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2019 (8) TMI 384

..... sales support, marketing, advertising, billing, etc. - services on ‘principal to principal’ basis, or as an ‘intermediary’? - rejection of refund claim on export of service, as it appeared to Revenue that the appellant is providing the services to their principal located outside India as an ‘intermediary’ - POPOS Rules - Rule 5 of the Cenvat Credit Rules 2004 read with Notification No.27/2012-CE (NT). Period April, 2012 to June, 2012 - HELD THAT:- The same is for the Positive List Regime (prior to 30.06.2012) - demand do not sustain - decided in favor of appellant. Location of service provider/appellant - Rule 9 of POPS - case of Revenue is that the location of service provider/appellant is in India and further in terms of Rule 9 of POPS, the service provided, being intermediary services, the location of the service provider under Rule 9 of POPS, shall be the place of provision of services, provided to Verizon US - HELD THAT:- The said stand of Revenue is wholly mis-construed and erroneous. Firstly, no demand notice was issued on the appellant refusing or questioning the status of the export of service to Verizon US, as declared in their ST-3 Ret .....

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..... th MFS Globnet Inc (Globnet). Subsequently, Globnet has entered into a Novation Agreement with MCI Communication Services, Inc (USA) ( MCICS/Verizon US ) whereby Globnet has novated the agreement in favour of Verizon US and Verizon US has assumed all of Globnet s rights and obligations under the Agreement. In terms of the Agreement, the Appellant (referred to as OpCo in the Agreement) is rendering Business Services including sales support, marketing, advertising, billing, etc. to Verizon US. The services provided by the appellant to Verizon US are reported as Business Support Services ( BSS ) in the service tax returns and claimed as exports, in terms of the provisions of Rule 6A of the Service Tax Rules, 1994 ( ST Rules ). 3. In respect of the Business Support Services exported, the appellant filed periodical refund claims of proportionate input service tax credit under Rule 5 of the Cenvat Credit Rules 2004 read with Notification No.27/2012-CE (NT). All these appeals relate to rejection of refund claim on export of service, as it appeared to Revenue that the appellant is providing the services to their principal located outside India as an intermediary as defined under Rule 2 (f) .....

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..... ay (not being a public holiday in New York, USA or a Saturday or Sunday), on which banks in New York, USA are generally open for transaction of normal business; Business Services Fees - the business service fees payable by each party hereto to the other party hereto as calculated pursuant to and as further described in Schedule 1; Business Services - the provision of services, subject to and only the extent permitted by Local Regulations, including: sales support, marketing, advertising, billing, maintenance and engineering support, IT support, systems integration, legal, human resources, financial, executive and other administrative services, as well as any other services where a function or resource of one of the parties is used by the other party or benefits are shared by the parties and such telecommunications services outside the territory as are procured by Globenet and /or OpCo. Customers - persons (other than any member of the Verizon Group) who have entered or in the future enter into contracts with the Verizon Group for the provision of certain Business Services). Telecommunication Services - the provision of voice and /or data transmissions and associated services which .....

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..... her directly or by assignment; 2.3.1.12 Opco will, within guidelines set by Globenet, manage all aspects of the local customer service requirement including market research, sales proposals, developing pricing and contracts, billing, negotiation of service contracts identifying customer s network requirements, CPE procurement identification, installation of CPE, and sales support and service (including repair of network, as required ) 2.3.1.13 to the extent the OpCo sales team maintains secondary customer relationships which support the efforts of Globenet, OpCo will mange aspects of the customer service requirement in the Territory including, but not limited to, serving as a local point of contact for relevant customers outside the territory, identifying the requirements of local customer operations, coordinating other local aspects of global contracts, ensuring compliance with local rules and regulations, and managing the availability of the local network; and 2.3.1.14 OpCo will invoice customers located in the Territory with whom the OpCo has a direct contact. 2.4 Gobenet s Obligations 2.4.1 Subject to its right to procure performance of the same in accordance with the first par .....

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..... ll not hold itself out as the agent of Globenet nor act in any way which will pledge the credit of Globenet or incur any liabilities on behalf of Globenet. In entering into contracts with customers in the territory, OpCo will enter into such contract with the customers in the Territory as principal in its own name and on its own account only and not as agent of any other member of the Verizon Group. Schedule -I to the Agreement 2.1 The percentage outlined below reflect the arm s length price for Business Services as of the Effective Date of this Agreement based on the most recent data available at that time. Any of the percentages may be amended pursuant to Clause 3.10 of the Agreement from time to time in order to ensure that such percentages continue to represent arm s length prices for such Business Services. 2.1.1. The Net Cost Plus Percentage shall mean 11 (eleven) percent. 2.1.2. The Operating Margin Percentage shall mean 11(eleven) percent. 3.1 The Business Services Fee payable to OpCo by Globenet for Business Services performed by OpCo pursuant to this Agreement shall include reimbursement for the following amounts (collectively, the Reimbursed Costs): 3.1.1 Non-Routine Bad .....

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..... hether the assessee has actually exported taxable services in terms of Rule 6 A of Service Tax Rules, 1994. (v) Whether the assessee has actually realised full exports proceeds of the relevant period in convertible foreign exchange. (vi) Whether the input services, on whose credit the refund is applied for, are used for providing the exported service. (viii) Whether the Refund claim calculation is as per Notification No.27/2012 dated 18.06.2012 read with Rule 5 of Cenvat Credit Rules, 2004. 7. Further, the Adjudicating Authority examined the conditions laid down in Rule 6 A of Service Tax Rules, 1944, which are as under :- Service Tax Rules, 1994: the conditions to be fulfilled for Business Support Services to qualify as exports were prescribed in the Service Tax Rules which were as follows: Condition 1: The service provider should be located in the taxable territory. Condition 2: The service recipient should be located outside India; Condition 3: The service should not be covered under Section 66 D of the Finance Act, 1994 for negative list of services. Condition 4: The place of provision of services should be outside India Condition 5: The payment for such services should be rece .....

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..... through the documents and BRCs, I find that the total amount as shown in export invoices has been realised in convertible foreign exchange. 9. The assessee provides the services mentioned above to MC Communications Services Inc., U.S.A. The services have been classified by the assessee under Business Support Services. On perusal of the agreements and the write up submitted by the party, it appears that party is supporting the business of overseas entities and is covered under the ambit of Business Support Services. Therefore, the services are correctly classified under the category of Business Support Services. 10. On going through the export invoices and documents submitted as evidence for realisation of export proceeds, it is observed that the total amount as shown in export invoices was realised in convertible foreign exchange. Self certified statement including relevant BRCs evidencing the receipt of export proceeds invoices wise has also been annexed to the claim. 11. The assessee has furnished the following justification for use of input services for output services. 12. For providing the output service exported, the Adjudicating Authority observed that the appellants have us .....

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..... advices/consultancy for managing IT infrastructure, IT Platform, integration of information Technology and improving IT services. Therefore, these services are consumed in relation to providing an output service thus qualify as input services. 8. Information Technology Software Service These services are used for analysis, up gradation and installation of IT software at customer premises in relation to the information Technology software and data security. All these are therefore directly related to the business operations and hence qualify as input service. 9. Installation Services These service are availed for installing the equipment‟s at the customer premises for providing the IT support services. The services have a direct nexus with the rendering of the taxable output service and consequently quality as input services. 10. Business Support Service The company receives business support services from overseas entity in form of billing administration, IT support and consultancy, support and other business administrative support service. 11. Legal Services These services are in relation to the advice/assistance obtained for complying with the various statutory laws and for .....

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..... rvice is capable of differential treatment for any purpose based on its description the most specific description shall be preferred, over a more general description. 15. Accordingly, held it appears that the activities undertaken by the respondent/assessees are covered under the definition of Intermediary services . Thus, as alleged by the Revenue, the respondent /assessee will be covered under Rule 9 of POPS Rules and accordingly, the place of provision of service will be the location of service provider i.e. location of the respondent -assessee, which is in the taxable territory. Therefore, services do not qualify as export under Rule 6 A of Service Tax Rules, 1994, appears to be correct. Further,, role of the respondent-assessee appears to be that of facilitating of services beween the group companies and the client. Though the respondent-assessee has been providing a bundle of services, the essential character of services appears to be that of intermediary services. It was further observed that the ruling of the Hon ble Supreme Court in the case of CCE Vs. Mysore Elec. Ind. Ltd. - 2006 TIOL 153 (SC) - CX relied upon by the respondent-assessee is not relevant to the appeal, as .....

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..... sofar the appellants have provided the direct services to domestic customers (within India) based on the mandate of Verizon, US, they have discharged the applicable service tax and thus, by virtue of aforementioned clauses, the appellant is not arranging or facilitating the provisions of any services between Verizon, US and the customers of Verizon, US. This fact is ipso facto proved by the clause 2.3.1.14 of the agreement, wherein it is clearly indicated that in case of direct services, the appellant will directly invoice the customer. Such facts are not in dispute and are supported by the Service Tax Returns filed before the department. 19. Further evidently under the terms of the Agreement and on perusal of the transaction, services are provided by the appellant to Verizon, US on P2P basis. It is supported by paras 16.1 and 16.2 of the agreement, which have already been aforementioned. 20. Ld. Counsel further places reliance on the ruling of Delhi High Court in the appellant s own case (in Writ Petition) decided by the High Court by order dated 12.09.2017 reported at 2017-TIOL-1863-ST-DEL-ST. The common issue before the Hon ble High Court was - whether the services provided by .....

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..... has been agreed to be provided has to be examined. When the Master Supply Agreement between Verizon India and Verzon US is examined, it is plain that the recipient of the service is Verizon US and it is Verizon US that is obliged to pay for the services provided by Verizon India. 22. The Hon ble High Court in para-51 of the judgement held that the Tribunal is correct in placing the reliance on the ruling in Paul Merchants Ltd. Vs. CCE, Chandigarh in holding that the service receipt is the person, on whose instructions/orders, the service is provided and who is obliged to make payment for the same and whose need is satisfied by the provisions of the service. It is also observed that the Department was also not justified in utilising the arrangement of provision of service as one between the related persons. In doing so, the Department was applying a criteria that was not stipulated either under the Export of Service Rules or Rule 6A of Service Tax Rules. The Hon ble High Court summaries its findings and conclusions as under:- 54. (i) It made no difference that Verizon India may have provided telecommunication service and not business support services since to qualify as export of s .....

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..... 11th November, 2016 issued to it raising a demand of service tax for the export of services, and all proceedings consequent thereto, are hereby set aside. The result is that Verizon India will be able to reinstate the Cenvat credit in its books of accounts. The refund as claimed together with the interest due thereon will be processed and issued to Verizon India by the Department without delay. 23. Accordingly, in view of the aforementioned submissions and the ruling of the Hon ble Delhi High Court in the appellant s own case, ld. Counsel states that the issue is no longer res integra and prays for allowing their appeal in their favour. 24. Ld. Authorised Representative for the Revenue has relied on the findings of the court below. He further states that the appellant is referred to as OPCO in the agreement, who is engaged in the provision of Business Support Services in the territory of India. The Business Services as per agreement is defined as follows:- Business Services : the provision of services, subject to and to only the extent permitted by Local Regulations, including: Sales support, marketing, advertising, billing, systems integration, legal human resources, financial, ex .....

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..... the rival contentions, we find that so far the Appeal No.ST/51164 of 2017 relating to the period April, 2012 to June, 2012 is concerned, the same is for the Positive List Regime (prior to 30.06.2012) and thus, is squarely covered by the ruling of Delhi High Court in the appellant s own case (supra). Accordingly, this appeal is allowed in favour of the appellant with consequential benefit and the impugned order is set aside. 29. As regards the other three appeals, having considered the rival contentions and the facts on record, the case of Revenue is that the location of service provider/appellant is in India and further in terms of Rule 9 of POPS, the service provided, being intermediary services, the location of the service provider under Rule 9 of POPS, shall be the place of provision of services, provided to Verizon US. Further, case of Revenue is that as location or place of provision of service is in India, it does not amount to export of service and accordingly, the appellant is not eligible for export benefits (Refund of Input tax ) and is liable for tax in India. 30. We find that the said stand of Revenue is wholly mis-construed and erroneous. Firstly, no demand notice was .....

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