Custom, Excise & Service Tax Tribunal
Commissioner Of Service Tax Bangalore vs Ge India Technology Centre Pvt. Ltd on 12 June, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order Nos. 20971-20972 / 2014 Application(s) Involved: ST/Stay/733/2012 in ST/1090/2012-DB, ST/917/2009-DB Appeal(s) Involved: ST/1090/2012-DB, ST/917/2009-DB [Arising out of order-in-appeal No. 02/2012 dated 30/01/2012 passed by the Commissioner of Central Excise, Bangalore] [Arising out of Order-in-Appeal No. 49/2009 dated 25/08/2009 passed by the Commissioner of Central Excise , Bangalore] Commissioner of Service Tax Bangalore 1st To 5th Floor, TTMC Building, Above BMTC Bus Stand, Domlur Bangalore - 560 071 Karnataka Appellant(s) GE India Technology Center Pvt. Ltd. No. 122, Whitefield Road, Bangalore - 560 066 Appellant(s) Versus GE India Technology Centre Pvt. Ltd. Respondent(s)
Commissioner of Service Tax Bangalore 1st To 5th Floor, TTMC Building, Above BMTC Bus Stand, Domlur Bangalore - 560 071 Karnataka Respondent(s) Appearance:
Mr. S. Venkataraman & Mr. Sukumar A., Advocates VMJ Associates, Skandalaya, Old #4, New #7, Justice Sundaram Road, Mylapore, Chennai - 600 004 For the Appellant Mr. S. Teli & Mr. R. Gurunathan, AR For the Respondent CORAM:
HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 12/06/2014 Date of Decision: 12/06/2014 Order Per: B.S.V. MURTHY Before hearing started, the learned AR submitted that he has a preliminary objection to be raised before the matter is taken up. He was allowed to do so.
2. He submits that in the case of Glyph International Ltd. vide Miscellaneous Order No. 125 & 126/2013-CR dated 15.04.2013, the Tribunal had held that the rejection of rebate claims filed in respect of service tax cannot be considered by the Tribunal and are not maintainable. He relies on paragraph 21 of this order. The same is reproduced below:
21. In view of the above analysis, the irresistible conclusion shall be that the Tribunal by virtue of Section 83 of Finance Act, 1994, should not entertain the rebate claim covered by first proviso to Section 35B (1) of Central Excise Act, 1944, in the appellate jurisdiction under Section 86 of Finance Act, 1994 because revisionary jurisdiction and appellate jurisdiction are clearly demarcated in law and nature and character thereof in common law is well understood. Consequently, Revenue succeeds in saying that rebate claim matters should go to revisionary jurisdiction. We hold accordingly. Single bench not having dealt jurisdiction issue in one of the appeals of the appellant that has no significance for our consideration and plea of judicial insistency is base less.
3. Learned counsel would submit that the matter was carried before the Honble High Court and Honble High Court after considering the issue passed a detailed order dated 20.03.2014 in W.P. (C) 6224/2013. Since the order of the Tribunal has been set aside, the matter can be decided by this Tribunal. Accordingly the preliminary objection is rejected and the appeals are taken up for hearing. 4.1. GE India Technology Centre Pvt. Ltd., Bangalore (the appellant) is filing the present appeal against the order-in-appeal No. 49/2009 dated 25 August 2009 (the impugned order) passed by the Commissioner of Central Excise (Appeals-II), Bangalore (Commissioner (Appeals). The appeal involves question regarding sanction of rebate of services tax that was paid by the appellant on the export of Scientific and Technical Services during February and March 2008. The facts leading up to the present appeal are stated in the following paragraphs. 4.2. The appellant is a private limited company registered under the Companies Act, 1956. It is engaged in providing and exporting R&D and Engineering services (R&D) Services) in various disciplines to GE, USA (GE USA) and their overseas entities under an agreement dated 13 June 2001. 4.3. The scope of various R&D services provided and exported by the appellant to GE USA and their overseas entities is as under:
i. To carry out R&D services in the areas of chemistry and catalysis, chemical engineering and mathematical modeling, engineering mechanics, electronics systems, information technology and e-commerce, metallurgy and ceramics, manufacturing and business processes etc. or any other areas to be mutually agreed.
ii. Advising GE USA on the type of technical expertise or know-how, if any, that is required to be imparted/applied by the appellant.
iii. Research to improve productivity of the existing products manufactured by various GE overseas entities.
iv. Research to develop new materials for existing usages and new usages for the existing products.
v. Research to increase the life and/or reduce the weight of the existing products.
vi. Studying the existing capabilities of products and evaluate the newer technologies available to meet the criterion set by the business of GE overseas entities.
4.4. The deliverables as per the terms of the agreement, depending upon the nature of the services provided, are as follows:
i. Technical reports, design documents or publication surveys related to the research and development activity;
ii. Models/tools developed in the course of the research and development activity; and iii. Prototypes/product samples developed as a result of the research and development activity.
The deliverables for the services are exported by the appellant to GE USA and their overseas entities generally in the form of customized electronic data, a report or tangible articles/prototypes as samples with no commercial value as per the time-frame and in accordance with the other conditions laid down in service requests.
4.5. During the course of providing and exporting the aforesaid taxable Scientific or Technical consultancy services to GE USA and their overseas entities, the appellant procured and used various input services and availed of the credit of the service tax paid thereon in accordance with the provisions of the CENVAT Credit Rules, 2004 (the Credit Rules). The credit so taken was utilized by it for payment of service tax, education cess and higher education cess on the export of services to GE USA and its overseas entities. In respect of the services exported by the appellant during the months of February and March, 2008 it paid service tax and cesses aggregating to Rs. 9,47,42,681/- by utilizing CENVAT credit of Rs. 9,47,32,681/- and paying the remaining amount of Rs. 10,000/- in cash.
4.6. The appellant on 7 May 2008 filed with the jurisdictional Deputy Commissioner, Service Tax (DCST) a rebate claim for the amount of Rs. 9,47,42,681/-.
5. The refund claim was rejected on the following grounds:
i. the service provided by the appellants is Business Support Service and cannot be considered as Scientific or Technical Consultancy Services.
ii. The GE ITC is an extended arm of GE USA and is established in India to look after the interest of GE USA in relation to business or commerce.
iii. Consideration as per the agreement is not in relation to a particular service but is in relation to the quantum of service provided and is equal to the total cost incurred by GE ITC plus 5% thereof.
iv. The conditions laid down in Rule 3(2) of the Export of Services Rules 2005 are not satisfied since the service is not provided from India and used outside India. In this case services are used only in India.
6. The learned counsel submits that the claim of the department that the service has to be classified as Business Support Service is not correct since the Revenue itself has classified their service for a subsequent period as Scientific or Technical Consultancy Service only. He draws our attention to the appeal memorandum in the Revenue appeal which has been listed today before us wherein in paragraph 2 it has been stated that the research and development services rendered by the assessee to their group companies has to be classified as Scientific or Technical Consultancy Service. In fact a show-cause notice was issued on this basis.
7. In any case after going through the agreement, we find that the appellant according to the agreement is required to carry out research and development and submit reports. The subsequent clause in the agreement in para 1.1 also would show that basically the appellants are undertaking Scientific Research and Technical Analysis and submit report to GE USA who utilize the report in a manner they overlook to utilize the same. The learned counsel relies upon the decision in the case of Gap International Sourcing (India) Pvt. Ltd. Vs. CST [2014-TIOL-465-CESTAT-DEL.]. We find that in paragraph 8.5 and 8.6 which are relevant the Tribunal observed as follows.
8.5 In the context of export of service, once a service, on the basis of Rule 3 (1) (i), 3 (1) (ii) or 3 (1) (iii) of the Export of Service Rules, 2005 has been determined to have been received outside India i.e. consumed outside India, the conditions in Rule 3 (2) regarding their delivery outside India and "use outside India" are automatically satisfied as, as explained in para 8.1 above, in the context of services, the receipt, consumption and delivery of the service is the same. Therefore the condition regarding delivery of service being outside India and use of service being outside India prescribed in Rule 3 (2) of Export of Service Rules, 2005 were superfluous and for this reason only, these conditions were deleted, first, the condition regarding delivery of service being outside India was deleted w.e.f. 1/3/07 and thereafter the condition regarding use of service being outside India was deleted w.e.f. 27/2/10. These amendments, therefore, have to be treated as clarificatory amendments. Therefore if some service covered by Rule 3 (1) (iii) of Export of Service Rules, 2005, i.e. service in relation to business or commerce, has been provided by a person in India to a company located abroad, not having any branch or establishment in India, for use in its business, the service provided in India shall be treated as export, if the payment has been received in convertible foreign exchange. The performance of such service in India, would not make them received/consumed in India, if beneficiary user/recipient of said service provided in relation to business or commerce, who has paid for these services and has used the service in his business, is located abroad. The position would be different if the company located abroad who has paid for the service, also has some branch/ project in India and the service provided in India is meant for that branch/project only - in that case, the consumption of service would be in India and the service would be taxable in India. But if the recipient company located abroad, has no branch or project or establishment in India and the service covered by Rule 3 (1) (iii) provided in India is meant for use in the business of the company located abroad, it would be export of service.
8.6 In view of the above discussion, the Boards Circular No. 141/10/2011 dated 13/5/11 clarifying that for the period prior to 27/2/10, the condition regarding used outside India also needs to be independently satisfied for availing the benefit of export and that effective use of advertisement services shall be the place where the advertising material is disseminated to the audience though the actual benefit to my finally accrue to the buyer who is located at another place is not only not in accordance with the provisions of Rule 3 (1) of the Export of Service Rules, 2005, but is also contrary to the law laid down by the Apex Court in the case of All India Federation of Tax Practitioners (supra) and Association of Leasing and Financial Service Companies (supra), as a service which has not been consumed in India, cannot be taxed in India. We find that this decision is applicable to the facts of this case. It has been held in this decision that if the beneficiary is abroad and it is used abroad, Tribunal took the view that service has been exported. Further we also find that the reliance placed b the learned counsel at para 71.1 in the case of Paul Merchants Ltd. Vs. CCE, Chandigarh reported in [2013 (29) S.T.R. 257 (Tri.-Del.)] is also relevant and is applicable. Paragraph 71.1 is reproduced below for better appreciation.
71.1. It has been pleaded that the recipient of the services provided by the agents of WU is not WU but the persons in India receiving the money sent by their friends and relatives abroad through WU and their agents and this is not the export of service. This plea is totally incorrect. The service recipient is the person on whose instructions/orders the service is provided, who is obliged to make the payment from the same and whose need is satisfied by the provision of the service. WU having accepted money along with commission from their customers abroad for delivery to their intended beneficiaries in India are under obligation to get the money delivered in India and for this purpose, they have engaged the agents, as WU does not have any business establishment or offices in India to discharge this obligation directly. The obligation of WU to deliver the money received by them from their customers abroad to their intended beneficiaries in India is discharged by the agents either directly or through sub-agents and for this the agents get a commission from WU. Thus it is WU who have received the services provided by agents and have used this in relation to their business of money transfer and therefore have to be treated as recipient and consumer of service not the person receiving money in India through WU. There is one more reason why the persons to whom the money was delivered by agents/sub-agents of WU cannot be treated as recipient of services provided by WU. Service tax is akin to tax on sale of goods. Service tax can be said to be a tax on sale of service. Just as sale of goods which attracts sales tax is transfer of property in goods by a person (seller) to another person (buyer) for some consideration, a service is an activity carried out by a person for another for some consideration. Just as in case of sale of goods it is buyer who is obliged to pay for the goods purchased, in case of provision of service, it is recipient of the service who is obliged to pay for the service to the service provider. Thus the service recipient is the one who is obliged to pay for the services to the service provider and whose need is satisfied by the service or in other words, is the buyer of service. To illustrate, if a manufacturer A is under obligation to provide free repair service during a specified warranty period to his customers in respect of some goods sold to them and he engages B to provide the services of free repairs during warranty period to his customers C1, C2, C3, and for this he pays to B, the recipients of the service provided by B would be A, not the customers C1, C2, C3.In general in case of services provided by an agent to some person on behalf of his principal for some commission, it is the principal who is the service recipient/beneficiary, not the person affected by the services performed by the agent, who may be affected pleasantly or unpleasantly (e.g. when the service performed by the agent is the service of money recovery or some other unpleasant service performed on behalf of the principal) depending upon the nature of the services performed in respect of him. He cannot be called beneficiary or recipient of the service provided by the agent. Since the service provided by the agents has been used by WU in their money transfer business abroad, the same has to be treated as received and consumed abroad, not received and consumed in India.
8. Another ground taken for denying the claim of the appellant that the Scientific and Technical Consultancy Services provided by them to their foreign entities cannot be considered as export of services emanates from the agreement according to the Revenue. According to the Revenue, the agreement between GE USA and GE ITC, GE ITC is an extended arm of GE USA and is established in India to look after the interests of GE USA in relation to business or commerce.
9. We have gone through the agreement and we do not find any point there which results in the conclusion taken by the learned Commissioner in the order. The agreement is between GE USA and GE ITC. GE USA is incorporated under the laws of State of New York and GE ITC is a company incorporated under the Companies Act 1956. This itself shows that both are separate entities. No other evidence has been taken into account to show that GE ITC is an extended arm. Even if it is a subsidiary company, as submitted by the learned counsel, a subsidiary company is considered as a separate entity in the eyes of law. Further we also do not find any basis to come to the conclusion that GE ITC was set up to look after the interests of GE USA in relation to business or commerce. In para 1.1 the role of GE ITC has been indicated and it requires GE ITC from time to time and on a request made by GE USA to provide the services. On the one hand they are required to carry out research and development in respect of GE projects and also provide other services as and when requested. We do not find sufficient evidence to support this conclusion at this stage. Therefore we cannot sustain the view taken GE ITC is an extended arm for GE USA.
10. As regards the stand taken that appellants are providing a cluster of services and are receiving consideration in the form of cost plus 5% and therefore it has to be held that the service provided is Business Support Service cannot be upheld since for classification, the method by which consideration is determined cannot be the basis. The basis has to be the fact that the services provided should fit into the definition of the service under which it is supposed to be categorized. On the one hand it is appellants claim that they are providing only Scientific and Technical Analysis and specific evidence as regards why any activity of the appellant comes under Business Support Service by explaining the nature of the activity vis-`-vis the definition so pointed out to us. Therefore prima facie we cannot support this view. Moreover as submitted by the learned counsel, subsequently Revenue itself has issued show-cause notice proposing classification of the services as Scientific and Technical Service.
11. As regards the observation that the conditions laid down in Rule 3(2) of Export of Services Rules 2005 are not satisfied, we find that the reliance of the learned counsel on the decision in the case of Paul Merchants Ltd. and in the case of Gap International Sourcing (India) Pvt. Ltd. are squarely in favour of the assessee. Therefore this observation also cannot be sustained.
12. This brings us to the question as to what should be the decision in this case. Learned counsel submits that in the normal course it would have been necessary to decide other issues also. On the one hand issue that has been left out in the above decision is a question of nexus. The learned counsel would submit that as regards nexus even though the appellant has filed an appeal against the order of Commissioner (Appeals) in order-in-appeal No. 139/2013 dated 12.04.2013 against the disallowance of benefit in respect of certain services, he seeks directions from the Tribunal to the original authority that in respect of the present refund claim under dispute before us, the nexus between the input service and the output service can be decided by the original authority in accordance with the decision taken in the above decision (order-in-appeal No. 139/2013). He submits that since the amount involved is small, the appellant is willing to forego the same in respect of services the credit on which has been held to be inadmissible on the ground of nexus between the input service and output service by the Commissioner. He also submits that this decision in order-in-appeal No. 139/2013 has not been appealed against by the department. We consider these submissions to be reasonable and fair. Accordingly we set aside the impugned order and remand the matter to the original authority with the following observations:
a) Appeal is allowed with consequential relief if any to the appellants except as regards the ground of nexus between input services and output services which as requested by the counsel shall be decided in accordance with the order-in-appeal 139/2013. As regards verification of documents, quantification of amounts, these aspects have not been completed since the adjudication order was passed on the basis of principles and not on the basis of verification of documents. This exercise shall be carried on in accordance with law. In view of the fact that the matter is pending for a period of more than 5 years and the refund claim is in respect of export of services, we consider the request of the learned counsel that original authority should be directed to decide the matter within a specific time line is reasonable. Accordingly we direct the appellant to furnish all the documents and details required for verifying the refund claim along with a statement showing the amount admissible to them as per the decision of Commissioner (Appeals) in order-in-appeal No. 139/213 and thereafter the original adjudicating authority is requested to complete the exercise and ensure that admissible refund is sanctioned within 3 months from the date of communication of this order to the original authority. The appellants are free to submit a copy of the order to the original authority as and when they get the copy to ensure that the original authority also gets the order in time and no disputes arise on the date of communication of the order.
b) As regards the Revenue appeal, the learned counsel submitted that the appeal has become infructuous. This is because the order of Commissioner (Appeals) remanding the matter to the original authority which is under challenge and the revenue appeal has been implemented by the original authority and the refund claim has been once again rejected against which the appellants have already filed the appeal. This position would show that a parallel litigation has already started on the very same issue and since the very same claims would be coming up before the Commissioner (Appeals), therefore the appeal has become infructuous and is accordingly rejected.
(Operative portion of the order has been pronounced in open court on 12.06.2014) (S.K. MOHANTY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER iss