Custom, Excise & Service Tax Tribunal
M/S Airbus Group India Pvt. Ltd vs Cst, Delhi on 26 July, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING : 21/07/2016. DATE OF DECISION : 26/07/2016. Service Tax Appeal No. 58561 of 2013 [Arising out of the Order-in-Original No. 60/2012-13 dated 31/03/2013 passed by The Commissioner, Central Excise, Delhi.] For Approval and signature : Honble Shri Justice Dr. Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) 1. Whether Press Reporters 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 Lordships wish to see the fair : copy of the order? 4. Whether order is to be circulated to the : Department Authorities? M/s Airbus Group India Pvt. Ltd. Appellant Versus CST, Delhi Respondent
Appearance Shri B.L. Narsimhan, Advocate for the appellant.
Shri Ranjan Khanna, Authorized Representative (DR) for the Respondent.
CORAM : Honble Shri Justice Dr. Satish Chandra, President Honble Shri B. Ravichandran, Member (Technical) Final Order No. 52564/2016 Dated : 26/07/2016 Per. B. Ravichandran :-
The appeal is against order dated 31/3/2013 of Commissioner of Central Excise, Delhi II. The appellants were registered with the Department for discharging service tax under the categories of Business Auxiliary Service (BAS) and Business Support Service. Consequent upon audit of the records conducted by the officers in July, 2010 proceedings were initiated against the appellant for non-payment of service tax in respect of agreements entered into by the appellant with M/s EADS, France and EADS, GmbH, M/s Airbus S.A.S. and Astrium Ltd. The gist of the allegation of the Revenue is that the appellants failed to discharge service tax under the category of Business Auxiliary Service as they have undertaken various operations in India pursuant to the agreement with foreign companies. The second point is regarding non-payment of service tax under the category of manpower recruitment or supply agency service w.r.t. certain employees who were seconded to the appellant by the foreign companies. The service tax liability of Rs. 10,60,90,293/- and Rs. 3,61,77,248/- respectively were demanded from the appellant covering the period 2006 to 2011. On conclusion of the proceedings, the Original Authority confirmed the demand of the said amounts and imposed penalty of equivalent amount under Section 78 of the Finance Act, 1994 alongwith penalties under Section 77 (1) and 77 (2) of the said Act.
2. The learned Counsel for the appellant submitted elaborately against the impugned order. His submissions may be summarized as below :-
(1) the provisions of Export of Service Rules, 2005 for category III services for the period prior to 27/2/10 clearly established that there is no tax liability on the appellant;
(2) the appellants were providing Indian marketing information to identify the requirement of products of foreign companies in India as well as to create better visibility of the brand in India. The appellants assisted EADS France and EADS GmbH in the production of annual status of the local market and also on competition. Research of local market, collection of information, analysis of such information etc. is done on regular basis. The appellants also help in liaison work and assisting in holding event and seminar organized by EADS group in India. For all these services, the foreign companies pay remuneration in convertible foreign currency.
The services rendered by the appellant are actually used by EADS France and EADS GmbH located outside India and all payments are received in convertible foreign currency. Hence all the conditions of Export of Services Rules, 2005 are fulfilled ;
(3) the matter, now in dispute, has been settled in favour of appellant by various decisions of the Tribunal :-
(i) M/s Paul Merchants Ltd. vs. CCE, Chandigarh reported in 2013 (29) S.T.R. 257 (Tri. Del.) ;
(ii) Microsoft Corporation (I) Pvt. Ltd. vs. CST, New Delhi reported in 2014 (36) S.T.R. 766 (Tri. Del.) and
(iii) Gap International Sourcing (India) Pvt. Ltd. vs. Commissioner reported in 2015 (37) S.T.R. 757 (Tribunal).
(4) for the period post 27/2/2010 the appellants fulfilled the conditions for export of service and there is no dispute in this regard. The service has been provided to a recipient located outside India and payment has been received in convertible foreign currency ;
(5) regarding service tax liability under manpower recruitment and supply agency service, the appellants have not availed any service of such taxable category during the impugned period. The foreign companies [Airbus S.A.S., Astrium U.K. and Astrium] are not engaged in the business of supplying manpower to other companies. They do not fall under the category of manpower supply agency ;
(6) even otherwise the amount paid to foreign associate enterprises as a reimbursement cost for employees for secondment in India cannot form part of the gross value of the service imported by the appellant from foreign parties. There is no consideration charged by the foreign companies for the alleged service. It is only the cost of salary/wages which are reimbursed by the appellant ;
(7) Reliance was placed on :-
(i) CCE vs. Computer Sciences Corporation India Pvt. Ltd. reported in 2015 (37) S.T.R. 62 (All.) ;
(ii) CCE vs. Arvind Mills Ltd. reported in 2014 (35) S.T.R. 496 (Gujarat) ; and
(iii) Vokswagen India Pvt. Ltd. vs. CCE reported in 2014 (34) S.T.R. 135 (Tri. Mumbai).
(8) the terms of the agreement clearly show that the deputed employees shall work under the supervision of the appellant. All the legal liabilities w.r.t. employment like provident fund, TDS for income tax are all with the appellants. The salaries paid to the employees cannot be subjected to service tax ;
(9) without prejudice to all the above it is submitted that even in case the service tax liability arises the whole tax amount is available for credit and as such the whole exercise is revenue neutral.
3. The learned AR contested the submissions of the appellant. He submitted that the case laws relied on by the appellant were examined by the Original Authority and he came to the conclusion on tax liability after perusing the nature of agreement. He supported the findings of the lower Authority.
4. We have heard both the sides and examined the appeal records. On the first issue regarding tax liability of the appellant under BAS, a perusal of the general services agreement indicates the nature of service provided by the appellant to the foreign companies. These are mainly relating to research, collection and analysis of information in India, planning business analysis, giving advice, coordination, permission of products, representing foreign companies in the events and seminars etc. The admitted fact is that the foreign companies with whom the appellant entered into agreements do not have any office in India. These activities carried out by the appellant where services which are actually received and used by the foreign companies. The conditions of Rule 3 (1) alongwith sub-Rule (2) of Export of Service Rules, 2005 have been fulfilled in the present case by the appellant. The Original Authority recorded that though the order for providing impugned services came from foreign companies the said services were delivered to and used by customers of foreign company located within India. Hence he concluded the appellants rendered services in India which resulted in promotion of business of foreign companies and hence these should be considered for taxation as services provided within India. We also noticed that the learned Original Authority brushed aside the various decided cases relied upon by the appellant with cryptic remarks. In fact he also recorded that the Tribunals decision in favour of appellant in two cases have not reached finality as the SLPs are pending before Honble Supreme Court.
5. On the first issue relating the appellants liability under BAS it is now a well settled legal position that the service involved is in fact exported out of India and there is no service tax liability. In M/s Paul Merchants Ltd. vs. CCE, Chandigarh reported in 2013 (29) S.T.R. 257 (Tri. Del.) it is held that what constitutes export of service is to be determined strictly w.r.t. the provisions of Export of Services Rules, 2005. It is the person who requested for the service and is liable to make payment for the same who has to be treated as recipient of service and not the person affected by the performance of the service. Thus, when the person on whose instructions the services, in question, has been provided and is located abroad, the destination of services, in question, has to be treated abroad. The destination has to be decided on the basis of place of consumption, not the place of performance of service in case of Business Auxiliary Service. In Microsoft Corporation (I) Pvt. Ltd. vs. CST, New Delhi reported in 2014 (36) S.T.R. 766 (Tri. Del.), the Tribunal held that the Business Auxiliary Services of promotion of market in India for foreign company amount to export of services. The Export of Services Rules, 2005 is considered as destination based consumption tax in accordance with declaration of law by the Honble Supreme Court in All India Federation of Tax Practitioners vs. Union of India reported in 2007 (7) S.T.R. 625 (S.C.). In Gap International Sourcing (India) Pvt. Ltd. vs. Commissioner reported in 2015 (37) S.T.R. 757 (Tribunal) it is held that the Tribunal followed the similar ratio w.r.t. interpreting the Export of Service under BAS. We find that the decided case laws, as discussed above, and the factual position as reflected by the agreements entered into by the appellants clearly show that the impugned order regarding service tax liability of the appellant on these services is not legally sustainable.
6. The second point of dispute regarding service tax liability of the appellant, again on reverse charge basis, under the category of manpower recruitment and supply agency service, we find that the other parties of the agreement located abroad are not falling under the category of Manpower Recruitment and Supply Agency. The impugned order nowhere established that the foreign entities are involved in such business of manpower supply. The appellant have a strong case of this ground alone. Further, on perusal of the agreement we find that the employees are under the control and supervision of the appellants and their salary is disbursed by the appellant. All the statutory obligations as an employer, like payment of PF, TDS for income tax are all fulfilled by the appellant. It is not shown in the proceedings before the lower Authority that any consideration is being paid for obtaining manpower supply service from the foreign companies. The reimbursement amount paid by the appellant to the foreign companies is relating to the cost of salaries and wages of the employees working under the appellant. In CCE vs. Computer Sciences Corporation India Pvt. Ltd. (supra) the Tribunal held that for tax purposes the service provided must be by a manpower recruitment agency and such a service has to be in relation to supply of manpower. In CCE vs. Arvind Mills Ltd. (supra), the Honble Gujarat High Court held that deputation of employees from one company to another does not involve profit or finance benefit there is no relationship of agency and client involved in such deputation. In Volkswagen India Pvt. Ltd. vs. CCE (supra) the Tribunal held when the global employees working under the Indian company are working as their employees and having employee employer relationship there is no supply of manpower service and no tax liability arises.
7. Considering the above discussion and analysis, we find no merit in the impugned order and accordingly set aside the same. The appeal is allowed.
(Order pronounced in the open court on 26/07/2016.) (Justice Dr. Satish Chandra) President (B. Ravichandran) Member (Technical) PK ??
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