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Arafaath Travels Private Ltd. Versus Commissioner of Service Tax, Chennai

2017 (8) TMI 554 - CESTAT CHENNAI

Business Auxiliary Services - Export of services or not - Overriding commission and incentives - the amount payable as ORC was deducted by the appellant from the proceeds and the balance amount only was remitted to Saudia - whether the service rendered by the appellant can indeed be treated as Export of Services or otherwise? - Held that: - Business Auxiliary Services being taxable in terms of Section 65 (105) (zzb) were thus governed by the conditionalities in Rule 3(3) of the said Export of Se .....

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ellant have been contracted by its office of Saudi Arabian Airlines located in Jeddah, Saudi Arabia. It is also clear that scope of these services to be provided by the appellant included soliciting, promoting and selling passenger air transportation for Saudia, assistance in all operations likely to encourage traffic on Saudia's Airlines. Evidently, these activities performed by the appellants are contracted to have beneficial impact on air transportation traffic on Saudi Airlines. Although the .....

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d selling passenger air transportation and cargo and mail transportation for Saudia is very much a Business Auxiliary Service, ordered by Saudi Arabian Airlines, Jeddah, to benefit all such service flowing to Saudias business. - Whether retention of the full amount of commission while making remittance to Saudia of all monies due for transportation sold during previous month would fall foul of the requirement in Rule (3) (3) of the Rules that payment for such service is received in convertib .....

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ent will be nothing but export of Business Auxiliary Services which are exempted from liability to service tax. - Appeal allowed - decided in favor of appellant. - ST/214/2007, ST/122/2008, ST/354/2010, ST/359/2010, ST/40760/2013, ST/40291/2014, ST/40039/2016 & ST/41911/2016 - 41400-41407/2017 - Dated:- 4-8-2017 - Ms. Sulekha Beevi C.S. Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri R. Viswanathan, Consultant - For the Appellant Shri B. Balamurugan, AC (AR) - For th .....

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nd Saudia, the Appellant is entitled to receive overriding commission (ORC) at a fixed percentage on the quantum of revenue on account of general sales agency service. As per the agreement the Appellant had received 3% on passenger ticket sales and 2.5% on cargo sales transportation overseas as over-riding commission. Department issued Show Cause Notices proposing imposition of service tax on the overriding commission and the incentives received from Saudia on the ground that the receipts receiv .....

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swanathan submitted a table of the issues involved in the appeals filed by them, which is extracted below for ready reference : Appeal No. Year/Period Issue Notn. applicable Export Rules ST/214/2007 1.7.2003 to 30.6.2006 1.7.2003 to 15.3.2005 Denial of Export for ORC Circular No.56/5/03 dt. 5-4-2003 -do- 16.3.2005 to 19.4.2006 19.04.2006 to 30.06.2006 Denial of Export for ORC Notn. No.9/2005 Notn. No.13/2006 ST/122/2008 1.7.2006 to 31.3.2007 Denial of Export for ORC Notn. No.13/2006 ST/354/2010 .....

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ales was also denied as export No change ST/40039/2016 1.4.2009 to 31.3.2010 Denial of Export for ORC ORC on Cargo Sales was also denied as export Notn. 6/10 dt 27.2.2010 ST/41911/2016 1.4.2012 to 30.6.2012 Denial of Export for ORC ORC on Cargo Sales was also denied as export No Change 4. Ld. Consultant also reiterated the grounds of appeal in all these appeals and also made oral submissions common to all the appeals, which can be summarized as follows :- i) That the transaction is an export of .....

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t all the conditions set out in the Export of Services Rules, 2005. iii) Business Auxiliary services falling under Section 65(105)(zzb) are considered to be export of services in terms of Rule 3(1)(iii)(c) when such services are provided in relation to business or commerce to a recipient located outside India. iv) As a General Sales Agent, the client of the Appellant is the principal namely Saudia, which is a foreign company incorporated under the laws of Saudi Arabia and is located at Jeddah, S .....

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hows that all communications to the Airline has to be sent only to Saudi Arabia. viii) The Agreement itself has been executed in Saudi Arabia. The contract has also been executed outside India and the service receiver is Saudi Arabian Airlines located outside India. ix) The very fact that the Overriding Commission (ORC) is being calculated on net flown revenue shows that only when the business is achieved and the turnover in Saudi Arabia is calculated, therefore the Appellant qualifies for ORC. .....

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xii) The conditions of Rule 3(2) which was introduced from 01.03.07 between are fully satisfied since the GSA services are provided from India and the services are used outside India by Saudia. xiii) The services are used outside India since the principal enjoys the growth in air traffic from out of India to other destinations in the world and the principal is a foreign company whose turnover in a foreign country gets increased due to the services rendered by the Appellant. The observations in .....

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formance such as Banking and other Financial Services, Business Auxiliary Services shall be treated as export on satisfying the condition. 5. The appellant relied on the following case laws : (i) JB Boda& Co. (P.) Ltd. Vs. CBDT - [1997] 223 ITR 271(SC) wherein It has been held that the receipts even though in Indian Rupees should be considered as receipts in convertible foreign exchange by virtue of the Supreme Court decision in the case of (ii) PSA Sical Terminals Ltd. Vs CCTuticorin -2004 .....

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as less foreign exchange is not in violation of Export of Service Rules. 6. On the other hand, on behalf of the department Shri B. Balamurugan, Ld. A.R supports the impugned orders and also made oral submissions which can be summarized as under : (i) Service provided by the appellant falls under BAS. The services provided by the GSA to Saudia cannot be considered as export of service under Rule 3(3) of Export of Service Rules, 2005, in as much as, the appellant has provided the service within a .....

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Ticket/Airway bills on all further activities on any claims, demand, cost which are undertaken by Saudia. (iv) The appellant has to provide one office at Chennai and Cochin to Saudia and should also provide administrative service to Saudia in India in its relation with Government Agency and General Public within its territory. It is further noted that as per the agreement the appellant should provide an office to Saudia so as to be identifiable as Saudi Airlines. (v) Appellant has not fulfilled .....

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gineering case pertains to conservation of foreign exchange as against the receipt of foreign exchange into the country which is the core issue of export of services as per the condition stipulated. (vii) The facts in the present case are identical to the facts of the decision of this Hon ble Tribunal, Chennai in the case of ETA Travel Agency Pvt. Ltd. Vs CCE Chennai vide Final Order No.452/2007 dated 20.04.2007 [2007 (7) STR 454 (Tri.-Bang.). The applicability of the above decision is elaborate .....

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transactions are covered by an agreement. 7.2 Commercial services to be rendered by the GSA are specified in Article II of the Agreement which we find includes soliciting, promoting and selling passenger air transportation for Saudia and assist in all operations likely to encourage traffic of Saudia's lines; select IATA sales agents as Saudia representatives and ensure that Saudia carriage documents are issued by these agents; service and supervise these sub-agents and provide administrativ .....

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ms of the above agreement, the assessee admittedly are in receipt of 3% ORC on passenger sales and 2.5% on cargo sales. 7.4. The appellant has prima facie accepted that the overriding commission falls under the category of service BAS and is chargeable to tax accordingly. However, the appellants contention is that the service is rendered to Saudia as the part of the above agreement and the same is to be treated as export of services and therefore the appellant has pleaded that they are exempted .....

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ment, the mode of payment has been changed from rupees to foreign currency. 7.5 The core issue that comes for appellate decision in all these appeals is whether the service rendered by the appellant can indeed be treated as Export of Services or otherwise. 7.6 The Export of Services Rules, 2005 came into force on 15.03.2005. These rules have been, so to say, work in progress since they have been amended on twelve occasions till they were finally superseded by Notification No.28/2012-ST dt. 20.06 .....

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,(i),(j),(l),(m),(n),(o),(s),(t),(u),(w),(x),(y),(z),(zb),(zc),(zj),(zn),(zo),(zq),(zr),(zt),(zu),(zv),(zw),(zza),(zzc),(zzd),(zzf),(zzg),(zzh),(zzi),(zzj),(zzl),(zzm),(zzn),(zzo),(zzp),(zzs),(zzt),(zzv),(zzw),(zzx)and (zzy) of clause (105) of section 65 of the Act, such services as are performed outside India: Provided that if such a taxable service is partly performed outside India, it shall be considered to have been performed outside India; (3) in relation to taxable services, other than,- ( .....

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used in or in relation to commerce or industry and the recipient of such services is located outside India: Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if- (a) order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India; (b) service so ord .....

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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." 7.7 Subsequently, vide Notification No.13/2006-ST, Rule 3 was amended inter alia as under : (2) The provision of any taxable service shall be treated a export of service when the following conditions are satisfied, namely :- (a) such service is delivered outside India .....

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such service provided outside India is received by the service provider in convertible foreign exchange. However, vide Notification No.30/2007 dt. 22.05.2007, w.e.f. 1.6.2007 in sub-rule (2), in clause (b), the words "provided outside India" was omitted. Further amendment was made vide Notification No.6/2010-ST dt. 27.02.2010 where inter alia in sub-rule (2) clause (a) was omitted. 7.8 Business Auxiliary Services being taxable in terms of Section 65 (105) (zzb) were thus governed by th .....

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e appellant and their client Saudi Arabian Airlines Corporation, Jeddah, Saudi Arabia. Thus the first two conditionalities are satisfied. If the recipient of such service has any commercial or industrial establishment or any office relating thereto in India, for the taxable services to be treated as export of services, order for provision of such service is to be made by the recipient from his office located outside India, the service is delivered outside India and used in business outside India .....

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contracted by its office of Saudi Arabian Airlines located in Jeddah, Saudi Arabia. It is also clear that scope of these services to be provided by the appellant included soliciting, promoting and selling passenger air transportation for Saudia, assistance in all operations likely to encourage traffic on Saudia's Airlines. Evidently, these activities performed by the appellants are contracted to have beneficial impact on air transportation traffic on Saudi Airlines. Although the appellants .....

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, Jeddah Office and the appellant, like air passenger transportation, the appellant in the GSA Agreement for cargo is similarly required to provide commercial services to Saudia including soliciting, promoting and selling cargo and mailing transportation for Saudia and assisting in all operations to encourage traffic agreement of Saudia's lines. Evidently, the commercial services provided by the appellant, inter alia, soliciting, promoting and selling passenger air transportation and cargo a .....

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dingly, the meaning of the terms used outside India has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of Rule 3 of the Export of Service Rules, 2005. The circular further gives an example of category of three services [Rule 3 (1) (iii)] where it is possible that services may take place even when all the relevant activities take place in India so long as the benefits of the services accrue outside India. Board further clari .....

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. The only issue, now remaining to be analysed is whether retention of the full amount of commission while making remittance to Saudia of all monies due for transportation sold during previous month would fall foul of the requirement in Rule (3) (3) of the Rules that payment for such service is received in convertible foreign exchange. 10. On this contentious issue (whether payment has been received in foreign exchange), Revenue has placed considerable reliance on the ratio of Tribunal decision .....

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sion (ORC) was received by way of inward remittance in convertible foreign exchange. Hence ORC received cannot be considered as receipts of convertible foreign exchange. Ld.A.R for Revenue has pointed out that this decision was followed by the Tribunal in the case of Trans Lanka Air Travel Pvt. Ltd. Vs CST Chennai - 2007 (7) STR 476 (Tri.-Chennai). While this maybe so, however, the appellants have argued that ETA Travels decision has been stayed by the Hon ble High Court of Madras in C.M.A.No.23 .....

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nging reinsurance for Indian insurers from foreign reinsurers through foreign brokers on the ground that services were provided to a foreign company located outside India, therefore it amounted to export of service. Department argued that assessees services were provided to Indian insurance companies and payment was also received in Indian rupee. Hence it was not an export of service for the purpose of Rule 3 of the Export of Service Rules, 2005. The High Court held that the services were provid .....

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e also been expressed in a number of other decisions by the Tribunal, for example in the case of Microsoft Corporation (I) (P.) Ltd. Vs CST [2011] 16 taxmann.com 258 (New Delhi-CESTAT) wherein it was inter alia held that Business Auxiliary Services of promotion of market in India for a foreign principal would amount to export of service and would be covered by the provisions of Export of Service rules and are not liable to service tax. In the case of Blue Star Ltd.Vs CCE Bangalore - [2009] 18 ST .....

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ment in the case of J.B. Boda & Company Pvt. Ltd. Vs CBDT - AIR 1987 (SC) 1543 held that when out of the total payment to be made by the insurance broker in India to the foreign insurer, the same was reduced to the extent of his brokerage and remaining amount was remitted to foreign insurer in foreign exchange, such Indian rupees was obtained in lieu of foreign exchange the same will be deemed to be convertible exchange. The Tribunal decision also took note of Foreign Exchange Management Act .....

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esh General Insurance Services cited (supra). We are aware that the Suprasesh judgment has been appealed against by the department and the Hon'ble Apex Court after condoning the delay has issued notice, as reported in 2016 (43) STR J22 (SC), however as no stay of the Suprasesh judgement has been ordered by the Hon'ble Apex Court, we intend to follow the ratio thereof as laid down by the High Court of Madras. 12. No doubt, the proviso in Rule 3 (3) of Export of Service Rules, 2005 does re .....

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