Custom, Excise & Service Tax Tribunal
M/S. Agm India Advisors Pvt. Ltd vs Commissioner Of Service Tax, Mumbai-I on 1 July, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. ST/88437/14 [Arising out of Order-in-Appeal No. PD/ST-I/531/2014 dtd. 23/4/2014 passed by the Commissioner of Central Excise & Service Tax (Appeals-IV), Mumbai-I] For approval and signature: Honble Mr Ramesh Nair, Member (Judicial) =======================================================
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 :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental: Yes
authorities?
=======================================================
M/s. AGM India Advisors Pvt. Ltd.
:
Appellants
VS
Commissioner of Service tax, Mumbai-I
:
Respondent
Appearance
Ms. Rinky Jassuja, Chartered Accountant for the Appellants
Shri A.B. Kulgod, Asstt. Commissioner (A.R.) for the Respondent
CORAM:
Honble Mr. Ramesh Nair, Member (Judicial)
Date of hearing: 1/7/2015
Date of decision: 1/7/2015
ORDER NO.
Per : Ramesh Nair
This appeal is directed against Order-in-Appeal No. PD/ST-I/531/2014 dtd. 23/4/2014 passed by the Commissioner of Central Excise & Service Tax (Appeals-IV), Mumbai-I, wherein the Ld. Commissioner (Appeals) rejected the appeal of the appellant.
2. The fact of the case is that appellant M/s. AGM India Advisors Pvt. Ltd are registered with service tax department under the category of Management Consultants services. The appellant filed refund claim of Rs. 17,66,363/- on the ground that they have exported management consultant services without payment of service tax under Rule 4 of the Export of Services Rules, 2005 and they are not in a position to utilize the Cenvat Credit availed by them. On scrutiny of the said refund claim, the department observed that the appellant have not received export proceeds in convertible foreign currency but received the same in Indian rupees only. The department also observed that the appellant have availed Cenvat credit on Clearing services (supply of plants), Car Hire Charges, Professional charges for assisting in MIS reporting requirement, service tax registration, IEC code, which according to the department were not used for providing output service. Further, the department observed that though the appellant have registered themselves with the department for management Consultant services they have exported Banking and other Financial Services, for which they have not obtained service tax registration.
The revenue issued show cause notice proposing rejection of refund claim on above allegation, the same was culminated into adjudication order wherein adjudicating authority rejected the refund claim. Aggrieved by the said order the appellant filed appeal before the Commissioner (Appeals) who rejected the appeal therefore appellant is before me.
3. Ms. Rinky Jassuja, Ld. Chartered Accountant appearing for the appellant submits that refund was rejected mainly on the ground that various remittance was received in Indian Rupees and the same was not received in convertible foreign exchange. She submits that the remittance against export of services was received though in Indian Rupees but through foreign bank i.e Bank of America and they have been issued FIRC. It is her submission that in identical issue in case of Sun-Area Real Estate Pvt Ltd Vs Commissioner of Service Tax, Mumbai-I [2015-TIOL-956-CESTAT-MUM], this Tribunal held that even though the payment of foreign remittance against export of service is received in Indian Rupees but through foreign bank, it will be considered as receipt of payment in convertible foreign exchange. As regard the admissibility of Cenvat credit in respect of Clearing services (supply of plants), Car Hire Charges, Professional charges for assisting in MIS reporting requirement, service tax registration, IEC code, she submits that all these services are used for providing output services which has been exported therefore it qualifies as input services and the Cenvat credit is admissible consequently the refund of said Cenvat credit should not have been rejected on the ground that these are not input services. As regard classification dispute raised by the lower authority that they have exported the services of banking and financial services whereas appellant claimed that their services are under management consultancy services, she submits that even classifying the same services under management consultancy services, the department in earlier claims has been considering their refund accepting classification as above. She referred the judgment of this Tribunal in their own case which was passed vide order no. A/1076/15/SMB dated 16/4/2015, wherein the services has been claimed under management or business consultant services and same has not been disputed therefore the services exported by them is management consultant services and not banking and financial services. Therefore dispute raised by the lower authority is not sustainable.
4. Shri A.B. Kulgod, Ld. Asstt. Commissioner (A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order.
5. I have carefully considered the submissions made by both sides and perused the record.
6. I find in the present case fact is that services have been exported by the appellant, the payment was received by them in Indian rupees but through foreign bank namely Bank of America. FIRC in respect of foreign remittance was issued by the bank. In FIRC this clearly stated that payment has not been received in non convertible rupees or under any special trade or payment agreement. With this it clearly shows that whatsoever payment was received, it is convertible foreign exchange. This very issue is squarely covered by this Tribunal judgment in case of Sun-Area Real Estate Pvt Ltd (supra) wherein it was held as under:
5. I have carefully considered the submissions made by both the sides. It is not in dispute that the remittance towards the payment of service was received in Indian rupees. However, though the payment is received in Indian rupees but the bank has issued "Foreign Inward Remittance Certificate". Clause 3A.6(i) of the Exchange Control Manual is reproduced below:
"3A.6 (i) Authorised dealers should issue certificates in form BCI against receipt of inward remittances or realisation of foreign exchange on security paper if the amount exceeds Rs.15,000/- in value, bearing distinctive serial numbers and reference numbers. In case the amount of inward remittance or realisation of foreign exchange is upto Rs.15,000/-certificates in form BCI with serial numbers and reference numbers may be issued on the letter-head of the authorised dealer (with their 'Logo' printed on it). Since inward remittances received for opening of or credit of Non-Resident (External) accounts/FCNR accounts can be repatriated freely, authorised dealers should not issue certificates against such remittances."
6. From the above provision it is clear that Foreign Inward Remittance Certificate (FIRC) is issued only in respect of foreign exchange. In the present case, FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees, which establishes that the payment received and mentioned in the FIRCs are other than non-convertible foreign exchange, in other words, the payment is in convertible foreign exchange. I have gone through the Notification No. FEMA 9/2000-RB dated 3rd May, 2000, the relevant para No.4 of the said Notification is reproduced below:
"4. Manner of Repatriation :-
(1) On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring into, or receive in, India and-
(a) sell it to an authorised person in India in exchange for rupees; or
(b) retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve Bank; or
(c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the manner specified by the Reserve Bank.
(2) A person shall be deemed to have repatriated the realised foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any country outside India, maintained with an authorised dealer."
From the sub-para (2) of para 4 above it is very clear that, when a person receives in India payment in rupees from the account of a bank situated in any country outside India maintained with an authorised dealer, the payment in rupees shall be deemed to have repatriated the realized foreign exchange to India. In the present case, the payment in Indian rupees was received from foreign country through Deutsche Bank. Therefore, the said Indian rupee is nothing but foreign exchange repatriated from foreign country to India. Therefore, such payment in rupees is equal to the foreign exchange. The manner of receipt of foreign exchange is provided under Notification No. FEMA 14/2000-RB dated 03/05/2000 issued by Reserve Bank of India. Regulation No.3 of the said Notification is reproduced below:
3. Manner of Receipt in Foreign Exchange:-
(1) Every receipt in foreign exchange by an authorised dealer, whether by way of remittance from a foreign country (other than Nepal and Bhutan) or by way of reimbursement from his branch or correspondent outside India against payment for export from India, or against any other payment, shall be as mentioned below:
Group Manner of receipt of foreign exchange (1) member countries in the Asian Clearing Union (except Nepal) namely, Bangladesh. Islamic Republic of Iran, Myanmar, Pakistan and Sri Lanka
a) payment for all eligible current transactions by debit to the Asian Clearing Union dollar account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the Asian Clearing Union dollar account of the authorised dealer maintained with the correspondent bank in the member country; and
b) payment in any permitted currency in all other cases (2) all countries other than those mentioned in (1).
a) payment in rupees from the account of a bank situated in any country other than a member country of Asian Clearing Union or Nepal or Bhutan; or
b) payment in any permitted currency (2) In respect of an export from India, payment shall be received in a currency appropriate to the place of final destination as mentioned in the declaration form irrespective of the country of residence of the buyer."
7. From the above regulation and serial No. (2) of the Table, it is very clear that the payment in rupees from the account of a bank situated in any country (other than a member country of Asian Clearing Union or Nepal or Bhutan) is a manner of receipt of foreign exchange. In the present case, as evident that the Indian rupees was received thru the account of Deutsche Bank which is situated in foreign country. Therefore, in terms of Regulation 3 made under Section 47 of the Foreign Exchange Management Act, 1999, in the present case the foreign remittance in Indian rupees through Deutsche Bank is the receipt of payment in convertible foreign exchange.
8. I have gone through the hon'ble Supreme Court's judgment in the case of J.B. Boda and Company (supra) wherein it was held that:
"12. The facts brought out in this case, are clear as to how the remittance to the foreign reinsurance company is made through the Reserve Bank of India in conformity with the agreement between the appellant and the foreign reinsurer, and that the remittance that the amount due to the foreign re-insurers as also the brokerage due to the appellant and the balance due to the foreign reinsurer is remitted (and expressed so) in dollars. It is common ground that the entire transaction effected through the media of the Reserve Bank of India is expressed in foreign exchange and in effect the retention of the fee due to the appellant Is dollars for the services rendered. This, according to us, is receipt of income in convertible foreign exchange. It seems to us that a "two way traffic", is unnecessary. To insist on a formal remittance to the foreign reinsures first and thereafter to receive the commission from the foreign reinsurer, will be an empty formality and a meaningless ritual, on the facts of this case. On a perusal of the nature of the transaction and in particular the statement of remittance filed in the Reserve Bank of India regarding the transaction filed in the Reserve Bank of India regarding the transaction, we are unable to uphold the view of the respondent that the income under the agreement is generated in India or that the amount is one not received in convertible foreign exchange. We are of the view that the income is received in India in convertible foreign exchange, in a lawful and permissible manner through the premier institution concerned with the subject-matter - the Reserve Bank of India.
In this view, we hold that the proceedings of the Central Board of Direct Taxes dated 11.3.1986, declining to approve the agreements of the appellant with M/s Sedgwick offshore Resources Ltd. London for the purposes of section 80-0 of the Income-tax Act, are improper and illegal. We declare so. we direct the respondent to process the agreements in the light of the principles laid down by us herein above. The appeal is allowed. There shall be no order as to costs."
9. From the above judgment it is observed that out of the total payment to be made by the insurance broker in India to the foreign insurer was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in the foreign exchange. The issue was whether the brokerage in Indian rupees retained by the Indian Insurance broker shall be treated as foreign exchange or otherwise. The hon'ble Supreme Court has held that the said amount of brokerage retained by the Indian insurance broker from the total amount due to the foreign insurer shall be treated as foreign exchange. In view of the above judgment, I am of the view that when a foreign bank is maintaining Indian rupees in their account obviously, such Indian rupees was obtained in lieu of foreign exchange. For example, if any payment is made from India to any foreign country, it is to be made in foreign exchange and thus there is a outflow of foreign exchange but if the payment is made in Indian rupees, there is a saving of foreign exchange and if the said Indian rupees is received in India, the same is in lieu of foreign exchange which was saved at the time of repatriation of Indian rupees to foreign country. On this logic under the Foreign Exchange Management Act also it provided that if the payment in India rupees is received in India through banking channel it is deemed to be convertible foreign exchange.
10. As regard the judgments relied upon by the learned counsel, I have gone through the same. However, same are need not be discussed, in view of my above discussion and the statutory provisions of the Foreign Exchange Management Act and hon'ble Supreme Court's judgment, I am of the considered view that even though the appellant received the payment in Indian rupees but the same is deemed to be convertible foreign exchange and accordingly the condition as provided under Rule 3(ii) of Export of Service Rules, 2005 stand complied with. The appellant filed the appeal in respect of the total amount of Rs. 12,62,158/-. However, from the Order-in-Appeal, I find that an amount of Rs. 1,64,081/- was held as admissible. Therefore, the appellant should not be aggrieved with this part of the amount.
11. On the other issues of admissibility of input service credit in respect of security services and air travel services, first of all, this issue of admissibility as input service was not raised in the show cause notice. Therefore, denial of refund of Rs.7,747/- and Rs. 1,051/-respectively is not correct. Secondly, the appellant is providing export services and for which they are using security services and air travel services, which in my view, has a direct nexus with the export services, accordingly the same are admissible input services.
12. In view of my above discussion, I am of the considered view that the impugned order deserves to be modified inasmuch as the impugned order in respect of Rs.1,64,081/- is upheld and the order rejecting refund of an amount of Rs. 10,98,077/- is set aside.
13. The appeal of the appellant is allowed in the above terms.
From the above judgment it can be seen that the facts of the present case is absolutely identical to the case in the above judgment, therefore the refund should not be rejected only on the ground that the foreign remittance received in Indian Rupees. AS regard the dispute raised in respect of admissibility of the Cenvat credit on certain services such as Clearing services (supply of plants), Car Hire Charges, Professional charges for assisting in MIS reporting requirement, service tax registration, IEC code, I find that since the appellant is service provider and their services are exported all these services appears to have been used by the appellant and therefore it cannot be said that the said services are not used in or in relation to providing out put services, therefore the said services are input services and Cenvat credit is admissible consequently refund should not have been rejected on this count. As regard the dispute raised on the classification, I have gone through the judgment in appellants own case passed by this Tribunal vide order dated 16/4/2015, wherein same services have been classified under management consultant services. Moreover there is no dispute, the services irrespective whether it falls under banking and financial services or under management consultant services, the services have been exported. Therefore in any case since the appellant have complied with condition provided under export of services Rules, 2005. The refund cannot be disputed only on the ground of classification. In view of my above discussion, the impugned order is set aside and appeal of the appellant is allowed with consequential relief, if any, in accordance with law.
(Dictated in court) Ramesh Nair Member (Judicial) sk 8