Custom, Excise & Service Tax Tribunal
Sun-Area Real Estate Pvt. Ltd vs Mumbai I on 16 April, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/88549/2014
[Arising out of Order-in-Appeal No: 575/PD/14 dated 29/04/2014passed by the Commissioner of Central Excise & Service Tax (Appeals IV), Mumbai Zone I.]
For approval and signature:
Honble Ramesh Nair, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Sun-Area Real Estate Pvt. Ltd.
Appellant
Vs
Commissioner of Service Tax
Mumbai I
Respondent
Appearance:
Shri Prasad Paranjape, Advocate for the appellant Shri A.B. Kulgod, Asstt. Commissioner (A.R.) for the respondent CORAM:
Honble Ramesh Nair, Member (Judicial) Date of hearing : 16/04/2015 Date of decision: 16/04/2015 ORDER NO: ____________________________ The appeal is directed against Order-in-Appeal No: 575/PD/14 dated 29/04/2014passed by the Commissioner of Central Excise & Service Tax (Appeals IV), Mumbai Zone I wherein the learned Commissioner (Appeals) has upheld the rejection of refund claim amounting to ` 10,89,279/- on the ground that the appellant have not received the payment in convertible foreign exchange as the same was received in Indian rupees. Refund of ` 7,747/- and ` 1,051/- was also rejected in respect of security services and air travel services respectively on the ground that these services have no nexus with the Export of Services. However, an amount of ` 1,64,081/- was held to be admissible, if otherwise in order.
2. The issue involved in the present case is that the appellant against export of service, received payment for the services in Indian rupees from Deutsche Bank and FIRCs issued by the bank has been produced before the lower authorities, whether in respect of such remittance refund is admissible under Export of Service Rules, 2005. The second issue is whether the security services and air travel services used by the appellant is an input service for providing output service which were exported. The learned Commissioner (Appeals), in the impugned order, relied upon the judgment in the case of ETA Travel Agency Pvt. Ltd. vs. Commissioner of Central Excise, Chennai 2007 (7) STR 454 (Tri.-Bang.) and held that since the appellant has not received the service charges from overseas entity in convertible foreign exchange whereas the payment was received in Indian rupees, the condition of Rule 3(2) of Export of Service Rules, 2005 was not complied with and accordingly the services will not be treated as export of services. Therefore, the appellant is not entitled for the refund.
3. Shri Prasad Paranjape, learned counsel for the appellant submits that though the payment for the export services were received in Indian rupees but the same were received through Deutsche Bank who have issued Foreign Inward Remittance Certificate (FIRC), as statutorily provided under Exchange Control Manual of Reserve Bank of India. It is his submission that in the FIRCs it was certified that:
We also certify that the payment thereof has not been received in non-convertible rupees or under any special trade or payments agreements. 3.1. As per the said certificate thought the payment is in India rupees but the same is received in convertible foreign exchange from abroad through banking channel. Therefore, it cannot be said that merely because the payment was received in Indian rupees it is not a convertible foreign exchange. He referred to Exchange Control Manual wherein the issuance of such FIRC is statutorily provided in the case of receipt or remittance of foreign exchange. As per Clause 3A.6 of Exchange Control Manual of RBI, according to which the FIRC is issued in respect of remittance of foreign exchange. It is his submission that since in the present case FIRCs have been issued, though the payment received is not in foreign currency, in case of payment other than in foreign exchange, the dealer/bank is not authorised to issue any FIRC. He submits that as per Notification No. FEMA 9/2000-RB dated 3rd May, 2000 issued by Reserve Bank of India under Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 it is provided that when a person receives in India, payment in rupees from the account of the bank or any exchange house situated in any country outside India, maintained with authorised dealer, the said person shall be deemed to have repatriated the realized foreign exchange to India. This establishes that even though the payment was received in Indian rupees but since the remittance has come from the country outside India and it was through the account of a bank, in the present case, it is Deutsche Bank, who is the authorised dealer, the payment shall be treated as convertible foreign exchange.
3.2. He also referred to Foreign Exchange Notification No. FEMA 14/2000-RB dated 03/05/2000 of Reserve Bank of India wherein, as per Regulation 3, Manner of Receipt in Foreign Exchange, the payment of any rupees from the account of a bank situated in any country other than Member country of Asian Clearing Union or Nepal or Bhutan is considered as foreign exchange. He submits that, in view of above, the Foreign Exchange Management Act, clearly provides that when the payment against any export is received even in Indian rupees, but through authorised dealer, the payment/remittance should be considered as foreign exchange.
3.3. He placed reliance on the honble Supreme Court judgment in the case of J.B. Boda and Company Private Ltd. vs. Central Board of Direct Taxes AIR 1997SC 1543 wherein it was held that the payment towards insurance brokerage retained by the Indian agent from the total payment of premium to be paid to the foreign insurance company and the balance amount was remitted to the foreign country in foreign exchange insurance brokerage they retained in Indian rupees was held to be foreign exchange and the benefit of income tax was extended. He placed reliance also on the following Tribunals judgments:
(i) Commissioner of Central Excise, Rajkot vs. Shelpan Exports 2010 (19) STR 337 (Tri.-Ahmd.);
(ii) National Engineering Industries Ltd. vs. Commissioner of Central Excise, Jaipur 2008 (11) STR 156 (Tri.-Del.);
(iii) Nipuna Services Ltd. vs. Commissioner of Central Excise, Customs & Service Tax, 2009 (14) STR 706 (Tri.-Bang.)
4. On the other hand, Shri A.B. Kulgod, Asstt. Commissioner (AR), appearing on behalf of Revenue, reiterates the findings of the impugned order. He further submits that the Rule 3I(ii) of Export of Service Rules, 2005 provided a condition that payment for service exported is received in convertible foreign exchange. Since in the present case, the payment was received admittedly in the Indian rupees and Indian rupees are not foreign exchange, therefore, the condition of the Export of Service Rules,2005 is not complied with. Therefore, the service provided to foreign entity does not qualify as export of service in terms of Export of Service Rules, 2005. Therefore, the appellant is not entitled for the refund of service tax paid in respect of such services. He prays for dismissal of the appeal.
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 Rmittance 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 honble Supreme Courts 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 reinsureres 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 honble 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 honble Supreme Courts 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 ` 12,62,158/-. However, from the Order-in-Appeal, I find that an amount of ` 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 ` 7,747/- and ` 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 ` 1,64,081/- is upheld and the order rejecting refund of an amount of f ` 10,98,077/- is set aside.
13. The appeal of the appellant is allowed in the above terms.
(Pronounced in Court) (Ramesh Nair) Member (Judicial) */as 14