Custom, Excise & Service Tax Tribunal
Blue Star Ltd vs Commissioner Of Service Tax, Mumbai on 24 September, 2014
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No.
ST/74/08
-Mum
(Arising out Order-in-Appeal No. SRK/470/M-III/2007 dated 28.11.2007 passed by the Commissioner of Central Excise (Appeals), Mumbai II)
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. P.S. Pruthi, Member (Technical)
1. Whether Press Reporters may be allowed to see No
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 Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
Blue Star Ltd.
Appellant
Vs.
Commissioner of Service tax, Mumbai
Respondent
Appearance:
Shri S.Sarkar, Authorised Representative of the appellant Shri B. Kumar Iyer, Supdt. (AR) for the respondent CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. P.S. Pruthi, Member (Technical) Date of hearing : 03.09.2014 Date of decision : 24.09.2014 O R D E R No:..
Per: Mr. Ashok Jindal, Member (Judicial) The appellant is in appeal against the impugned order wherein the refund claim of `50,40,411/- has been denied by way of the impugned order.
2. The facts of the case are that the appellant is providing services which are taxable under the category of Business Auxiliary Service. As per agreement of M/s. Wilden California, M/s. Blue Star Ltd. and IIT Ind. Singapore and M/s. Yxlon, Humberg and M/s. Techcomp Ltd. and M/s. Solartron Mobrey Ltd., the appellant are operating as distributor for sales and after sales service of Hitachi Analytical product. Initially the appellant paid service tax. Thereafter realised that the appellant is covered by the Export of Taxable Service Rules, 2005. Therefore, the service tax paid by them is refundable. Consequently, the appellant filed the refund claim for the period August 2005 to July 2006 which was rejected by both the lower authorities on the ground that the services rendered by the appellant does not fall under the Export of Taxable Service Rules, 2005. Therefore, refund claims were rejected. Aggrieved from the said order, appellant are before us.
3. The ld. counsel appeared on behalf of the appellant submits that the appellant are the agents/distributors of their foreign clients and are promoting their business by procuring purchase orders. Against those purchase orders, their clients are supplying goods to the intended buyer in India directly. This equipment which were supplied by the clients having the warranty and during the warranty period, the foreign clients of the appellant appointed them to provide repair, maintenance service during the period of warranty on behalf of their clients to the buyers in India. It is the contention of the ld. counsel that the activity of the appellant is covered under the category of Business Auxiliary Service which is defined under Section 65 (105) (zzb) of the Finance Act, 1994. He further submits that as per Notification 9/2005-ST dated 03.03.2005 the service of the appellant is covered as Export of Taxable Service. As per Rule 3(3)(i) wherein it has been stated that the service which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India. As the service provided by the appellant in relation to trading activity and maintenance and repairs and the recipient of the service is located outside India, therefore, they are squarely covered by the said Rule and they are not liable to pay service tax. He further submits that Notification 13/06-ST dated 19.04.2006 provides that the export of service is when such service is delivered outside India and used outside India and the payment thereon is received by the service provider in convertible foreign exchange. It is not in dispute that the appellant has received all the payment in convertible foreign exchange and they have delivered the service outside India, therefore they are entitled for refund of service tax wrongly paid by them. After warranty period, the appellants are providing maintenance service for which they are registered, as stated by the Ld. Counsel.
4. On the other hand, ld. AR opposed the contention of the counsel and submits that in this case the services has been provided in India, therefore as per Notification 13/06-ST dated 19.04.2006, the activity of the appellant does not qualify as Export of Taxable Service as per Export of Taxable Service Rules, 2005, therefore they are not entitled for the refund claim.
5. Heard both sides. Considered the submissions.
6. In this case, the appellant is a Distributor/agent of their foreign clients and procuring orders for supply of equipment by the foreign supplier. The appellant has no connection with the buyers in India. In fact he is identifying the buyers for the foreign clients, and the foreign clients are selling equipment to the Indian buyers principal to principal basis. We further find that as the equipment are having warranty and the foreign client have to provide certain services to Indian buyers and for that providing service, the appellants are providing service to Indian buyer on behalf of the foreign clients. In these circumstances, the recipient of the service is located outside India who used the services of the appellant to provide service to their buyers. In these circumstances, we find that a similar case came up before this Tribunal in Paul Merchants Ltd. 2013 (29) STR 257 wherein the facts of the case are that the person who is located outside India wanted to send money through Western Union in India. Western Union are having Paul Merchants Ltd. as their agent in India who on instructions of Western Union delivered the money to the person located in India. In those set of facts, the Tribunal has examined the issue as observed as under:-
the activity of remittance of money by a person abroad to his intended beneficiary in India starts at the office of WU or by an agent/sub-agent abroad when he hands over the money to be remitted along with commission and the details of the intended beneficiary in India and after payment of money to be remitted along with commission, he is given a unique code number by the WU/their agents/sub-agents. WU do not have any office or business establishment in India and they operate in India through a network of agents and sub-agents appointed by agents with the approval of WU. The role of Agents and sub-agents is that when the intended beneficiary approaches them with the code number and provides the prescribed proof of identity, they handover the money remitted by the sender immediately. Thereafter the Tribunal has observed further in para 68 & 69 as under:-
68. Coming to the question of classification of the activity of agents and sub-agents, their activity essentially is providing of service of delivery of money on behalf of WU and also undertaking promotion and marketing of the money transfer service provided by WU. Agents by delivering money on behalf of WU to the intended beneficiary of the sender of money abroad are discharging the obligation of delivering money to the intending beneficiaries on behalf of WU and in the cases where the money is delivered by sub-agents, the sub-agents are performing the same job. This activity, in my view, is covered by sub-clause (vi) of Section 65(19) as it stood w.e.f. 10-9-2004 - Provision of service on behalf of client and during period prior to 10-9-2004, this activity would be covered by the service rendered by a person as commission agent, who in terms of definition of this term in Notification No. 14/2004-S.T. covered, among others, the person who acts on behalf of another person and causes sale or purchase of goods or provision or receipt of services for a consideration. Though w.e.f. 1-6-2005, services in relation to transfer of money including telegraphic transfer provided by a banking company or a financial institution including NBFC or any other body corporate or any other person/commercial concern, become taxable under Section 65(105)(zm) read with Section 65(12), in my view even during period w.e.f. 1-6-2005, the service provided by the agents of WU and sub-agents appointed by agents would be correctly classifiable as Business Auxiliary Service under Section 65(105)(zzb) read with Section 65(19) as the function of agents/sub-agents is essentially an agency function i.e. providing services on behalf of WU in India for commission and besides this the marketing & promotion of money transfer service of WU, in India, both of which are covered by the definition of Business Auxiliary Service as given in Section 65(19).
69.Next comes the main question whether
(a)?the services provided by the agents of WU, and
(b)?the services provided by the sub-agents appointed by agents, amount to export of service out of India and, hence, not taxable in India. Linked with this question are the questions-
(i)
(ii) Who is the recipient of the service provided by agents and the sub-agents - whether the WU located abroad or the persons in India who received the money sent by their relatives, friends, etc., abroad through WU?
(iii) Whether the services, in question, have been used and consumed, abroad by the WU or used and consumed in India by the intended beneficiaries of the money sent by persons abroad through WU? 70.3 But determining the place of consumption is a complex task on account of intangible nature of services and the different modes by which a service can be provided and can be consumed i.e. used by the recipient to satisfy his needs. The place of consumption and the location i.e. permanent address of the service recipient may be different. A uniform criteria for determining the place of consumption/receipt for different categories of services like, services in relation to immovable property, services in relation to business, performance based services, transport services, etc., cannot be adopted. In case of performance based services, there can be cases where part of the service has been performed in India and part has been performed abroad and therefore for such cases there has to be a uniform criteria for determining as to which place should be treated as the place of performance. In case of multi-locational service providers; there must be a uniform criteria for determining as to at which place the multi-locational service provider is to be treated as located for the purpose of taxation. Therefore, what constitutes the export of service cannot be left to the deductive capability of individual tax payers or individual tax collectors, as doing so will cause a total chaos. For this reason only, the Export of Services Rules, 2005 have been framed by the Central Government under Section 94(1)(f) of the Finance Act, 1994. A little analysis of these rules will show that the same follow the general principle that a taxable service provided by a person in India will be subject to tax only when it has been consumed in India and not when it has not be consumed in India, which is in accordance with the ruling of the Apex Court in case of All India Federation of Tax Practitioners Association (supra). In my view it is absolutely correct to treat
(a) performance based services (e.g. services of repair & maintenance of some machinery provided by an Indian company to its client in USA) as consumed at the place where the same have been performed;
(b) services in relation to immovable property of a person (e.g. service of insurance of immovable property located abroad, belonging to an Indian resident A provided by an India Insurance Company B) as having been consumed at the place where the immovable property is located; and
(c) services in relation to business; (e.g. an Indian Company A providing the services of marketing & sales promotion in India to a company B located in Singapore in respect of the products manufactured by B) as having been consumed at the place where the business is located.
In fact the European Union has similar rules for determining Place of Provision of Services, where the service is taxable.
Thus, the Export of Services Rules, 2005 and Taxation of Services (Provided from outside India as received in India) Rules, 2006, are basically the rules for determining the place of consumption of services. These rules in the Budget of 2012-13 have been replaced by Place of Provision of Service Rules, 2012, the Rule 3 of which states that the place of provision of a service shall be the location of the service recipient, (who is the service consumer). Therefore, in my view, there is nothing in the Export of Services Rules, 2005 which can be said to be contrary to the constitutional provisions of the Apex Courts judgment in the case of All India Federation of Tax Practitioners Association (supra).
7. Further, the Tribunal observed as under:-
71. In this case, the service provided by the agents to WU, as discussed in Para 68 above, is Business Auxiliary Service covered by Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994. Since this service is in relation to the money transfer business of WU having their business establishment abroad and since this service has been received by WU and used by them in their business and payment for this service has been received in convertible foreign currency, in terms of the provisions of Rule 3(1)(iii) read with Rule 3(2) of the Export of Services Rules, 2005, the service provided by the agents has to be treated as export of service.
72. Next comes the? question as to whether the services provided by sub-agents appointed by the agents of WU are export of service and hence not taxable. As held in Para 68 above, the services provided by the sub-agents appointed by the agents is Business Auxiliary Service covered by Section 65(105)(zzb) read with Section 65(19) irrespective of whether it is treated as provided to agents or to WU. The plea of the sub-agents is that they have tripartite arrangement with agents of WU and WU, that they also represent WU, that recipient of their services is WU, not the agents and that, therefore, the services provided by them have to be treated as export of service. The contention of the Revenue on the other hand, is that the sub-agents have provided taxable service to agents not to WU and therefore, in any case, the commission received by the sub-agents for the services provided by them to agents is chargeable to Service Tax.
8. We further find that a similar issue came up before the Hon'ble High Court of Bombay in SGS India P. Ltd. 2014-TIOL-580-HC-MUM-ST wherein the facts are as follows. The appellant was engaged by foreign importers who imported certain goods from Indian exporters. The foreign parties wanted the appellant to inspect/test/ analyse samples of the goods in India and provide certificates to enable them to ascertain the quality of the goods before importation. Accordingly, the appellant inspected/tested/analyzed samples of the goods and sent certificates to their foreign clients and the latter, having been satisfied of the import-worthiness of the goods, placed orders for the goods, which were exported by the Indian exporters. The consideration for the services provided by the appellant was paid in convertible foreign exchange. The department demanded service tax on this consideration paid by the foreign parties to the appellant. In the said case, this Tribunal held that the services rendered by the appellant were consumed abroad where the appellant's clients used the service of inspection/test/analysis to decide whether the goods intended to be imported by them from India conformed to the requisite specifications and standards. In other words, the benefit of the service accrued to the foreign clients outside the Indian territory. Therefore, it cannot be said that there was no export of service. The matter was taken up to the Hon'ble High Court and the Hon'ble High Court held as under :-
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 Vs . 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 Hon'ble 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 Hon'ble 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. If the emphasis is on consumption of service then, the order passed by the Tribunal does not raise any substantial question of law.
26. We are of the view that any larger or wider controversy and based on the submissions of Shri Sridharan need not be decided in this case. Suffice it to hold that the view taken by the Tribunal does not raise any substantial question of law. The Appeal is devoid of merits and it is accordingly dismissed.
9. In the light of the decision of Paul Merchants Ltd. and SGS India P. Ltd. (supra), we have examined the facts of this case. In this case also, the appellant are providing the service of maintenance of equipment on behalf of their foreign clients to Indian buyers. They have provided the service on behalf of their foreign clients. We further find that during the warranty period, the repairs and maintenance service was to be provided by the foreign supplier and the appellant acted on behalf of the foreign supplier only. It is an admitted fact that the Indian buyer has not paid any amount towards the service provided by the appellant to the appellant during warranty period whereas the appellant who provided the service to Indian buyers has paid the service tax on maintenance service after the warranty period.
10. In these circumstances, we have no hesitation to hold that as the appellant has provided the service of procuring purchase orders for their foreign clients and providing maintenance service to the Indian buyers during the warranty period on behalf of their foreign clients on the instructions of foreign clients are covered by the Rule 3(3) of Export of Taxable Service Rules, 2005. Therefore, the appellant are not required to pay service tax during the impugned period for their activity. Accordingly, they are entitled for refund claim.
11. Hence, we set aside the impugned order and allow the refund claims filed by the appellant.
12. The appeal is allowed with consequential relief.
(Pronounced in Court on ..) (P.S. Pruthi) (Ashok Jindal) Member (Technical) Member (Judicial) //SR 12