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2025 (6) TMI 597 - AT - Service TaxRebate claim - Export of services or not - activity of the appellant in providing marketing services to Heildelberg International within the territory of India - rejection of entire rebate claims on the ground that the appellant had not satisfied the condition No. 2 of Export of Service Rules 2005 which states that services should be performed outside India the service was fully performed and consumed in India - HELD THAT - This issue has been examined in vide Circular No. 111/5/2009 dated 24.02.2009 which is self-explanatory where it is held that For the services that fall under Category III Rule 3(1)(iii) the relevant factor is the location of the service receiver and not the place of performance. In this context the phrase used outside India is to be interpreted to mean that the benefit of the service should accrue outside India. Thus for Category III services Rule 3(1)(iii) it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. In all the illustrations mentioned in the opening paragraph what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III Rule 3(1)(iii) services as well. Boards circular and the judgments make it clear that since the benefit of the Business Auxiliary Services rendered by Heidelberg India accrues outside India to Heidelberg International it amounts to an export of service making the appellant eligible for rebate on Service Tax claimed. It is a well-accepted norm of judicial discipline that a Bench of lesser quorum / strength should follow the view taken by Bench of larger quorum / strength in a case whose ratio covers the legal issue involved in the impugned matter. Conclusion - i) Export of Business Auxiliary Services depends on the location of the recipient and benefit accrual not the physical place of service performance. ii) Services rendered by Indian agents to foreign principals for marketing and related activities qualify as export of services if payment is received in convertible foreign exchange and benefits accrue outside India. iii) Rebate of service tax under Notification No. 11/2005 and Rule 5 of the Export of Service Rules is available for such exported services. The impugned order set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal were: - Whether the activities of the appellant, providing marketing and related Business Auxiliary Services (BAS) to a foreign entity, qualify as export of services under the Export of Service Rules, 2005. - Whether the services rendered entirely within India but benefiting a foreign entity located outside India meet the conditions for rebate of service tax under Notification No. 11/2005 and Rule 5 of the Export of Service Rules, 2005. - The interpretation of the phrase "used outside India" in the context of Category III services under Rule 3(1)(iii) of the Export of Service Rules. - The applicability and effect of Circular No. 111/5/2009 dated 24.02.2009 issued by the CBIC clarifying the export of services in cases involving Indian agents marketing goods for foreign sellers. - The binding nature of precedents, including Larger Bench decisions of the CESTAT and coordinate benches, on the issue of export of Business Auxiliary Services rendered by Indian entities to foreign principals. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the appellant's marketing and related services qualify as export of services under the Export of Service Rules, 2005 Relevant Legal Framework and Precedents: The Export of Service Rules, 2005, particularly Rule 3(1)(iii), categorize Business Auxiliary Services as Category III services. For such services to qualify as export, they must be provided to a recipient located outside India, and the benefit of the service must accrue outside India. Circular No. 111/5/2009 clarifies that for Category III services, the location of the service receiver is the relevant factor, not the place of performance. Precedents include:
Court's Interpretation and Reasoning: The Tribunal emphasized that the appellant's services, although performed within India, are rendered to Heidelberg International, a foreign entity. The benefit of these services-marketing, selling, after-sales support-accrues outside India to the foreign principal. The Tribunal relied on Circular No. 111/5/2009, which explicitly states that for Category III services, export status depends on the recipient's location and where the benefit accrues, not the place of service performance. Key Evidence and Findings: The appellant acted as the marketing arm for Heidelberg International, sourcing orders from Indian customers for direct supply of machinery by Heidelberg abroad. Commission was received from Heidelberg International in convertible foreign exchange. The appellant's activities included marketing, selling, distribution, servicing, and after-sales support, all performed in India but benefiting the foreign principal. Application of Law to Facts: Applying Rule 3(1)(iii) and Circular No. 111/5/2009, the Tribunal held that the appellant's services qualify as export of services since the recipient is located outside India and the benefit accrues outside India. The fact that the physical activities occur in India does not negate export status. Treatment of Competing Arguments: The department argued that since the services were performed wholly within India and consumed in India, they do not qualify as export of services. The Tribunal rejected this view, relying on the legal framework and binding precedents that focus on the recipient's location and benefit accrual rather than the place of service performance. Conclusions: The Tribunal concluded that the appellant's Business Auxiliary Services rendered to Heidelberg International qualify as export of services under the Export of Service Rules, 2005. Issue 2: Eligibility for rebate of service tax paid on exported services under Notification No. 11/2005 and Rule 5 of the Export of Service Rules Relevant Legal Framework and Precedents: Notification No. 11/2005 and Rule 5 of the Export of Service Rules provide for rebate of service tax paid on services exported from India. The condition for rebate includes that the services must be exported as defined under Rule 3. Circular No. 111/5/2009 clarifies that Indian agents marketing goods for foreign sellers qualify for export of services and hence are eligible for rebate. Precedents cited by the appellant include decisions of Larger Benches and coordinate benches confirming rebate eligibility in similar factual scenarios. Court's Interpretation and Reasoning: Since the appellant's services qualify as export of services, the Tribunal held that the appellant is entitled to the rebate of service tax paid under the relevant notification and rules. The Tribunal emphasized that the appellant's attempt to characterize the service as "commissioning" to mislead the department was unfounded. Key Evidence and Findings: The appellant filed rebate claims under Rule 5, which were rejected by the adjudicating authority and Commissioner (Appeals) on the ground that the services were not exported. The Tribunal, after examining Circular No. 111/5/2009 and judicial precedents, found that the appellant's claims were valid. Application of Law to Facts: The Tribunal applied the legal framework and precedents to the facts, holding that since the services are exported, the appellant is entitled to rebate of service tax paid. Treatment of Competing Arguments: The department's contention that the services were consumed in India and hence not export was rejected as contrary to the legal position established by the Circular and judicial pronouncements. Conclusions: The appellant is eligible for rebate of service tax paid on the exported Business Auxiliary Services. Issue 3: Interpretation of "used outside India" in the context of Business Auxiliary Services Relevant Legal Framework and Precedents: Rule 3(2)(a) of the Export of Service Rules defines export of services as services provided from India and used outside India. Circular No. 111/5/2009 clarifies that for Category III services, "used outside India" means that the benefit of the service should accrue outside India, focusing on the location of the service receiver. Judicial precedents including the Larger Bench decisions and Bombay High Court rulings have adopted this interpretation. Court's Interpretation and Reasoning: The Tribunal reiterated that the phrase "used outside India" must be harmoniously interpreted with the nature of Category III services. For Business Auxiliary Services, the critical factor is the recipient's location and benefit accrual, not the physical place of service performance. Key Evidence and Findings: The appellant's services were consumed by a foreign entity, Heidelberg International, located outside India, and the benefits of marketing and related services accrued outside India. Application of Law to Facts: The Tribunal applied the clarified interpretation to hold that the appellant's services are "used outside India" despite being performed in India. Treatment of Competing Arguments: The department's narrow interpretation focusing on the place of performance was rejected as inconsistent with the legislative intent and Circular guidance. Conclusions: The phrase "used outside India" in the context of Business Auxiliary Services means the benefit accrues outside India, which is satisfied in the appellant's case. 3. SIGNIFICANT HOLDINGS The Tribunal held: "For Category III [Rule 3(1)(iii)] services, it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India." "Where persons residing in India provide service to foreign entities to enable them to book orders for supply of material to customers in India, the person residing in India would render BAS to the foreign entities and such service would be treated as export of service under rule 3(1)(iii) of the 2005 Export Rules since the foreign entities are located outside India and the payment is received by such persons in India in convertible foreign exchange." "The appellant's services qualify as export of services under the Export of Service Rules, 2005, and the appellant is eligible for rebate on Service Tax paid on export of services." Core principles established include:
Final determinations: The impugned order denying rebate was set aside, the appeal was allowed, and the appellant was held entitled to consequential relief for rebate of service tax paid on exported Business Auxiliary Services.
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