue has a case that the Rules are not resulting in a desired outcome, the proper course is to amend the rules rather than selectively book cases a few persons canvassing a particular interpretation of rules. Such an approach very essential of achieve better certainty of tax incidence and reduce business risk of unexpected tax demands which surface suddenly lone after the events.
25. The Appellant succeeds on merits of the issue. The appellant also succeeds on time bar because the Appellants have acted in bonafide manner considering the exemption notifications in force, clarifications issued by CBEC. Further the very fact that the Tribunal in the past have accepted that these services are exported and the Revenue itself has not initiated action against the major entities like Commercial Banks providing such service during the same period, would justify the stand of the assesses that there was no intention on their part to evade service tax.
26. Accordingly it is held that the amount confirmed in the impugned order is not maintainable and the appeal is allowed by setting aside the impugned order.
Now the appeals filed by sub-agents are to be examined in two sets as under:
First Set of Appeals- ST Appeal Nos. 833-837/2008 (5), 652/2008, 14/2009, 423/2009, 206/2010, 224/2010, 230/2010 filed by different assesses.
Second Set of Appeals- ST Appeal Nos. 10/2009, 20/2009, 107/2010, 274-278/2010, 298/2010, 300/2010, 314-17/2010, 321-23/2010, 359/2010, 296-97/2010, 1085/2010, 802/2010, 810/2010, 388/2010, 1019/2010, 380-81/2010 filed by Department
27. In the first set of Appeals the Appellants and in the second set of Appeals the Respondents are sub-agents of PML or another agent similarly placed like PML. Hereafter the word assesse is used to refer to the person against whom demand is sought to be confirmed.
28. There are COD Applications 75/2010, 77-81/2010, 84-86/2010, 93/2010 in Appeal Nos. 298, 300, 314-317, 321-323 which are allowed and Appeals admitted. There are stay applications in Appeal Nos. 359, 296-297, 1085, 802 and 810, the stay applications are rejected because the Appeal itself are being decided.
29. The counsels for these assessees adopt all the arguments given by the senior Counsel representing PML.
30. Further the crux of the argument of the assessees is that the classification of the service or the answer to the question whether the service was exported or not cannot change whether the service was done by the main agent or the sub-agent. They rely on Boards circular No. 56/05/2003 St dated 25-04-2003 4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported.
31. The Counsel further points out that these assessees had taken the plea that the service was classifiable as Banking and Financial service at the First Appellate stage unlike PML which has raised the plea for the first time before the Tribunal. Further it is pointed out that in the case of the assesse in Appeal No. ST-834/2008, the demand itself was made under Banking and Financial service. The order-in-appeal records that they were contesting that they were acting as foreign commission agents and were exempt from payment of tax. The assessee also has an argument that it is eligible for the exemption for small service providers in Notification 13/2005-ST.
32. In reply the Ld SDR submits that the assessee did not contest the service tax liability as is recorded by the Commissioner Appeal. It is the argument of the Ld. SDR that they cannot context the liability at this second stage of Appeal. The Ld. SDR also points out that the assessees are providing the service using the brand name of Western Union and in such cases the exemption under Notification 13/2005-ST is not applicable.
33. The counsel for this Appellant has the additional submission that the Revenue has accepted the decision of the Tribunal in Muthoot Fincorp and hence cannot take a different stand in the case of present Appellant. Further he argues that the Circular issued by the CBEC is binding on the Departmental Officers as per judicial pronouncements and therefore the adjudicating authority and the LD. SDR can not take a stand diametrically opposite to the contents of the Circular issued by CBEC. It is also the contention that making demand for the periods prior to 03-03-2005, when there was exemption for services for which payment was received in foreign exchange amounts to retrospective taxation which is not legally sustainable. He further contends that since the matter is one of interpretation of legal provisions, the extended period cannot be invoked and the demand is barred by limitation of time.
Appeal ST-206/2010 filed by Transcorporation International Ltd
34. Apart from adopting all the arguments of the other counsels in the matter of export of the service, this Appellant points out that there is a demand on him for the gains received on account of fluctuation in foreign exchange rates. It is argued that this money cannot form part of the gross value received as consideration for service rendered. This type of business gains is subject to the risk of losses when exchange rates fluctuates adversely and therefore cannot be considered as gross value for services rendered.
35. They also argue that the service provided by them is Banking and Financial Service and is taxable only from 01-05-2006.
36. It is pointed out by the SDR that during adjudication proceeding the pleading was that the service is of the category of Business Auxiliary Service. Further attention is invited to para 6.3 of the contract which specifies the activities carried out by the Appellant which clearly justifies its classification as Business Auxiliary Service.
37. Counsel for this Appellant also pleads the ground of limitation and draws attention specifically to the letter written by the Superintendent.
Appeal ST-285/2009 filed by Banwari Trading Company
38. This Appellant is a sub-agent who acts on behalf of Moneygram instead of Western Union. But the nature of activity remains the same. This Appellant adopts the arguments given by PML. This Appellant also pleads that it is eligible for Small Scale exemption.
Appeal ST/520/2010 filed by Novelty Finance
39. Apart from adopting all the arguments of the other counsels in the matter of export of the service, this Appellant argues that he is doing business support service. He argues that Business Support Services is taxable from 01-05-2006 only. He relies on the orders passed by Commissioner (Appeal) Chandigarh in matters relating to M/s Ramble Consumer Services Patiala and M/s Jolly Enterprises Patiala. The Counsel also relies on para 4 of CBECs circular 56/5/2003 ST dated 25-04-03. This para reads as under:
4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported.
40. He stresses that the demand for the period prior to 03-03-2005 the service was exempt under notification 21/2003-ST dated 20-11-03 where in such services were exempt if consideration was received in foreign exchange.
41. He also argues that the demand is barred by limitation of time because there was no willful suppression of material facts.
42. In the matter of Appeal listed in this part (Part-II) of this order our main finding is that the nature of service will not change in the hands of a sub-agent who does essentially the same service for a certain leg of the activities to complete the service and hence our finding in the matter of classification of service and export of service given for the main applicant will apply to these appeals also. The demands issued beyond the period of normal period of one year are also time barred for reasons recorded in para 25 above. The denial of small scale exemption for the reason that the service is provided using the brand name of another person is also not a correct argument because the finding is that the service is provided to Western Union or Moneygram as the case may be. That being the case there is fallacy in the argument that service is provided to them using their names. Such denial will be meaningful only if it is considered that service is provided to the person in India. Though the person in India gets some benefit out of the service he does not pay for it and therefore the service provided to such a person is not subjected to service tax.
43. Accordingly demand against these assessees, are not maintainable. So we allow the Appeals in the first set of Appeals filed by assesses and reject the Appeals filed by the department in the second set of Appeals.
(D. N. Panda) Member (Judicial) (Mathew John) Member (Technical) RM