TMI Blog2014 (9) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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. 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. Regarding alternative claim of refund under different provision - Held that:- Appellants had not invoked any specific provision and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 subcontractor to the Appellants. AnnexureB 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge 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 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the above said Order in Appeal passed by the learned Commissioner (Appeals), the balance refund claim amounting to ₹ 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 OrderinAppeal 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 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces 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 crossobjections 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 AnnexureQ 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aries 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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.6/99ST 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.2/2003ST dated 01.03.2003. Subsequently, the notification was restored vide Notification No.21/2003ST 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 rectify the same and align the export of service with best international practice, the Export of the Service Rules, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (HCMumST) : 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 submits that the above findings of the CESTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill the requirement of services provided from India contained in first leg of Rule 3(2)(a) of the Export of Service Rules, 2005 . 42 Mr.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.B1/41/2006TRU 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation 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 SoftwareHardware and related services. This Agreement of 01.01.2007 is between Compagnie Financiere AlcatelLucent under which the Appellant M/s Tech Mahindra Limited is described as a supplier and the customer means any subsidiary of AlcatelLucent. 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 AnnexureA, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subclauses (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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of services as are specified in category (iii) of subrule (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 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 ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this subsection 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. (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 notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 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 cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds 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 subrule (1) of Rule 3 is in relation to an immovable property situated outside India. 59 Then comes Rule 3(1)(ii) and which relates to taxable service specified in subclauses 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 subrule wherein it was stated that any tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.2/2007ST 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.6/2010ST 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 service is that any taxable service specified in subrule (1) of Rule 3 shall be treated as such when the payment for such service is received by the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 formalit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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