Bombay High Court
Hinjewadi vs M/S Sgs India on 15 September, 2014
Author: S.C. Dharmadhikari
Bench: S.C. Dharmadhikari, B.P. Colabawalla
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kps
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
CENTRAL EXCISE APPEAL NO.214 OF 2013
ALONG WITH
CENTRAL EXCISE APPEAL NOS.115/2013, 257/2013, 258/2013,
222/2013, 221/2013, 220/2013, 217/2013, 251/2013, 202/2013,
204/2013, 206/2013, 118/2013, 117/2013, 116/2013 and 256/2013.
Tech Mahindra Limited ]
having its office at Plot No. 1 ]
Rajiv Gandhi Infotech Park ]
Hinjewadi, Phase III ]
Pune - 411057. ig ] ..APPELLANTS/ASSESSEE
-VERUS-
The Commissioner of Central Excise, ]
Pune - III, ]
Having his office at ]
ICE House, 41-A, ]
Sasson Road, Opp. Wadia College ]
Pune - 411001. ] ..RESPONDENT/REVENUE
...........
Mr.V.Sridharan, Senior Advocate a/w Mr.Prakash Shah, Mr.Sandeep
Sachdeva and Mr.Jas Sanghavi i/by PDS Legal, for the Appellants/
Assessee.
Mr.Vijay Kantharia with Mr.J.B.Mishra, for the Respondent/ Revenue.
...........
CORAM: S.C. DHARMADHIKARI
AND
B.P. COLABAWALLA, JJ.
Reserved on : 14th July, 2014
Pronounced on : 15th September, 2014.
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JUDGMENT (Per S.C. Dharmadhikari, J.):
1 Since both sides agree that these Appeals involve common questions, they are being decided by this common judgment.
2 For properly appreciating the arguments of the parties, the facts in Central Excise Appeal No.214/ 2013 are referred to. This Appeal under Section 35G of the Central Excise Act, 1944 r/w Section 83 of the Finance Act, 1994 challenges the order passed by the Customs, Excise and Service Tax Appellate Tribunal (for short "CESTAT") dated 07.03.2013 in which it has been held that for the period upto 27.02.2010 the Appellants before us are not eligible for refund.
3 The Appeal is ADMITTED on the following substantial questions of law :-
(a) Whether in the facts and circumstances of the case, the CESTAT was correct in holding that onsite work undertaken at customer's premises of the Appellants does not fulfil the requirement of 'Service Provided from India' contained in first leg of Rule 3(2)(a) of the Export of Service Rules, 2005
(b) Whether the CESTAT erred in not considering the alternative plea of the Appellants, that in the event of first leg of Rule 3(2)(a) of Export of Service Rules, 2005 is held not satisfied, (i.e. Service provided from India), then Appellants are not liable to pay service tax under Section 66A on the amount charged by subsidiaries to Appellants for onsite work and hence is liable to be refunded treating the claim already made under Rule 5 of Cenvat Credit Rules, 2004 as claim for refund under Section 11B of the Central Excise Act, 1994, read with Section 83 of Finance Act, 1994?
(c) Whether the CESTAT erred in not accepting the alternate plea of the Appellants, that in the event it is ::: Downloaded on - 24/09/2014 23:16:13 ::: *3* cexa.214.13.group concluded that first leg of Rule 3(2) (a) of Export Rules, 2005 is not fulfilled (i.e. Service provided from India) then the service tax paid need not be paid under Section 66A by the Appellants on the amount charged by the subsidiary to the Appellants for onsite work and hence deserves to be refunded as the same is not payable under the law?
4 By consent of the learned counsel appearing for the parties, we have heard this Appeal finally.
5 The case of the Appellants briefly is that they are engaged in providing Software Developer Services mainly to overseas telecom operators. It is stated that the Union of India introduced a new tax called the "service Tax" in the Finance Act, 1994. Definitions of various terms used in the Finance Act, 1994 are provided in Section 65. During the impugned period i.e. November 2008 to 27.2.2010, the Services provided by the Appellants fall under the taxable service of 'Information Technology Software Service' (hereinafter referred to as "ITSS") vide clause "zzzze" of sub section (105) of Section 65 of the Finance Act, 1994. The said services became taxable w.e.f. 16.05.2008. This is the output service of the Appellants and Appellants are duly registered with Service Tax Department accordingly. According to the Appellants, they are providing these ITSS services mainly to its clients located outside India since 1990.
Roughly only 5 to 7% of the Appellants' turnover is from the clients located in India. Presently, the Appellants have operation in 47 countries across the world, out of which in 10 countries the Appellants have set up the subsidiaries and in 37 countries the Appellants have set up branches. Also within India Appellants are running its operations from nearly 20 locations spread throughout the country. Total work force of the ::: Downloaded on - 24/09/2014 23:16:13 ::: *4* cexa.214.13.group Appellants in India is 34,748. Total workforce engaged by the Appellants in their overseas branches is 8,360. Total work force engaged by subsidiaries outside India is 1,886. The management of the company i.e. head and the brain exists in India. Further the financial strength and technical skills also exist in India.
6 The software development service is a composite activity which consists of 7 stages namely, Requirement Study, Analysis, Design, Development, Testing, Implementation and Up gradation and Support.
Out of total seven different stages, main steps can be and are performed from locations in India whereas certain steps like Requirement Study, Testing, and Implementation and up gradation and Support are required to be performed at the customer's site. The scope of service to be provided to the client thus involves both Offshore and Onsite work. The Offshore work is undertaken by the Appellants in India whereas the Onsite work is undertaken by the Appellants with the help of their overseas branches/subsidiaries.
7 It is stated that in most of the cases, the Appellants enter into direct contract with their overseas customers for rendering the ITSS service. Annexure-A to the memo of Appeal is an illustrative copy of the agreement dated 28th December 2004 entered between the Appellants and M/s. AT&T Services Inc. A company duly incorporated under the laws of the United States of America. As per the contract, the Appellants have to perform both offshore and onsite activities as a part of single transaction. In other words, contract to provision of service is between Appellants and the overseas customer.
8 In case of the above referred direct contract between the
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Appellants and the customer, the offshore activities are undertaken by the employees of the Appellants in India. For undertaking onsite services, the Appellants enter into back to back agreements with its subsidiaries who act as a sub-contractor to the Appellants. Annexure-B to the Appeal is an illustrative copy of the contract entered with subsidiary namely 'Tech Mahindra Americas'. There are no privities of contract between subsidiary and the overseas client. The contract of service is between Appellants overseas client only for the entire work. As stated above, there is a contract of service between subsidiary and Appellants for onsite work to be undertaken by the subsidiary.
9It is stated that apart from the direct contract with the customer, only in few cases (approximately covering 2% of the total turnover) where the customers are requesting specifically for the subsidiary to enter into contract, the subsidiaries of the Appellants are entering into contract with the customers on behalf of the Appellants and due to lack of capability to perform the entire activity on their own, they are subcontracting the entire contract to the Appellants as such with all the risks and rewards. The present appeal pertains to the direct contract by the Appellants with the overseas clients. The subsidiaries are operating under cost plus model. They are charging the Appellants based on total cost incurred by them plus certain percentage of total cost as 'profit'. The same has been accepted by the Income Tax Authorities in the respective countries as at arm's length. For providing the software development services to the customer, the Appellants are raising either separate invoice for undertaking both onsite and offshore services or in some cases they raise the composite invoice for the same. Annexures C-1 to C-5 are specimen copies of the invoices raised by the Appellants during the period in dispute.
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10 Further, since the Appellants were rendering the services to
the customers located outside India and the consideration for the same has been received in convertible foreign currency, the Appellants have treated their services as export of services under the Export Rules, 2005. Therefore, Appellants have not paid service tax on the consideration received by the Appellants from their overseas customer. Revenue is also not seeking to levy service tax on the amount realized by the Appellants from their overseas customers in foreign exchange. In other words, there is no dispute in the present proceedings about non liability to tax of service rendered by Appellants to its overseas customer.
11 It is stated that normally, the liability to pay service tax is on service provider. However, under the law, in certain circumstances, the liability to pay service tax is shifted on the service receiver. This mechanism is popularly abbreviated as "reverse charge Mechanism"
wherein the liability to pay the service tax is shifted from service provider to service receiver.
12 It is further states that prior to 27.02.2010, in terms of the Export Rules 2005, to qualify a particular service as an export of service the following conditions are required to be satisfied:-
i) The recipient of the service is located outside India
ii) The service is provided from India and used outside India
iii) The consideration is received in convertible foreign exchange.
13 During the relevant period, the Appellants considered their services provided to overseas customer as export of services under the Export Rules and accordingly filed refund claims for accumulated CENVAT ::: Downloaded on - 24/09/2014 23:16:13 ::: *7* cexa.214.13.group Credit balance under the provisions of Rule 5 of the CENVAT Credit Rules, 2004 (hereinafter referred to as "Cenvat Rules") read with Notification No. 05/2006-CE Dated 14.03.2006. The refund claimed mainly related to service tax paid by Appellants on the amount charged by the subsidiaries to the Appellants for onsite work.
14 It is stated that the Revenue duly sanctioned the refund without any objection till October 2008. For the period from November 2008 to May 2009, the department viewed that out of the total service provided by Appellants to its customer, portion attributable to offshore services only constitutes export of service. The portion of output service pertaining to onsite service was considered as "services not provided from India". Consequently the said services would not qualify as export of service. Therefore, refund claimed under Rule 5 of the Cenvat Credit Rules, 2004 of service tax paid on input service was rejected on pro rata basis. Annexure E to the Appeal is an illustrative copy of the Order - in -
Original dated 31.03.2010 passed by the Adjudicating Authority for the month January 2009.
15 Both the Revenue and the Appellants have challenged the above said Order-in-Original before the Commissioner (Appeals). The Appellants have challenged the pro-rata rejection of refund claim to the extent attributable to the input services used for onsite services, whereas the revenue has challenged the order of Assistant Commissioner on the ground that the adjudicating authority should have rejected the refund claim fully. Annexures F-1, F-2, G-1 and G-2 to the memo of Appeal are copies of the appeals filed by the Appellants and Revenue.
16 It is stated that in the meantime, the Revenue has sought
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clarification from the Central Board of Excise & Customs ("CBEC") on the question with respect to admissibility of the refund claim filed by the Appellants for both onsite and offshore services by treating the same as export of service under the Export Rules. In response to the same, the CBEC vide letter dated 23 November, 2009 has clarified that refund claim pertaining to their onsite services may not be allowed as the services are not provided from India as the condition under Rule 3(2) of the Export Rules is not satisfied. Annexure-H is a copy of the said letter dated 23.11.2009 issued by CBEC.
17It is stated that appreciating the submission of the Appellants, the learned Commissioner (Appeals) vide common Order-in-Appeal No. PIII/VM/267-280/2010 dated 20.10.2010 has set aside all the OIOs pertaining to the period from November, 2008 to May 2009 and held that the onsite services provided by the Appellants through their subsidiary / branches would qualify as export of service. Annexure I to the Appeal memo is a copy of the Order - In - Appeal No. PIII/VM/267-280/2010 dated 20.10.2010.
18 It is stated that further, in view of the above said Order in Appeal passed by the learned Commissioner (Appeals), the balance refund claim amounting to Rs. 22,41,95,467/- pertaining to the onsite activities was received by the Appellants vide Pay Order dated 28th February 2011.
19 Aggrieved by the aforesaid Order-in-Appeal dated 20.10.2010, the Revenue preferred appeal before the CESTAT (hereinafter referred as Batch I appeals). The Revenue has challenged the said Order in Appeal mainly on the ground that providing service from India is one of the key conditions which need to be satisfied and the same has not been ::: Downloaded on - 24/09/2014 23:16:13 ::: *9* cexa.214.13.group satisfied in this case. Therefore, onsite services would not qualify as export of service. The revenue in their appeal, however has accepted that the onsite services provided by the Appellants through its branches and subsidiaries are used outside India. Annexure J is specimen copy of the said appeal filed by the Revenue for the month of January 2009. In response to the aforesaid appeal filed by the Revenue, the Appellants have also filed their cross objection before the CESTAT. Annexure K is a specimen copy of the cross objection dated 18.10.2011 filed by the Appellants against one of the appeals.
20It is stated that the Appellants continued to file the refund claim for the above said period and the adjudicating authority in line with the earlier orders has rejected the refund claim proportionately pertaining to the onsite activities and allowed the refund claim for the offshore activities. The Appellants have filed a separate appeal against each Order in Original passed, before the Commissioner (Appeals) and prayed to follow the order passed by his predecessor for the earlier period. The Commissioner (Appeals), however, vide common Order-in-Appeal No. PIII/RS/198-207/2011 dated 25.07.2011 has rejected all the appeals of the Appellants and has upheld the Order in Original passed by the adjudicating authority. While passing the said order-in-appeal, the learned Commissioner (Appeals) has not placed reliance on the OIA passed for the earlier period by his predecessor. Even in this order also, the learned Commissioner (Appeals) has accepted that the onsite services provided by the Appellants through their subsidiaries and branches are indeed used outside India still it would not qualify as export of service since the same has not been provided from India. Annexure L is a copy of the said Order in Appeal dated 25.07.2011 passed by the Commissioner (Appeals).
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21 In view of the above Order in Appeal, since the appeal of the
Appellants was rejected and the Order in Original was upheld, no refund proportionate to the onsite activities was granted to the Appellants. Being aggrieved by the aforesaid Order in Appeal dated 25.07.2011 passed by learned Commissioner (Appeals), the Appellants preferred appeal before the CESTAT (hereinafter referred as Batch II appeals). Annexure-M is a specimen copy of the appeal filed by the Appellants before the Hon'ble CESTAT.
22 The Appellants have also referred to the facts in the Revenue's Appeal which was for the period post 27.02.2010. That reference is to be found in paragraphs 9.1 and 9.2 of the memo of the present Appeal. Thus, the refund was granted by the Revenue and of Input Service Tax for the period from April, 2010 to September, 2010. The Revenue reviewed the refund sanctioned, but not disbursed the same for the period October, 2010 to January, 2011 and filed an Appeal before the Commissioner (Appeals) with regard to the refund granted to the Appellants during this period. It was urged that the Onsite Services provided by the Appellants would not qualify as Export of Service as the same are not provided from India. Upon being served with this Appeal, the Appellants filed the cross- objections before the Commissioner (Appeals). The Commissioner (Appeals) followed his prior order of 25.07.2011 and passed the order on the Revenue's Appeal allowing it. A copy of that order is at Annexure-Q dated 30.03.2012. Four identical orders and delivered on 30.03.2012 are, therefore, referred to and the grievance is that because of this order of the Commissioner (Appeals) the refund of service tax pertaining to Onsite Services was not disbursed to the Appellants.
23 Aggrieved by this order of the Commissioner (Appeals) the
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Appellants approached the CESTAT and the proceedings in relation thereto are referred to by the Appellants from paragraphs 9.6 to 13 of the memo of the present Appeal.
24 The outcome of this Appeal before the CESTAT was that it delivered an order on 07.03.2013. By that order the CESTAT allowed the Appeals of the Appellants covered in Batch-III i.e. for the period post 27.02.2010 and held that after the said amendment in the Export Rules, the Onsite Services provided by the Appellants would qualify as export of service. However, for the prior period such services would not qualify as export of service and that is how the present Appeal has been filed. On their own the Appellants have disclosed that the CESTAT has remanded the matter back for verification of the Cenvat Credit to the lower Authorities which was being denied on procedural grounds and which was an aspect or matter arising out of the first two batch of Appeals.
25 It is such controversy which is to be dealt with by us.
26 After referring to the background facts Mr.Sridharan, learned Senior Counsel appearing in support of this Appeal, submitted that the services provided by the Appellants fall under the Taxable Category noted above. He submits that the services become taxable with effect from 16.05.2008. This is an Output Service of the Appellants. The Appellants are duly registered with the Service Tax Department. Mr.Sridharan submits that the Appellants duly pay the Output Service Tax on the said services when provided to domestic customers. However, the services are mainly rendered to the customers of the Appellants located outside India. The entire consideration for the same has been received in convertible foreign currency. Therefore, the Appellants have not paid any Output ::: Downloaded on - 24/09/2014 23:16:13 ::: *12* cexa.214.13.group Service Tax on them. The Appellants term these services as one covered by the Export of Service Rules, 2005. Mr.Sridharan then submits that the service that is provided by the Appellants is of Software Development. It is a composite activity which consists of seven stages. Out of these stages the main step can be and is performed from locations in India whereas certain steps like requirement study, testing, implementation, up-gradation and support are necessarily to be performed outside India, namely, at the customer's site abroad. Thus, this is both Offshore and Onsite work.
27 The agreements with clients are then referred by Mr.Sridharan and he would urge before us that insofar as the offshore activities are concerned they are undertaken by the employees of the Appellants in India. However, for Onsite Services the Appellants entered into back to back agreements with their subsidiaries. Mr.Sridharan emphasized that the Contract of Service is only between the Appellants and the Overseas Client for the entire work. There is no privity of contract between the Appellants' subsidiaries and the overseas clients.
28 Mr.Sridharan submitted that the subsidiaries are operating on different basis, namely, they are charging the Appellants based on total cost incurred by them for rendering Onsite Services plus certain percentage of total cost as their profit. This method has been accepted by the Income Tax Authorities in the respective countries. The Appellants are rendering the Software Development Services to their customers and for which they are raising either separate invoices or single invoice, but separately indicating the consideration for Onsite and Offshore activities.
29 Inviting our attention to Section 66A of the Finance Act, 1994, Mr.Sridharan submits that the Appellants paid to the Central ::: Downloaded on - 24/09/2014 23:16:13 ::: *13* cexa.214.13.group Government the service tax under Reverse Charge Basis. That is on the footing that the services are provided by subsidiaries to the Appellants and further that the said services so provided by subsidiaries are received in India. The Service Tax is paid on the amount of consideration paid by the Appellants to the subsidiaries. This has been accepted by the Department. However, the services received by the Appellants through the subsidiaries were considered by the Appellants as Input Services required for providing Output Services to their clients. The Appellants, therefore, availed the Cenvat Credit of service tax so paid in terms of the Cenvat Credit Rules, 2004. Since major turnover of the Appellants constitutes export of services on which no service tax is payable, the Appellants were not in position to utilize the Cenvat Credit of the Input Services. The Cenvat Credit of the Input Services remains unutilized in the Books of Account of the Appellants. Hence, they filed the refund claims and which were related to the service tax paid by the Appellants on the amount paid to the subsidiaries for Overseas Work undertaken by the subsidiaries. These refunds were granted to the Appellants upto October, 2008, but with effect from November, 2008 the Department stopped granting refunds to the Appellants.
30 Mr.Sridharan submits that if the statutory provisions enacted by the Central Government, the Circulars, so also, the Press Note dated 11.05.2007 are perused, then, it would be apparent that the services received by the Appellants from the overseas subsidiaries will be deemed to be services provided by the Appellants in India. Mr.Sridharan submits that the above legal fiction created under Section 66A of the Finance Act, 1994 is not restricted in its application to Section 66A only. It extends to all the provisions of chapter V of the Finance Act, 1994. The entire law relating to Service Tax is governed by Chapter V of the Finance Act, 1994.
::: Downloaded on - 24/09/2014 23:16:13 :::*14* cexa.214.13.group The Export of Service Rules, 2005 are also under Chapter V of the Finance Act, 1994. Thus, the legal fiction created by Section 66A of the Finance Act, 1994 applies to the Export of Service Rules, 2005 also. Mr.Sridharan submits that the services have been provided by the subsidiary to the Appellants. The Appellants have duly paid the service tax under section 66A of the Finance Act, 1994 thereon. There is no dispute about this factual position. The Revenue has duly received and accepted these payments towards service tax made by the Appellants. Therefore, services provided by subsidiaries will be deemed to be services provided by the Appellants in India. Consequently, onsite services undertaken in the present case has to be considered as provided from India, for the purpose of Rule 3(2) (a) of the Export of Service Rules, 2005.
31 The next contention of Mr.Sridharan is that the service tax is a Contract Based Levy and leviable on each contract of service. Thus, it is a transaction based tax leviable on each contract of service. Mr.Sridharan submits that the provision of service is based on the contract between the parties. The service tax liability flows from the contract and follows the contract. Each contract is a distinct supply of service attracting the service tax liability. Mr.Sridharan then submits that the above submissions are based on several judicial pronouncements in India and abroad.
32 The next limb of Mr.Sridharan's argument is that there is privity of contract only between the Appellants and overseas customers and there is no such privity between the overseas subsidiaries and customers. It is in these circumstances that the doubt is raised that the service provided by the subsidiaries on site is provided outside India, but such doubt overlooks the deeming provision of Section 66A of the Finance Act, 1994. That section not only deems the Receiver of service as provider ::: Downloaded on - 24/09/2014 23:16:13 ::: *15* cexa.214.13.group of service, but also deems that the Recipient himself has provided the services in India.
33 Mr.Sridharan's next two contentions are that true effect of Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of the Export Service Rules, 2005 is that the phrase "service provided from India" appearing in Rule 3(2)(a) would have to be construed and interpreted as convening a meaning that in the case of services such as Information Technology, the Receiver thereof if located outside India, they would have to be treated as services provided from India. To that extent the first limb of Rule 3(2)(a) would be a link and common to Rule 3(1)(i) and (iii) and the Revenue's suggestion that the Onsite Work will not satisfy the phrase "provided from India"
appearing in the first limb of Rule 3(2)(a), would lead to a conflict and collision between Rule 3(1)(i) and Rule 3(2)(a) and similarly between Rule 3(1)(ii) and Rule 3(2)(a). In other words, if the said literal interpretation given by the CESTAT to Rule 3(2) is to be accepted, then, the immovable property based services [refer Rule 3(1)(i)] and performance based services [refer Rule 3(1)(ii)] forming part of the Export Rules would never ever qualify as Export of Service from India.
Therefore, such an interpretation of Rule 3(2) which makes Rule 3(1)(i) and Rule 3(1)(ii) of the Export Rules redundant cannot be accepted.
34 Mr.Sridharan then submits that true object of enacting the first limb of Rule 3(2)(a) is to prevent evasion of tax for purely domestic transactions by interposing artificial overseas intermediaries. The stipulation enacted in Rule 3(2)(a) as it stood from time to time is to achieve a definite object. The object is to prevent evasion of tax on what is essentially a local supply of service, by artificially interposing an overseas intermediary and avoid payment of tax on what is essentially an ::: Downloaded on - 24/09/2014 23:16:13 ::: *16* cexa.214.13.group out and out domestic supply.
35 Mr.Sridharan emphasized that A in India renders service to C in India pursuant to a contract between A and C. Suppose it is projected as if there is a contract between A in India and B (an intermediary located outside India) and another contract between B (outside India) with C (in India). Suppose, there is no economic or business substance in signing of contract between A and B on one hand and B and C on the other hand. There can be distinct possibility of evasion of tax in that situation. Also, it is possible that A in India renders service to C in India, but invoices B, a related party of C, outside India, without any re-invoicing by C to B. This can escape tax altogether.
36 Mr.Sridharan, therefore, submits that to avoid these situations alone, where artificial intermediaries can be introduced Rule 3(2) (a) has been enacted. First limb of Rule 3(2)(a) cannot apply where the final consumption and actual consumer of service is definitely outside India.
37 Mr.Sridharan submits that the Notification No.6/99-ST dated 09.04.1999 exempted payment of service tax if consideration is received in convertible foreign exchange. The said notification was rescinded by the Notification No.2/2003-ST dated 01.03.2003. Subsequently, the notification was restored vide Notification No.21/2003-ST dated 20.11.2003. This notification was rescinded when Export of Service Rules, 2005 were introduced. Under the notifications, services provided to a foreign tourist in India for which payment was received in foreign exchange was exempt from tax. Though service was rendered in India and consumed in India, services were exempt under the above notifications, since the only stipulation earlier was receipt of foreign exchange. To ::: Downloaded on - 24/09/2014 23:16:13 ::: *17* cexa.214.13.group rectify the same and align the export of service with best international practice, the Export of the Service Rules, 2005 were notified.
38 The final submission of Mr.Sridharan is that the amendment/ deletion made on 27.02.2010 is clarificatory and would govern all pending claims as well. Alternatively, if the stand of the Revenue that Onsite Services provided from outside India and not from India is accepted, then, Onsite Services provided by the subsidiaries cannot be considered as received in India. If the services of subsidiaries are not received in India, then, no service tax is payable on them under Section 66A of the Finance Act, 1994. The amount of tax already paid by the Appellants on the same under Section 66A is, therefore, required to be refunded in terms of Section 11B of the Central Excise Act, 1944 r/w Section 83 of the Finance Act, 1994. In other words, if the services of subsidiaries are not received in India, then, the Appellants are not required to pay the service tax under the Reverse Charge Mechanism on the amount paid to the subsidiaries under Section 66A. Mr.Sridharan relies upon the Circular being F.No.B1/4/2006-TRU dated 19.04.2006 in this behalf. Mr.Sridharan also submits that on the alternate footing a portion of refund was already sanctioned by the Department and which shows that the claims are within time. The CESTAT erred in not deciding this alternate contention on the specious footing that it was not raised before the lower Authorities. This finding of the CESTAT is factually and legally incorrect. The alternate claim was raised before the first Appellate Authority. The Appellants have also raised that contention in a third batch of appeals before the CESTAT. There was also the Miscellaneous Application which was filed to urge this additional ground in two appeals before the CESTAT. Therefore, as a last fact finding authority the CESTAT was bound to look into the question of fact and law particularly when the ::: Downloaded on - 24/09/2014 23:16:13 ::: *18* cexa.214.13.group record in that behalf was available. The refund ought to have been granted because the claim in that behalf was based on a statutory provision. Section 11B of the Central Excise Act, 1944 was invoked in that regard. Therefore, the CESTAT should have considered this aspect of the matter and dealt with it. Having not dealt with the same vitiates the order passed by the CESTAT.
39 In support of the above submissions Mr.Sridharan has placed reliance upon the following materials:-
(1) Section 64 of the Finance Act, 1994, (2) Section 65(105) of the Finance Act, 1994, (3) Sections 66, 66A of the Finance Act, 1994, (4) The Export of Service Rules, 2005 as amended from time to time, (5) The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, (6) Rule 5 of the Cenvat Credit Rules, 2004, (7) The Commissioner of Service Tax v/s M/s SGS India Private Limited reported in 2014 TIOL 580 (HC- Mum-ST) : Central Excise Appeal No.57/2012 dated 23.04.2014, (8) The All India Federation of Tax Practitioners v/s Union of India reported in 2007(7) STR 625 (SC), (9) The Commissioner of Inland Revenue v/s Databank Systems Limited in Privy Council Appeal No.39/1989 decided on 23.07.1990. (10) Customs and Excise Commissioner v/s Redrow Group PLC reported in (1999) 1 Weekly Law Report 408. 40 On the other hand, Mr.Kantharia, learned counsel appearing
for the Revenue, submits that these Appeals are liable to be dismissed. Mr.Kantharia submits that the CESTAT has correctly appreciated the facts of the case and considered the material on record and discussed the same at paragraph Nos.5.5, 5.6 and 5.7 of the impugned order. Mr.Kantharia ::: Downloaded on - 24/09/2014 23:16:13 ::: *19* cexa.214.13.group submits that the above findings of the CESTAT are correct in law and facts, which can be further seen from the material on record of the present Appeal proceedings. At page No.90 Exhibit-B of the Appeal memo being Appeal No.214/2013 the Appellants have annexed Contract Service Provider Agreement. The recital of the said Agreement between the Appellants and Tech Mahindra (Americas) Inc., inter alia provides various clauses. Clause-D inter alia provides that "TMInc in certain cases may enter into contracts in its own name with the customers based in USA while rendering the agreed services to TML, for such Onsite Services to be provided by TMInc, both the parties agree to enter into separate contracts." Further at Clause G it is inter-alia provided that "On and from the Appointed Date, TML has appointed TMInc as a contract service provider for providing onsite software development services and which appointment TMInc has accepted."
41 Mr.Kantharia submits that it is not in dispute that Tech Mahindra Americas Inc. is incorporated in America and not an Indian Company. From the combined reading of the above two clauses it is clear that Tech Mahindra Americas Inc. is a Software Developer. The Agreement between the parties in clear terms, appears to be "an agreement for outsourcing software development, onsite at overseas customer's premises". The aforesaid is further evident from clauses 3, 4, 6 and 19 of the said Agreement. The Appellants also do not seem to be disputing that whatever services are provided by Tech Mahindra Americas are onsite overseas and not in India. Strangely, the Appellants seem to have even admitted at paragraph 17.1 of their Written Submissions inter alia that "the Appellants are receiving services from their overseas subsidiaries". Mr.Kantharia, therefore, submits that if the Appellants are receiving the services from their overseas subsidiaries, then, it cannot by any stretch of ::: Downloaded on - 24/09/2014 23:16:13 ::: *20* cexa.214.13.group imagination, said to be "export of service from India" to the Appellants' overseas customers. Such services can at the highest be termed as import of service within the meaning of "Taxation of Services (Provided from Outside India and received in India) Rules, 2006". Thus, in view of the above clear cut admission on the part of the Appellants and material on record the CESTAT has correctly held that onsite work has been undertaken at the customers' premises of the Appellants and it does not fulfill the requirement of "services provided from India contained in first leg of Rule 3(2)(a) of the Export of Service Rules, 2005".
42Mr.Kantharia then submits that the questions at paragraph No.15 of the appeal memo do not arise from the impugned order as the alternative plea was never taken by the Appellants before the lower authorities. In support of its contentions on the above issues, the Appellants have relied upon Section 66A of the Finance Act, 1994. It is submitted that the true meaning and interpretation of Section 66A of the Finance Act, 1994 is to provide for payment of service tax by the service recipients on reverse charge mechanism which is clarified in a Circular issued by the Central Board of Excise and Customs simultaneously, with the introduction of Section 66A of the Finance Act, 1994 vide F.No.B1/41/2006-TRU dated 19.04.2006. Mr.Kantharia submits that the plain reading of Section 66A would amply make it clear that the Legislative intention for inserting Section 66A is for making provisions in law for payment of service tax by the recipient of service in India from the service provider situated outside India and for the said purpose "the Taxation of Services (Provided from Outside India and received in India) Rules, 2006" have been framed under Sections 93, 94 r/w Section 66A of the Finance Act, 1994. It is, therefore, submitted that if the Appellants are relying upon the payment of service tax under the reverse charge ::: Downloaded on - 24/09/2014 23:16:13 ::: *21* cexa.214.13.group mechanism under Section 66A of the Finance Act, 1994, then, it cannot be considered as export of service within the meaning of Rule 3(2)(a) of the Export of Service Rules, 2005. Thus, the arguments advanced on behalf of the Appellants, according to Mr.Kantharia, are self-contradictory, creating bundle of confusion attributable to the Appellants.
43 Mr.Kantharia then submits that as far as the stand of the Revenue is concerned, it is with complete clarity that "onsite service"
provided by the Appellants' subsidiary, namely, Tech Mahindra Americas Inc. cannot be treated as export of service because it does not satisfy the condition inter alia that the services are provided from India and used outside India.
44 Lastly, Mr.Kantharia submits that the alternative plea of claim of refund is correctly not considered by the CESTAT for cogent reasons set out in paragraph 5.9 of the impugned order. It is pertinent to note that for claiming refund under Section 11B of the Central Excise Act, 1944 a proper application in a prescribed format is required to be made before the jurisdictional Assistant Commissioner of Central Excise within one year from the relevant date. Admittedly, no such application has been made by the Appellants. In the absence of the specific application, the process cannot be set in motion and thus, no relief can be granted to the Appellant. It is a settled position in law that every refund claim has to be adjudicated by the Adjudicating Authority on the merits of each case following due process of law and principles of natural justice. Mr.Kantharia submits that the Appellants' alternative plea before the CESTAT would have been valid if they had made a proper application in a prescribed manner within the period of limitation. Admittedly, in the present case, no application has been made by the Appellants in the ::: Downloaded on - 24/09/2014 23:16:13 ::: *22* cexa.214.13.group prescribed format under the provisions of Section 11B of the Central Excise Act, 1944 and therefore, the Appellants' alternative plea is without merit and correctly rejected by the CESTAT. In such circumstances the Appeal deserves to be dismissed.
45 For proper appreciation of the rival contentions a reference will have to be made to the relevant facts as also statutory provisions.
46 The issue before the Authorities arose from the Corporate Frame Agreement for Development of Software-Hardware and related services. This Agreement of 01.01.2007 is between Compagnie Financiere Alcatel-Lucent under which the Appellant M/s Tech Mahindra Limited is described as a supplier and the customer means any subsidiary of Alcatel- Lucent. The Appellants' case is that any software development service is a composite activity of several stages under which offshore work is undertaken by the Appellants in India whereas the Onsite Work is undertaken by the Appellants with the help of their overseas branches/ subsidiaries. The agreement, copy of which is at Annexure-A, with M/s AT&T Services Inc. is referred to as an illustrative agreement with the Overseas Customers for rendering the Information Technology Software Services. This is a single transaction, according to the Appellants, whereunder both Offshore and Onsite Services were to be provided.
47 The case is that the Offshore Services are undertaken by the employees of the Appellants in India, but for undertaking Onsite Services with the parties like M/s AT&T Services Inc. USA the Appellants entered into the back to back agreement. Such agreements are entered into with the subsidiaries of the Appellants to act as a sub-contractor so that the customers of the Appellants abroad get the Onsite Services. The ::: Downloaded on - 24/09/2014 23:16:13 ::: *23* cexa.214.13.group Appellants' claim is that there is no privity of contract as between these subsidiaries and customers.
48 The Contract Service Provider Agreement, copy of which is at Annexure-B between the Appellants in India and Tech Mahindra (Americas) Inc., a corporation incorporated under the laws of United States of America, is, therefore, referred to. Some of the recitals in the same will have to be noted. Before that we must clarify that the Appellants before us are referred to as Tech Mahindra Limited (for short TML) whereas the other party has been referred to as Tech Mahindra (Americas) Inc. (for short TMInc). Recital No.1 clarifies that TML is in the business of development of software mainly in the telecom sector in India and abroad.
TMInc is in the business of rendering the services for development of computer software and other related services in America. TML will be securing contracts for rendering services for development/ modification of software and other relates services to the customers based in America.
Clauses D, E, F and G of Recital 1 at page 91 of the paper book would read as under:-
"D. TMInc in certain cases may enter into contracts in its own name with the customers based in USA while rendering the agreed services to TML, for such Onsite Services to be provided by TMInc, both the parties agree to enter into separate contracts.
E. Such contracts may envisage some part of the contract to be executed physically at America in interaction with the customer at their sites. (onsite services) F. TMInc has represented to TML that it has the capabilities of rendering such onsite services in the America.
G. On and from the Appointed Date, TML has appointed TMInc as a contract service provider for providing onsite software development services, and which appointment TMInc has accepted."::: Downloaded on - 24/09/2014 23:16:13 :::
*24* cexa.214.13.group
49 A bare perusal of these clauses together with the definitions
in recital 2, the provision for software services in recital 3, recital 4 which sets out responsibilities of TMInc and recital 5 which sets out responsibilities of TML, would indicate that TMInc was to only provide software and related services at client's site, undertake development and delivery of software solutions, install, implement new software solutions or technology at client's site. TMInc was to provide personnel, but overall responsibility of the services is with TML. The invoices are also referred to, but we find from perusal of this material that the Appellants cannot derive any advantage by bifurcation and arrangement between them and TMInc.
The argument is that by a fiction the service is received from India. Further argument is that the services are provided from the locations in India. However, the Tribunal in dealing with these submissions eventually held that there are 21 refund claims filed by TML. Out of these, 16 claims are pertaining to the period prior to 27.02.2010 and starting from November, 2008. The remaining 05 claims are pertaining to the period post 27.02.2010. The TML's claim was that it has exported the taxable output services from India. The Tribunal held that admittedly some portions of the output service has been provided to the overseas customers by the TML's subsidiaries located outside India as per the contracts between TML and it's overseas customers or between TML and it's subsidiaries located outside India. The conclusion of the Tribunal is that some portions of services may have been provided to the overseas customers by the Appellants' subsidiaries located outside India, but these are services used outside India. The activity of the Appellants, therefore, cannot be termed as export of services from India in terms of Rule 3(2) of the Export of Service Rules, 2005 as they existed at the relevant time i.e. ::: Downloaded on - 24/09/2014 23:16:13 ::: *25* cexa.214.13.group upto 27.02.2010. The Tribunal has referred to the relevant rules in detail. Rule 3 deals with export of taxable service and reads as under:-
"3. Export of taxable service.-
(1) Export of taxable services shall, in relation to taxable services‚ -
(i) specified in sub-clauses (d), (m), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), [(zzzy), (zzzz), (zzzza), (zzzzm), (zzzzu), (zzzzv) and (zzzzw) of clause (105) of section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India;
(ii) specified in sub-clauses (a), (f), (h), (i), (j), (l),
(n), (o), (w), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv),(zw),(zz), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzl), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzk), (zzzzl) and (zzzzo) of clause (105) of Section 65 of the Act, be provision of such services as are performed outside India:
Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India;
[Provided further that where the taxable services referred to in sub-clauses (zzg) and (zzi) of clause (105) of section 65 of the Act, are provided in relation to any goods or material or any immovable property, as the case may be, situated outside India at the time of provision of service, through internet or an electronic network including a computer network or any other means, then such taxable service, whether or not performed outside India, shall be treated as the taxable service performed outside India;]
(iii) specified in clause (105) of section 65 of the Act, but excluding‚ -
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this rule ::: Downloaded on - 24/09/2014 23:16:13 ::: *26* cexa.214.13.group except when the provision of taxable services specified in sub-clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property; and
(c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service:
Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.
[Provided further that where the taxable service referred to in sub-clause (zzzzj) of clause (105) of section 65 of the Act is provided to a recipient located outside India, then such taxable service shall be treated as export of taxable service subject to the condition that the tangible goods supplied for use are located outside India during the period of use of such tangible goods by such recipient.] (2) 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) .......
(b) payment for such service is received by the service provider in convertible foreign exchange.
Explanation.- For the purposes of this rule "India" includes the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof."
::: Downloaded on - 24/09/2014 23:16:14 ::: *27* cexa.214.13.group
50 A perusal thereof would clarify that the export of taxable
services shall, in relation to taxable services referred to in clause (i), be provision of such services as are provided in relation to an immovable property situated outside India. Clause (ii) of sub-rule (1) of Rule 3 specifies and refers to the services as are performed outside India. The proviso thereto clarifies that where such taxable service is partly performed outside India it shall be treated as performed outside India. This is the effect of two provisos below clause (ii). Thereafter, third category is specifying the services in clause (105) of Section 65 of the Finance Act, 1994, but excluding those in sub-clauses (a) to (c) of clause
(iii) of sub-rule (1) of Rule 3 of the Export of Service Rules, 2005. The analysis of the same by the Tribunal reveals that it has understood the categories correctly. It has understood the categories as specified services in respect of an immovable property situated outside India, the category of the services wholly or partly performed outside India and the category which deals with the services in respect of which a recipient is located outside India. This position as is emerging from unamended rule reveals that sub-rule (2) of Rule 3 had earlier clause (a) which came to be omitted. Prior to it's omission, clause (a) read as noted by the Tribunal in paragraph 4.3 of its order. Prior to it's omission that clause (a) read as "such service is provided from India and used outside India". The case of the Appellants is for the period prior to and post omission of this clause.
Therefore, the categorization made by the Tribunal and the conclusion based thereon in paragraph 5.5. of it's order cannot be faulted. Net effect is that the export of taxable service in relation to taxable services specified by Section 65(105) of the Finance Act, 1994 and in the context of performance of services as are specified in category (iii) of sub-rule (1) of Rule (3) of the Export of Service Rules, 2005, would come within the purview of the Rule as this stood at the relevant time only if the conditions ::: Downloaded on - 24/09/2014 23:16:14 ::: *28* cexa.214.13.group are satisfied and these conditions are to be found in Rule 3(2). The earlier twin conditions were as noted by us above. Therefore, the first condition was that the service is provided from India and used outside India and payment for such service is received by the service provider in convertible foreign exchange. However, the scenario changed, namely, amendment made on 01.03.2007 and later amendments and the condition is that the payment for such service is received by the service provider in convertible foreign exchange. In the present case the first condition (clause (a)) with regard to provision of service from India and its use outside India has not been satisfied. The services have been performed at overseas' customers' site by the subsidiaries of the Appellants, though they may be to the customers of the Appellants. However, these services have not been provided by the Appellants, but claimed to be provided by their subsidiaries. The agreement has been referred to in great details by the Tribunal and it arrived at a conclusion that there may not be any privity of contract as between the subsidiaries of the Appellants and customers, but the situs of service and its provision is both abroad. With the provision of service and site at which the service is provided the Appellants who are in India cannot be said to be involved. The service has been held to be not provided by the Appellants from India. The conclusion of the Tribunal is that the service has not been provided from India. If it is not provided from India, then, no export of taxable service insofar as the Appellants are concerned takes place. The conclusion in paragraphs 5.5 and 5.6 is based on the service provided and activities undertaken on site. The nature of services and activities undertaken reveal that they cannot be provided from India. The Central Board of Excise and Customs' clarification was also sought and that is also referred to by the Tribunal. It is in these circumstances that the Tribunal rejected the Appeal of the Appellants and to the extent noted above, namely, refund claims concerning the period ::: Downloaded on - 24/09/2014 23:16:14 ::: *29* cexa.214.13.group prior to 27.02.2010.
51 Mr.Sridharan has referred to in the Written Argument, as also, orally to the location of beneficiary and urged that if the principal beneficiary is outside India, then, it is considered as export of service. In that regard what we find is that Mr.Sridharan relies on a legal fiction and which is to be found in Section 66A of the Finance Act, 1994 and reads as under:-
"66A. Charge of service tax on services received from outside India -
(1) Where any service specified in clause (105) of section 65 is,--
(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:
Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:
Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.::: Downloaded on - 24/09/2014 23:16:14 :::
*30* cexa.214.13.group
(2) Where a person is carrying on a business through a
permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.
Explanation 1.-- A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.
Explanation 2.--Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.] (3) The provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint."
52 We do not see as to how this Section can be of any assistance because that provides for charge of service tax on services received from outside India. It is in that context that the Legislature states and in clearest terms that where any service specified in Section 65(105) of the Finance Act, 1994 is provided or to be provided by a person who has established a business or has a fixed establishment from which the same is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and it is received by a person who is based in India, then, the service for the purposes of this Section would be taxable service. For that reason the Legislature states that it is a taxable service because it shall be treated as if the recipient himself has provided the service in India. If the recipient of service is based in India, then, the service is treated as taxable though the same is received from outside India. That is why all provisions of the Chapter would apply. The first submission of Mr.Sridharan, therefore, need not detain us.
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53 The second submission of Mr.Sridharan is that the service tax
is a contract based levy and leviable on each contract of service. It is thus a transaction based tax leviable on each contract of service. Reliance is placed by him on the judgment of the Honourable Supreme Court in the case of All India Federation of Tax Practitioners v/s Union of India reported in 2007(7) STR 625 (SC) and the judgment delivered by this Court to which one of us is a party in Commissioner of Service Tax v/s M/s SGS India Private Limited reported in 2014 TIOL 580 (HC-Mum-ST) : Central Excise Appeal No.57/2012 dated 23.04.2014. He also placed reliance upon the Privy Council judgment in Commissioner of Inland Revenue v/s Databank Systems Limited in Privy Council Appeal No.39/1989 decided on 23.07.1990.
54 There is no dispute about the proposition laid down in these judgments. However, in each of them the issue raised essentially was, for illustration, in a case when a provider of service is rendering service such as testing of samples of goods imported from India by a buyer abroad and a report of such test and analysis has been dispatched abroad, consideration or fee for such service was received by the service provider in convertible foreign exchange, can the same be liable to be taxed in India. In other words, whether the service tax in terms of the afore referred provision can be levied, assessed and recovered on the service provided in India or whether it is export of service and therefore, not exigible to such tax. It is in that context that the Division Bench to which one of us was a party (S.C.Dharmadhikari, J.) in SGS India Private Limited (supra) referred to the judgment of the Honourable Supreme Court in the case of All India Federation of Tax Practitioners (supra). That was to ::: Downloaded on - 24/09/2014 23:16:14 ::: *32* cexa.214.13.group understand and appreciate the nature of tax. The elucidation and exposition of law in this judgment of the Honourable Supreme Court was referred for the purpose of eventually holding that a provider of service and of the aforesaid nature would not invite tax liability. All these judgments, therefore, cannot assist the Assessee in this case as we are not called upon to answer the issues posed therein.
55 Yet, Mr.Sridharan persists and relies upon the decision of the House of Lords in Customs and Excise Commissioner v/s Redrow Group PLC reported in (1999) 1 Weekly Law Report 408. The facts in that case are typical. The Redrow wanted to sell it's flats to customers. The customers already owned flats. Unless the existing flats are sold by the customers, they would not be interested in purchasing the flats from Redrow. Redrow entered into contract with the agents. The agents would enable the customers to sell their flats. The charges were to be borne by Redrow. The Agents charged Redrow their consideration for the services and also the value added tax thereon. Redrow sought to take credit of input service on the ground that they are recipient of service. The Revenue contended that the services were provided by the Real Estate Agents to the customers and not to Redrow. The question arose whether Redrow was recipient of service and the House of Lords held in Redrow's favour. In that context the findings and observations relied upon by Mr.Sridharan should be noted and seen. In the present case we have a provision and which is to be found in our Finance Act. That is of levy and imposition of service tax. The services provided by the subsidiaries of the Appellants to the customers abroad and onsite are said to be provided by the Appellants. This is on the footing that there is no privity of contract between the subsidiaries of Appellants and overseas clients. The argument is that the subsidiaries are charging the Appellants based on total costs incurred by them while ::: Downloaded on - 24/09/2014 23:16:14 ::: *33* cexa.214.13.group rendering onsite services plus total costs of their profit. Therefore, the argument canvassed was that these are input services which are received by the Appellants for providing output services to the clients. The controversy arose in the relevant years. However, we are not impressed by Mr.Sridharan's reliance on Redrow (supra) as the situation in that case was entirely distinct. Redrow was given the benefit because the connection between them and customer was clear. It is the customer's flat which was to be disposed of and the responsibility of the same was with Redrow. All that happened was that this service of disposal of existing flat was rendered by Redrow through it's agent. In these circumstances that the conclusions were rendered and in favour of Redrow.
56 The submission on lack of privity of contract between overseas subsidiaries and the customers need not detain us. For the same reasons as recorded above we find no substance in the same.
57 The other submission of Mr.Sridharan pertains to the Export of Service Rules, 2005. The argument proceeds on the footing that it is difficult to determine the situs or locale of the service. Rule 3(1)(i), (ii) and (iii) of the Export of Service Rules, 2005 have been enacted so as to overcome the difficulty of determining the situs or locale of service.
58 In that context, a closer look at these Rules would be necessary. The Export of Service Rules, 2005 were notified by Notification No.9/2005-ST dated 03.03.2005. Rule 3 defines what is export of taxable service. The definition was substituted with effect from 19.04.2006. The export of taxable service in relation to taxable services which have been referred to in clause (i) of sub-rule (1) of Rule 3 is in relation to an immovable property situated outside India.
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59 Then comes Rule 3(1)(ii) and which relates to taxable service
specified in sub-clauses of clause (105) of Section 65 of the Finance Act, 1994. However, the services referred therein are those which are performed outside India. The first proviso below this was stating that if such taxable service is partly performed outside India it shall be considered to be performed outside India. Then, there is a further proviso of this sub-rule wherein it was stated that any taxable service provided shall be treated as export of service only if such service is delivered outside India and used in the business or any other purposes outside India and payment for such service provided is received by the service provider in convertible foreign exchange. [see Rule 3(2)].
60 Rule 3(1)(iii) refers to all such taxable services specified in clause (105) of Section 65 of the Finance Act, 1994, but excluding those in sub-clauses (zzzo) and (zzzv) and those specified in clause (i) of this Rule except when the provision of taxable services specified in sub-clauses
(d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property. Thus, the classification appears to be of taxable service in relation to immovable property which is situated outside India and if it satisfies the conditions in the proviso below sub-rule (1) of Rule 3, then, there is stipulation in relation to taxable services referred to in several sub-clauses of clause (105) of Section 65 of the Finance Act, 1994 and specified in Rule 3(1)(ii). That is in relation to taxable services, specified in these sub- clauses of clause (105) of Section 65 of the Finance Act, 1994 which sub- clauses have been specified in Rule 3(1)(ii), as are performed outside India. However, in relation to that also if such taxable service is performed partly outside India it shall be considered to have been performed outside India. The further proviso below sub-rule (2) as it then stood stated that ::: Downloaded on - 24/09/2014 23:16:14 ::: *35* cexa.214.13.group for the purpose of sub-rule (2) of Rule 3 of the Export of Service Rules, 2005 any taxable service provided shall be treated as export of service only if such service is delivered outside India and used in the business or any other purpose outside India and payment for such service provided is received by the service provider in convertible foreign exchange. Rule 3(1)
(iii) takes within its fold the services other than those part of Rule 3(1)(i) and (ii) and stipulates that such taxable services which are provided and used in and in relation to commerce or industry and the recipient of such services is located outside India provided that such recipient has commercial or industrial establishment or any office relating thereto in India, then, such taxable services shall be treated as export of service only if the order for provision of such service is made from any of its commercial or industrial establishment or any office located outside India. The service so ordered is delivered outside India and used in the business outside India and payment of such service provided is received by the service provider in convertible foreign exchange. Then, there is broad category referring to such taxable services which are provided and used other than in or in relation to commerce or industry, if the recipient of taxable services is located outside India at the time when such services are received.
61 There is substitution as we have said above and what we find is that below Rule 3(1) and it's clauses, Rule 3(2) has been substituted with effect from 01.03.2007 by Notification No.2/2007-ST dated 01.03.2007. Rule 3(2)(a) has been omitted with effect from 27.02.2010. The words "such service is provided from India and used outside India; and"
were omitted with effect from 27.02.2010 by Notification No.6/2010-ST dated 27.02.2010. Thereafter, the only condition remained to be satisfied and for the purpose of being qualified or termed as export of taxable ::: Downloaded on - 24/09/2014 23:16:14 ::: *36* cexa.214.13.group service is that any taxable service specified in sub-rule (1) of Rule 3 shall be treated as such when the payment for such service is received by the service provider in convertible foreign exchange. We are concerned with the situation prior to this omission. We are of the view that if Mr.Sridharan's submissions have to be accepted, then, we must ignore this omission.
62 The Export of Service Rules, 2005 have been amended and substituted on several occasions after they came into force on 15.03.2005.
We have noted these amendments carefully. In that regard we have referred to the Notification No.28/2005-ST dated 07.06.2005 and we have also referred to the Notification published in the Official Gazette on 19.08.2009 bearing No.25/2009-ST notifying the Rules entitled "Export of Service (Amendment) Rules, 2009". We have also noted the Notification dated 31.03.2011 bearing No.22/2011-ST published in the Official Gazette and in addition to one noticed above. We are of the view that the Tribunal was right in it's conclusion that the services provided do not satisfy the requirement of the Export of Service Rules, 2005 as prevailing prior to their amendment with effect from 27.02.2010. In such circumstances any wider questions or controversy need not be gone into and decided. The Written Submissions of the Appellants referred to the services in relation to immovable property and based on that the arguments are canvassed. We are of the view that there was no Rule 3(1)
(ii) of the Export of Service Rules, 2005 as initially introduced. There was Rule 3(1)(i) and (iii). We are not in agreement with Mr.Sridharan that the business establishment of the service provider is in India and final consumption and consumer is outside India. We find that the provider of service is also a subsidiary outside India and recipient is also outside India.
In such circumstances we do not see any reason for placing reliance on ::: Downloaded on - 24/09/2014 23:16:14 ::: *37* cexa.214.13.group these Rules and the Tribunal has rightly negatived such arguments in paragraph 5.5 of the impugned order. The view taken is in consonance with the material placed on record including clauses of the agreement.
Apart from the fact that the subsidiaries are being termed as independent entities what we find that onsite services provided admittedly by them have not been rendered from India. The Appellants' customers are abroad and the services provided to them are also not rendered from India. In such circumstances the reasoning in paragraphs 5.5 and 5.6 of the impugned order cannot be said to be perverse or vitiated by any error of law apparent on the face of record. Any larger controversy as held above need not be addressed.
63 We are not with Mr.Sridharan in his submission that the amendments/ deletions made with effect from 27.02.2010 are clarificatory and would govern all pending claims as well. For the reasons that we have assigned and finding that the omission was made with effect from 27.02.2010 so also the reasons for the same that this contention of Mr.Sridharan cannot be accepted.
64 Finally with regard to the claims of refund what we find is that the Appellants had not invoked any specific provision and made an application under the same to claim refund. They could not have invoked Section 11B of the Central Excise Act, 1944 during the course of the proceedings. In the facts and circumstances of the present case Mr.Kantharia is right in urging that the reasons assigned in paragraph 5.9 of the impugned order by the Tribunal cannot be faulted. There is no application made in a prescribed format and time by the Appellants to claim the refund. The refund claim will have to be decided in accordance with the provisions and after the compliance is made with the procedural ::: Downloaded on - 24/09/2014 23:16:14 ::: *38* cexa.214.13.group formalities set out therein. Today, we cannot entertain the argument alternatively made on the claim of refund without any such compliance leave alone any application. For all these reasons we do not find any basis for the alternate claim as well. In the event the Appellants wish to make any such claim it is open for them to invoke the provisions in that regard and as available in law.
65 Having dealt with all the contentions of Mr.Sridharan and finding no force in them we are of the view that the questions of law framed above will have to be answered against the Assessee and in favour of the Revenue. They are answered accordingly. The Appeals are dismissed. There will be no order as to costs.
(B.P. COLABAWALLA, J.) (S.C. DHARMADHIKARI, J.)
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