TMI Blog2012 (12) TMI 424X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Rules, 2005 are in accordance with the Apex Court's ruling in the Association of Leasing & Financial Service Companies vs. Union of India [2010 (10) TMI 4 - SUPREME COURT] and All India Federation of Tax Practitioners vs. Union of India [2007 (8) TMI 1 - SUPREME COURT ] that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India. What constitutes export of service is to be determined strictly with reference to the provisions of Export of Service Rules, 2005? Not doing so and leaving this question to be determined by individuals tax payers or tax collectors for each service, based on their deductive ability would result only in total confusion and chaos. Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their Agents for remitting money from to friends/relatives in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. B.L. Soni, SDR Appearance: Appeared for Appellant : Sh. Joseph Vallaypally, Sr. Advocate, Sh.S. Malhotra, Advocate, Sh. Regvesh Singh Sh. Rajesh Chhibber, Advocates Appeared for Respondent : Sh. Sumit Kumar Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant : Sh. Rajesh Chhibber, Advocate Appeared for Respondent : Sh. B.L. Soni, SDR Appearance: Appeared for Appellant : Shri S. Malhotra, Advocate Appeared for Respondent : Sh. Sumit Kumar Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant :Shri Sumit Kumar Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant : Shri Fateh Singh, SDR Appearance: Appeared For Appellant : Shri Sumit Kumar Sh. B.L. Soni, SDRs Appeared for Respondent: Shri Harinder Singh, Advocate Appearance: Appeared for Appellant : Shri Sumit Kumar Sh. B.L. Soni, SDRs Appearance: Appeared for Appellant : Sh. Sumit Kumar Sh. B.L. Soni, SDRs Appeared for Respondent : Sh. S. Malhotra, Advocate Appearance: Appeared for Appellant : Shri Fateh Singh, SDR Appeared for Respondent : Shri Harvinder Singh, Advocate Appearance: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some profits due to changes in exchange rate between the date of receipt of money abroad and date of delivery of equivalent Indian Rupees in India. However this profit is subject to the risk of loss if the exchange rate changes adversely for the Western Union and its agents. 4. PML does some promotional activities like advertising, organizing promotional programs, distributing promotional material etc. The amount incurred by PML for promotional activities was reimbursed by Western Union to the extent of ₹ 1,02,08,980/- during the relevant period. On this amount received service tax amounting to ₹ 11,69,838/- is demanded 5. PML appointed sub-agents within the territories allotted to them to establish a large number of outlets in the area to make it easy for the recipient in India to get the money easily without much travel and hassles. PML compensates these sub-agents by sharing the commission received by them from Western Union which commission itself is received from the person located abroad remitting the money to India. 6. The crucial question is whether PML should pay service tax amounting to ₹ 3,23,72,254/- on the commission amounting to 28,10,71,56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is obvious that Revenue is conceding that the service in question is exported. Classification of the service during the relevant period 8. As already explained the argument of PML is that their activity is specifically covered under Banking and Financial Services w.e.f 01-05-2006 consequent to amendment carried out by Finance Act, 2006. Since the intrinsic nature of the service is that of Banking and Financial Service and it was not covered till 01-05-06 under the entry for Banking and Financial Service as defined, the service could not have been covered under the heading for 'Business Auxiliary Service' which is in the nature of a residuary heading. 9. Revenue argues that PML was undertaking the service promised by the Western Union to the person remitting money from abroad and thus was doing a services on behalf of their client as envisaged in clause (vi) of section 65(19) of Finance Act, 1994 for 'Business Auxiliary Service'. 10. They further point out that they were doing advertising of the services of Western Union, distributing promotional literature and holding promotional activities as envisaged in clause (ii) of section 65(19) and activities inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent periods. 13. After hearing both sides at length on the issue whether the service is exported or not, it is seen the contrast in the arguments on both sides is as under: (i) PML argues that it is providing services to Western Union situated abroad with whom PML is having a contract for providing services and PML gets its remuneration from Western Union. Further the ultimate beneficiary of the service is the person situated abroad who approaches the office of Western Union abroad and who pays for the services. So this is a case of Export of Services as laid down in Export of Services Rules, 2005. (ii) The Revenue contests that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. The receiver of its service is the person receiving the remittance in India. The Revenue argues that no part of the service done by PML is exported. To buttress this argument the Ld. SDR relies on clauses 1, 3,4A and 4B of the contract. However there is no need to reproduce these clauses in this order because there is no contest on the issue that the activities of PML are carried out in India. 14. Now it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax levy, there is tax only if any remuneration is received by the person providing service. In the case of stock broker, commission is paid by both the buyer and the seller and both the commissions are subject to tax. In the case of insurance policy only the insurer pays commission and not the insured. The commission paid by the insurer is subject to tax. In the case of impugned service the recipient of money in India is not paying any commission. So we are clearly not dealing with the service rendered by PML to the receiver of money. The entire discussion is about the commission received from Western Union and this commission is obviously for the service rendered to Western Union. Once it is recognized that service and consideration paid for such service flows in opposite directions, so long as the arrangement for payment is bonafide and is in the ordinary course of business, the entire issue can be dealt with clarity. Once this clarity is achieved the other issues that emerge can be very easily sorted out. 16. The entire argument of Revenue is based on the fact that the activities of PML are performed in India though words like 'used in India' are used while arguing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective customers from all around the world including from India; (ii) Medical transcription where the case history of a patient as dictated by the doctor abroad is typed out in India and forwarded back to him; (iii) Indian agents who undertake marketing in India of goods of a foreign seller. In this case, the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange; (iii) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organisation to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organisation in foreign exchange for the entire activity being undertaken in India. (emphasis supplied) The departmental officers seem to have taken a view in such cases that since the activities pertaining to provision of service are undertaken in India, it cannot be said that the use of the service has been outside India. 2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories: (i) Category (I) [Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. 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. 4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned. These instructions should be given wide publicity among trade and field officers. 5. Please acknowledge re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued in 2009 and 2010 to a dispute for the period 2003 to 2007. Even with the clarification he has an argument because he does not agree that benefits of these services accrue outside India . The matter has also been decided by the Bangalore Bench of the Tribunal in Muthoot Fincorp Ltd Vs. CCE Vishakhapatanam-2010 (17) STR 303. But the Ld. SDR has serious reservations in accepting this decision. He argues that this decision relies on the decision of Nipuna Services-2009 (14) S.T.R. 706 (Tri. - Bang.) which deals mainly with the issue whether the payments were received in foreign exchange and does not deal with the issue whether service was utilized outside India and that decision does not give any ratio applicable for this case. The reservation of the Ld. SDR in accepting the decision in Muthoot Fincorp Ltd is so vociferous that this bench is of the view that a second examination of the issue without any reference either to the Board's Circular or the decision of the Tribunal in the case of Muthoot Fincorp Ltd. may help in avoiding such arguments in future on the same issue. 20. For this the legal position prior to notification of Export of Service Rules, 2005 on 03- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign exchange; (ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received. Explanation .- For the purposes of this rule 'India' includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs Nos. S.O.429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996. The Ld. SDR is harping on the condition (i) (b) as highlighted above which is applicable only if such recipient has any commercial or industrial establishment or any office relating thereto, in India. There is no case that Western Union had an office in India and the order the agreement was signed by any office of Western Union in India. Of Course the notification as amended for later periods this condition was made applicable without reference to office in India. 20.5 Position from 16-06-2005 to 18-04-2006 After the first proviso, the following proviso shall be inserted namely :- Provided furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not make any payment. The Western Union is getting their payment from the person remitting money abroad and hence obviously the services rendered by PML is ultimately used by the person remitting the money from abroad. So we come to the conclusion that the impugned service is used outside India and would qualify as export of services as per conditions laid down in Rule 3 (1) (iii) of Export of Services Rules, 2005. These arguments are equally applicable for the period from 01-05-2006, since when the service is classifiable as 'Banking and Financial Services', because this service is also specified under Rule 3 (1) (iii) of Export of Service Rules, 2005 and not under Rule 3 (1) (ii). 22. Now there is the issue whether any tax has to be paid on the amounts reimbursed by Western Union for expenses incurred in promoting the business of Western Union in India. In the context these services PML makes it clear that for the advertisements given, the advertising agency has charged service tax from them and they have paid such tax. These services allegedly provided by PML to Western Union are also sought to be classified under Business Auxiliary Services and hence the argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook one or two cases involving a few crores. If the Revenue has a case that the Rules are not resulting in a desired outcome, the proper course is to amend the rules rather than selectively book cases a few persons canvassing a particular interpretation of rules. Such an approach very essential of achieve better certainty of tax incidence and reduce business risk of unexpected tax demands which surface suddenly lone after the events. 25. The Appellant succeeds on merits of the issue. The appellant also succeeds on time bar because the Appellants have acted in bonafide manner considering the exemption notifications in force, clarifications issued by CBEC. Further the very fact that the Tribunal in the past have accepted that these services are exported and the Revenue itself has not initiated action against the major entities like Commercial Banks providing such service during the same period, would justify the stand of the assesses that there was no intention on their part to evade service tax. 26. Accordingly it is held that the amount confirmed in the impugned order is not maintainable and the appeal is allowed by setting aside the impugned order. Now the appeals filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that in the case of the assesse in Appeal No. ST-834/2008, the demand itself was made under Banking and Financial service. The order-in-appeal records that they were contesting that they were acting as 'foreign commission agents' and were exempt from payment of tax. The assessee also has an argument that it is eligible for the exemption for small service providers in Notification 13/2005-ST. 32. In reply the Ld SDR submits that the assessee did not contest the service tax liability as is recorded by the Commissioner Appeal. It is the argument of the Ld. SDR that they cannot context the liability at this second stage of Appeal. The Ld. SDR also points out that the assessees are providing the service using the brand name of Western Union and in such cases the exemption under Notification 13/2005-ST is not applicable. 33. The counsel for this Appellant has the additional submission that the Revenue has accepted the decision of the Tribunal in Muthoot Fincorp and hence cannot take a different stand in the case of present Appellant. Further he argues that the Circular issued by the CBEC is binding on the Departmental Officers as per judicial pronouncements and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on the orders passed by Commissioner (Appeal) Chandigarh in matters relating to M/s Ramble Consumer Services Patiala and M/s Jolly Enterprises Patiala. The Counsel also relies on para 4 of CBEC's circular 56/5/2003 ST dated 25-04-03. This para reads as under: 4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported. 40. He stresses that the demand for the period prior to 03-03-2005 the service was exempt under notification 21/2003-ST dated 20-11-03 where in such services were exempt if consideration was received in foreign exchange. 41. He also argues that the dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal, in some cases they are sub-representatives of the Representative and following questions were raised in this batch of appeals for answering: (1). Whether the activity of delivery of money in India by representatives and sub-representatives (in India) for a consideration, on behalf of their foreign principal transferring such money from abroad, is business auxiliary service and taxable u/s 65 (zzb) read with section 65 (19) of Finance Act, 1994? And whether such service is export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994? (2). Whether the activity of advertisement, publicity and market promotion done by representatives and sub-irepresentatives in India on behalf of their foreign principal, to advance the object of money transfer is business auxiliary service and taxable u/s 65 (zzb) read with section 65 (19) of Finance Act, 1994? And whether such service is export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994? (3). Whether money transfer shall be taxable as banking and other financial s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.), Apex Court reiterated jurisprudence of service tax in following terms: In All India Federation of Tax Practiti0ners' case (supra), this Court explained the concept of service tax and he/d that service tax is a Value Added Tax ( VAT for short) which in turn. is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a sale from service . That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue added tax . [Emphasis supplied] 45.2 While dealing with meaning of service tax Hon'ble Court in Para 17 to 20 held as under : 17. As stated above, the source of the concept of service V tax lies in economics. It is an economic concept. It has evolved on account of Service Industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of Article 268A in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied. Therefore, even if an item is manufactured or produced, it will not fall in the concept of goods till the test of marketability is satisfied. In the case of Moti Laminates (supra) the solution was an intermediate product produced in the course of manufacture of laminated sheets. It had a short shelf life, It was not marketable, therefore, this Court took the view that the solution was not goods and, therefore, not dutiable. 19. The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to be taxed under the provision of finance Act 1994. through different clauses, number of taxable service entries are spread over section 65(105) of the said Act. Terms and expressions used in these clauses are defined by various subsections of section 65 of that Act. MEANING OF EXPORT AND EXISTENCE OF TWO TERMINI IS PREREQUISITE FOR EXPORT OF SERVICE 46 Material facts, Agreements and recorded statement as well as modus operandi of the Assessees came to light in the course of hearing suggest that foreign principal viz., Western Union intended money transfer service to be provided in India by its representative and sub-representatives to the consumers in India. As a result of which such service traveled from abroad to India for provision thereof in India on behalf of the foreign principal and ultimately terminated in India upon delivery of money to the intended consumer in India. Elements of agency are implicit in the contract. Export of goods is nothing new to the fiscal legislations of this Country. While Article 286 (1) (b) of the Constitution defines this term, well tested and experienced Customs Act, 1962 in term of section 2(18) thereof states taking out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l/L . .further transfer of the said money by export to abroad. The position of law as laid down by Apex Court in the decision of Burmah Shell Oil Storage and Distributing Co. of India Ltd. and Another v. Commercial Tax Officer and Others - (1960) 11 STC 764 (SC) is that in respect of export of goods all exports involve a taking out of the country. Such principle equally applies to taxable service provided following principle of equivalence. Just like the test that the goods must have a foreign destination where they can be said to be imported, taxable service provided in India should also satisfy such basic test to say that such service was exported from India. Crucial fact is sending of the service to a foreign destination where they would be received as imports. But no such fact was in the present set of appeals. Ultimate consumers of service were in India and terms of agreements relied upon by the parties established in substance that India was ultimate destination of the service which traveled from abroad. Consumption of such service was made in India and being terminated, no more goes back from India for delivery abroad. 46.3 The assessees were intermediary agents to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export explained as aforesaid by Apex Court without being misconstrued. This is clear from the context of different circulars issued by Board from time to time and Export Rules framed. Those Circulars also imply that when ultimate outcome of taxable service is consumed in India and extinct in India that does not have any utility for export from India in the same structure and nature as that was originated in abroad and traveled from that place. The money transfer looses utility thereof soon after delivery of money and the service comes to an end. 46.7 Service may have different aspects. Only that aspect of the activity which is taxable in India gives rise to incidence of levy in India. Accordingly, export of service plea of the Assessees is inconceivable and liable to be rejected\when `money transfer service is meant by foreign principal to come to an end in India upon delivery thereof on his behalf in India. Material facts of the cases also make it clear that the impugned services were meant to reach the consumers of Indian Territory and to exhaust here upon provision. End users of service being in India, foreign principals intended that money transferred from abroad should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the money transfer service to be export of service. No money transfer service having moved out of India to a place out side India in terms of representation agreement, plea of export of service is untenable. MARKET PROMOTION - SUBSERVIENT TO MONEY TRANSFER SERVICE 47 It may be appreciated that in terms of the agreements, the Assessee Representative and sub-representatives in India made advertisement and publicity to promote money transfer service meant to be provided on behalf of their foreign principal in India. Apparent reimbursements plea in essence and substance as well as in reality were consideration received for the service of market promotion provided in India. Nothing is on record to appreciate that advertisement and promotion were either unproductive or futile and served no useful purpose of providing money transfer service in India which was dominant object of the parties. Thus the receipts made forpromotion or marketing of service provided by the foreign principal was in respect of business auxiliary service and that was taxable. Assessees' plea of no taxability claiming that reimbursements is not taxable is devoid of merit and they loose their claim on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices subject to control under RBI Regulations. 51. In this batch of appeals we were given to understand that none of the assessees are NBFCs whereas Muthoot Fincorp Ltd was a NBFC. When these NBFCs and other commercial concerns gradually entered into money transfer activity, legislature also brought money transfer activity under the scope of Banking and other financial services to expand tax base bringing the entities defined by section 65(12) of Finance Act, 1994, while business auxiliary service continued to be in the statute book to bring activities of like nature carried out by other assessee to the fold of law who are not the. Similarly the plea of support of business or commerce service is of no help to assessees for the reason that they carried out the activity of money transfer in India on behalf of their foreign principals under proper class of Business AuxiIiary service. Thus the Assessees were liable to service tax under the taxing entry Business Auxiliary service. GAIN ON FLACTUATION OF EXCHANGE RATE 52. There was grievance that the gain made out of fluctuation of ` foreign exchange rate should not form part of assessable value. When the money transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw laid down in Amrit Agros V. CCE - 2007 (210) ELT 183 (SC) depending on the facts of each case. SMALL TAX PAYER S BENEFIT 55. Plea of small tax payer's benefit may be extended subject to scrutiny of facts and law applicable to the appropriate case to avoid hardship to the small tax payers. DEDUCTIONS RELATING TO PAYMENT MADE TO SUB- REPRESENTATIVES 56. Cases where deduction is claimed towards payment made by Representatives to the sub-representatives, such deduction not being of statutory permission, it is very difficult to entertain such claim. But if the tax paid by representative is in respect of self same service provided by sub-representatives, subject to proof and nexus of the service, the sub-representative may get Cenvat credit of that extent of tax paid by representative on the proved aspect of service subject to the Cenvat Credit Rules applicable at the relevant point of time. 57. This batch of appeals may be decided on the aforesaid back drop of law. 58. Case of Paul Merchants Ltd in Appeal Case No. 311/2009 having been extensively argued both on facts and law, that case is decided by this order remanding all other cases to the original auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Service and to promote customer interest in the Service. Representative agrees to meet or exceed the advertising and promotion program set forth in Exhibit B attached hereto and spending commitment specified in Exhibit B. All of representatives advertising and promotional material must be submitted by li' representative to Western Union for written approval prior to use. Western Union will furnish specifications for all signage and will provide at no cost decal signs for use at representative and its sub- representatives premises. Western Union will provide sample forms I of promotion material to be used by representative and its sub- v representative and to the extent proof of such promotional materials are available and necessary, Western Union may provide such proofs, according to Western Unions specifications or to purchase such promotional material from Western Union, if available. Representative agrees to promptly return any proofs supplied by Western Union within 30 days following their receipt by Representative. Western Union shall have the right, upon ninety (90) days written notice, to assume responsibility for advertising and ' promotion in India. 59.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive may begin offering the WESTERN UNION service until WESTERN UNION has approved such documents. REPRESENTATIVE will provide WESTERN UNION with all other information that WESTERN UNION may from time to time request about such sub- representative and its proposed relationship with REPRESENTATIVE including but not limited to the locations of all sub-representative premises where the Money Transfer Service will be provided and information about the sub-representative s ownership and business activities. 2.4 REPRESENTATIVE shall pay out all funds in cash, unless WESTERN UNION authorizes in writing payment by check or another means, or unless the laws of the Territory require payment by some other means. If REPRESENTATIVE pays Money Transfer Service transactions by any means other than cash (including by way of illustration and not limitation by crediting a deposit account or debit card or by issuing a check), then REPRESENTATIVE and not WESTERN UNION shall be responsible for ensuring that good funds are available to the Recipient immediately and at no additional cost to the Recipient. REPRESENTATIVE may pay Money Transfer Service transactions only in the currency designated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be transferred to WESTERN UNION at WESTERN UNIONS request or if this Agreement is terminated with REPRESENTATIVE remaining responsible for all costs and charges incurred prior to the date of any such transfer. 2.9 REPRESENTATIVE shall operate its customer service center in compliance with service standards that WESTERN UNION establishes from time to time. Such service standards shall comprise part of the Service Requirements. The service standards shall be generally the same as service standards applied by WESTERN UNION to customer service centers operated by comparable representatives in the Territory and elsewhere. ` REPRESENTATIVE shall ensure that all calls to the customer service center are answered promptly and professionally, and that inquiries about WESTERN UNION services not offered by REPRESENTATIVE shall be forwarded as WESTERN UNION shall from time to time direct. 2.10 If WESTERN UNION has appointed other representatives in the Territory or appoints additional representatives in the future, WESTERN UNION and REPRESENTATIVE will use best efforts to reach an agreement with respect to the creation of a joint call center for al representatives ( Joint Call Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomers in highly populated areas of India, tourist areas and other areas to which transfers of funds are most likely to occur. Representative shall be responsible for bearing all fees, commissions, charges, expenses and remuneration of any kind whatsoever relating to Representatives sub-representatives. Representative will enter into an agreement with each sub-representative in a form approved in writing by Western Union in advance. Representative agrees that upon the request of Western Union, Representative will terminate any sub-representative at is willing to meet the service requirements or is otherwise acting contrary to the best interests of Western Union. Representative agrees throughout the term of this Agreement to meet or exceed the minimum outlet coverage goals set forth in Exhibit A attached hereto. 59.7. The appellant also being governed by subsequent agreement dated 26.1.07 that was examined by Investigation as well as Adjudicating Authority. In this agreement as well as prior agreement, I i.e., 26.4.98, the appellant was agent (Representative) of Western Union in India and object of parties was to provide and effect money transfer service in India delivering mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to question no.1, she (Deputy Manager-Accounts) stated as under : Q.1 As regards money transfer, please write in detail the function of your company? Ans. The company is transferring money on the basis of contract with Western Union. A customer abroad approaches WU to send money for personal purposes to a person / relative in India. He pays the amount and charges to WU and in turn WU provides a Money Transfer Control Number. The customer abroad provides this information to his relative in India for the purpose of collecting money in India. The customer in India is free to go to any location as per his convenience in India and of the verification of his identify and MTCN no. the amount is transferred to him without charging any fee from him. Therefor, only the last leg of transaction is completed in India in lieu of contract with WU. 7 (B) In reply to question No.3, she stated that Paul Merchants Ltd. is providing service to Western Union abroad in their business of money transfer by handing over the money to the person nominated by . sender abroad after verification of his identity and Money Transfer Code Number (MTCN). (C) In answer to question No.4 and 5, she stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide Notification No. 10/2005-S7] dated 03.03.05. Therefore although in the instant case the service provided by M/s Paul Merchants Ltd has been proposed to categorize under Business Auxiliary Service effective from 01.07.03 for the purpose of service in relation to promotion or marketing of service provided by the client and from 10.09.04 for the purpose of provision of service on behalf of client, yet the consideration received by M/s PML became taxable since 15.03.05 except for the promotion and marketing ingredients of the service which was also taxable for the period 01.07.03 to 19.03.05. 59.13 The Show Cause Notice also clearly stated to impose service tax on market promotion activities receipts made by the Appellant in Para 12 of the Show Cause Notice categorically stating that M/s Paul Merchants Ltd. was promoting and marketing of services provided by Western Union and also providing service on its behalf. 59.14 Investigation found that there was suppression of fact of rendering of taxable service by the appellant and no disclosure being made filing returns under law penalty was proposed in SCN, invoking extended period while proposing levy of service tax under pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us operandi followed which came, to light when the investigation detected escapement of the receipts from taxation. Accordingly, Adjudication was held not time barred. 59.22 The plea of cum tax value was denied by the adjudicating authority when the appellant failed to discharge its burden of proof to show that its receipts included service tax element and for such decision, he relied on the judgment of H0n bIe Supreme Court in the case of Amrit Agros vs. CCE 2007 (210) ELT 183 (SC). 59.23 Further plea of the appellant that amount paid to sub- representatives was to be excluded from the value of taxable services was denied by the learned Adjudicating Authority. He found that service not being rendered to Western Union by the sub- representative basing on the expert legal opinion as stated by him in para 4.12 of his order, the appellant was made liable to pay service tax on the entire amount received from Western Union. While holding so, he was also of the opinion that sub-representative being providing some service to the appellant they would be liable to pay service tax but that was not the subject matter of SCN. He further opined that `the appellant was eligible to take c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India or the location of the person abroad who requested for the service to be provided in India and paid for it and other criteria laid down in Export of Service Rules, 2005? (vi) Whether reimbursements of advertisements and charges towards sales promotion activities are to be taxed? (vii) Are the demands time barred? (viii)Whether the amounts paid to sub-representatives is excludible from the value of taxable service (ix) Whether cum-tax benefit is to be extended in this case (x) Whether the appellants can claim benefit under Notification 6/2005-ST dated 01-03-2005 for small service providers (xi) Whether money transfer shall be taxable as banking and Financial service w,e.f. 01-06-2005 u/s 65 (105) (zm) read with section 65 (12) of Finance Act 1994 or taxable as support of Business or Commerce u/s 65 (105) (zzzq) read with section 65 (104c) of Finance Act, 1994 And Whether such services are export of service in the case of Appellants under the provisions of Export of Service Rules, 2005 and immune from service tax under the provisions of Finance Act, 1994. . (xii) Whether appeals other than Appeal of Paul Merchants ltd need to be remanded or is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledgement. (c) the customer of WU, abroad passes the code number to the intended recipient in India. (d) The intended recipient in India approaches any of the WU's agents or sub-agents of WU with the code number and his identity proof, (e) The agent/sub-agent of WU verifies the code numbers, identity of the intended recipient on the basis of the prescribed identity proof and makes the payment (f) The Agent/sub-agent informs the WU through its intranet network about the payment having been made to the intended beneficiary of a particular code number. (g) WU reimburses the money paid out to the Agent in convertible foreign currency along with Agents'/sub-agents' commission. (h) When the payment to the intended recipient of WU's customer abroad has been made by the sub-agent of a particular agent of WU, it is the Agent who receives the reimbursement money along with commission in convertable foreign currency and the Agent passes on the reimbursement money along with the sub-agent's commission to the sub-agent, but in Indian currency. 62.2 The main dispute in these appeals is about- (a) the classification of the services mentioned above pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the money is delivered by the Agents and sub-agents of WU on behalf of WU are the recipients of money sent to them by persons aboard through WU, they are not the recipients of service provided by the Agents and sub-agents of WU. The recipient of the services provide by PML/Transcorp is WU, as it is WU who is obliged to make payment for the services provided by PML/Transcorp or their sub-agents. In this regard, reliance is placed on Tribunal's judgment in case of Sumangalam Suiting (P) Ltd. Vs. CCE, Jaipur-II reported in 2010 (19) STR 809. Since service recipient WU is located aboard without any office or establishment in India and service has been provided from India, the services provided by PML/Transcorp have to be treated as Export of service, as there is no dispute that the payment for the services provided by PML/Transcorp to WU either directly or through their sub-agents has been received from WU is convertable foreign currency. Since the service has been received by WU and it is WU who are the beneficiary of the services provide by PML/Transcorp, the services have to be treated as having been delivered to WU and used by them outside India, and hence, exported out of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No.111/05/09-ST dated 24.2.2009. In any case, throughout the period of dispute, since it is WU who had received the services in question, was the beneficiary of the same and had used this service for their business of money transfer for arranging the delivery of money in India to the intended beneficiaries of their clients abroad, the services have to be treated as delivered abroad and used abroad. (6) PML/Transcorp have not provided any advertisement or marketing service to WU. These services were provided by advertising agencies who paid service tax on the same and the Appellants have paid for these services to the advertising agencies and received reimbursement for the same from WU. Even if the advertisement services are treated as having been provided by the Appellants, since the recipient and the beneficiary of the same is WU and since entire reimbursement for these services has been received is foreign currency, the same will have to be treated as export of service and hence, there is no question of charging service tax on the same. (7) Extended limitation period of five years under proviso to Section 73(1) of Finance Act, 1994 is not applicable, as there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as service export, as the commission for the services rendered is received from WU by the Agent is convertible foreign currency. (4) The issue as to whether the service provided by sub-agents of the agents of WU are export of service and hence not chargeable to service tax is no longer res-integra in view of the following judgments of the Tribunal. (1) Muthoot Finance Corpn. Ltd. Vs. CCE Reported in 2010 (17) STR 303 (Tribunal-Bang.) (2) Nipune Service Ltd. Vs. CCE, Bangalore reported in 2009 (14) STR 706 (Tribunal-Bang.) (3) Kerala State Financial Enterprises Vs. CCE, Reported in 2011 (24) STR 585 (Tribunal-Bang.) (5) Even if the sub-agents are treated as on par with sub-contractor, they are not liable to pay any service tax in view of Board's Circular dated 11.06.1997. (6) Even if the service provided by sub-agents are not treated as service export and are held to be taxable, the sub-agents would be eligible for SSI exemption under notification No. 6/05-ST. For this purpose, the sub-agent can not be said to be providing the Business Auxiliary Service under the brand name of Western Union and providing service to WU, the brand owner, can not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt's judgment in the case of L Chandra Kumar Vs. Union of India reported in 1997 (92) ELT 318 (SC). (5) In the contracts of the Agents (PML and Transcorp) with WU and the contracts of the sub-agents with Agents, the term export does not appear even once. These contracts are for performance of a service delivery of money to the intended beneficiaries of the clients of WU abroad who wanted to send money to some persons in India. This service performed in India, has been consumed in India and hence the same would attract service tax. The services performed in India and consumed in India cannot be treated as Export of service by applying Export of Service Rules, 2005. (6) For export of service the crucial fact is sending of the service to a foreign destination where same would be received as import. But no such fact is seen in the contracts of the Agents with WU and of the sub-agents with the agents. The ultimate consumers of the service are in India and India is the ultimate destination of the services provided by the Agents and sub-agents. No service goes from India to a foreign destination. Hence, this can not be termed as Export of Service. (7) The Agents and sub-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the type of transactions- consumer receive transactions which are that part of money transfer service whereby a recipient receives funds from Agent/Sub-agent remitted by a customer abroad, and Consumer send transactions which are that part of money transfer service whereby a customer of WU pays a fee and provides money to the sub-agent/Agent for transmission to a recipient abroad, in this group of cases, we are concerned only with the former type i.e., Consumer receive transactions , as consumer send transaction are not performed for the want of permission from RBI. Thus, the activity of the Agents and sub-agents of WU in India is only in respect of inward remittance by the person abroad. 67.1 As mentioned in para 62.1 above, the activity of remittance of money by a person abroad to his intended beneficiary in India starts at the office of WU or by an agent/sub-agent abroad when he hands over the money to be remitted alongwith commission and the details of the intended beneficiary in India and after payment of money to be remitted alongwith commission, he is given a unique code number by the WU/their agents/sub-agent. WU do not have any office or business establishmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and causes sale or purchase of goods or provision or receipt of services for a consideration. Though w.e.f. 1.6.2005, services in relation to transfer of money including telegraphic transfer provided by a banking company or a financial institution including NBFC or any other body corporate or any other person/commercial concern, become taxable under Section 65(105)(zm) read with Section 65 (12), in my view even during period w.e.f. 1.6.2005, the service provided by the Agents of WU and sub-agents appointed by sub-agents would be correctly classifiable as Business Auxiliary Service under Section 65(105)(zzb) read with Section 65(19) as the function of Agents/Sub-agents is essentially an agency function i.e. providing services on behalf of WU in India for commission and besides this the marketing promotion of money transfer service of WU , in India, both of which are covered by the definition of Business Auxiliary Service as given in Section 65(19). 69. Next comes the main question whether- (a) the services provided by the Agents of WU, and (b) the services provided by the sub-agents appointed by Agents, amount to export of service out of India and, hence, not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the definition of various terns, defines the terms export or import , whether of goods or of services. Article 286 simply puts certain restrictions on imposition of sales tax by the State Governments on the sale or purchase of the goods and provides that a State Govt. can not impose sales tax on sales taking plus outside the state or on the goods imported into India or exporting out of India. Thus, this article has nothing to do with what constitutes the export of service Apex court's judgment in case of Burmah Shell Oil Storage Distribution Co. (supra) cited by the learned DR holding that sale of aviation turbine fuel to a foreign bound aircraft is not export and that test of export is that the goods must have a foreign destination when they can be said to have been exported out of India, is in respect of export of goods, not in respect of export of Services. There is a world of difference between the goods and services. The goods are tangible and their export or import in traditional sense would involve crossing of international border. The services are intangible and can be provided by several modes. For example one mode of cross border service transaction would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable area and if the consumption of service is outside the taxable area, the service tax would not be attracted and it would be treated as export of service. The Apex Court in the cases of All India Federation of Tax Practitioners Association (supra) and Association of Leasing Financial Service Companies (supra) has held that service tax is a value added tax, which in turn is a destination based tax on consumption in the sense that it is levied on commercial activities and it is not a charge on business but on the consumer. This is evident from the following feature of taxation of Service Tax. (a) When both service provider and service recipient/consumer are in India, the service provided is taxed irrespective of the nationality of service provider and of the service recipient/consumer and the service tax is collected from the service provider under Section 66 of the Finance Act, 1994. (b) When a person in India receives a taxable service provided by a service provider abroad, it is taxed in India and collected from service recipient by treating him as deemed service provider under Section 66A of Finance Act, 1994. (c) In terms of Rule 4 of Export of Service Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same have been performed; (b) Services in relation to immovable property of a person (e.g. service of insurance of immovable property located abroad, belonging to an Indian Resident A provided by an India Insurance Company B) as having been consumed at the place where the immovable property is located; and (c) Services in relation to business; (e.g. an Indian Company A providing the services of marketing sales promotion in India to a company B located in Singapore in respect of the products manufactured by B) as having been consumed at the place where the business is located. In fact the European Union has similar rules for determining Place of Provision of Service where the Service is taxable. Thus, the Export of Service Rules, 2005 and Taxation of Services (provided from outside India as received in India) Rules, 2006, are basically the rules for determining the place of consumption of Services. These rules in the budget of 2012-13 have been replaced by Place of Provision of Service Rules, 2012, the Rule 3 of which states that the place of provision of a service shall be the location of the service recipient, (who is the service consumer). Therefore, in my view, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is nothing in the Export of Service Rules, 2005 which violates this principle. 70.6 In view of the above discussion, the question as to what constitutes export of a service has to be decided strictly in accordance with the provisions of Export of Service Rules 2005. In fact, I am surprised as to how the Commissioners working under the Central Board of Excise Customs and the Departmental Representative who represents the Board before the Tribunal can take a stand that the Export of Service Rules, 2005, framed by the Central Government under Section 94(1)(f) of the Finance Act, 1994 are ultra vires the Constitution of India. This is more surprising when the recently framed Place of Provision of Services Rules, 2012, replacing to Export of Service Rules, 2005 and Taxation of Services (provided from outside India and received in India) Rules, though differently worded and introducing further refinements in laying down the criteria for determining the place of provision of service (which in terms of Rule 3 is the place of recipient i.e. the place of consumption) follow the same principles as those behind the Export of Service Rules, 2005 and Service Import Rules and the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. Just as sale of goods which attracts sales tax is transfer of property in goods by a person (seller) to another person (buyer) for some consideration, a service is an activity carried out by a person for another for some consideration. Just as in case of sale of goods it is buyer who is obliged to pay for the goods purchased, in case of provision of service, it is recipient of the service who is obliged to pay for the service to the service provider. Thus the service recipient is the one who is obliged to pay for the services to the service provider and whose need is satisfied by the service or in other words, is the buyer of service. To illustrate, if a manufacturer A is under obligation to provide free repair service during a specified warranty period to his customers in respect of some goods sold to them and he engages B to provides the services of free repairs during warranty period to his customers C1, C2, C3 ., and for this he pays to B, the recipients of the service provided by B would be A, not the customers C1, C2, C3 In general in case of services provided by an Agent to some person on behalf of his Principal for some commission, it is the Principal who is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agent and the sub-agent is required to provide the services as per the standards prescribed by WU; (d) Sub-agents are required to maintain certain records prescribed by WU which can be inspected at any time by the appointing agent as well as by WU to ascertain as to whether the sub-agent is providing the service strictly in terms of the agreement; (e) WU is a third party beneficiary of the sub-agency agreement and WU can take any action that is necessary or appropriate to protect or enforce its rights without objection based on lack of privity or similar claims; (f) the reimbursement of the amount paid to the intended beneficiary of WU's customer abroad transferring the money, alongwith commission is received from WU by the Agent in convertible foreign currency who pays the same is the Indian currency to the sub-agent; and (g) the sub-agency agreements are in the context of the fact that the Agent and WU are parties to an agency agreement (representative agreement) whereby the Agent offers to the general public in India WU's money transfers service. 72.2 Reading the agreement of WU with Agents and together with the agreement of an Agent with his sub-agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e barred and whether cum tax benefit is to be extended. 76. In view of the above discussion, the points of difference, mentioned in para 60 are answered as under:- (i) The term export has not been defined either in Article 286 (1)(b) or in any of the article of the Constitution of India. Though the Apex Court's judgments in the case of the State of Kerala vs. The Cochin Coal Company Ltd. [(1961) 2 STC 1 SC] and Burmah Shell Oil Storage Distribution Co. of India vs. Commercial Tax Officer Others reported in (1960) 11 STC 764 (SC) explain the meaning of the term export , the ratio of these judgments which are with regard to export of goods, is not relevant for determining what constitutes the export of services. There is no question of Export of Service Rules, 2005, being in conflict with Article 286 (1) (b) of the Constitution of India. (ii) The principle of equivalence between the taxation of goods and taxation of service had been laid down by the Apex Court in the case of Association of Leasing Financial Service Companies vs. Union of India (supra) and All India Federation of Tax Practitioners vs. Union of India (supra) in the context of constitutiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service. (vi) Reimbursement of advertisement and sales promotion activities received from WU is not taxable as the same are for the services provided to WU, which are export of service. (vii) The question of time bar is not relevant when the main question has been answered in favour of the Agents sub-agent. (viii) (ix) These questions are no longer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same manner in which the export of goods is understood. In fact the question as to what constitutes the export or import of service was neither raised nor discussed in the abovementioned judgments of the Apex Court. As discussed in this order, the Export of Service Rules, 2005 are in accordance with the Apex Court's ruling in the above mentioned judgments that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India. (iii) What constitutes export of service is to be determined strictly with reference to the provisions of Export of Service Rules, 2005. Not doing so and leaving this question to be determined by individuals tax payers or tax collectors for each service, based on their deductive ability would result only in utter confusion and chaos. (iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached ..... X X X X Extracts X X X X X X X X Extracts X X X X
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