TMI Blog2020 (12) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... e name of foreign companies. The foreign companies thereafter export the goods to the customers in India and the invoices are raised directly on the customers. The appellant thereafter raises an invoice for its commission on the foreign companies and receives the commission amount in convertible foreign currency. It is, therefore, clear that the appellant supports such foreign companies to procure orders in India. Such service is provided from India and used outside India. The service rendered by the appellant would, therefore, satisfy the twin conditions set out in rule 3(2) of the 2005 Rules as has also been clarified by the Circular dated February 24, 2009. In M/S GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD. VERSUS CST, DELHI [ 2014 (3) TMI 696 - CESTAT NEW DELHI] , the service provided by the appellant therein was in relation to procurement of goods from India and for this purpose, the appellant conducted survey of the manufacturers of various products required by GAP, USA and recommended vendors who could supply the goods. The appellant also conducted inspection of the export consignments and issued the inspection certificates. It was, therefore, not in dispute that the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharge service tax on the commission received in convertible foreign currency as it believed that the services rendered by it to foreign companies amounted to export of service under the Export of Service Rules, 2005 [ 2005 Rules ] 4. During the course of audit of the records of the appellant for the period January, 2006 to March, 2009, the officers noticed that the appellant had received commission from abroad during the period from 2004-05 to 2008-09, which appeared to be taxable under BAS. Accordingly, a show cause notice dated October 21, 2011 was issued to the appellant. It was proposed to levy service tax since the services rendered by the appellant may not tantamount to export of service under the 2005 Rules for the reason that though the services were rendered to foreign companies, but the same were provided and used in India. The appellant filed a reply to the show cause notice and submitted that the services provided by the appellant, were export of services and so were not leviable to service tax. 5. The Commissioner, however, did not accept the explanation offered by the appellant and confirmed the demand by order dated October 3, 2012. After examining the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent falling under the category of BAS undertaking the activities as detailed in para 4.5(d). Thus, it is inconceivable from the perusal of such activities that the above said services provided in India can even be delivered or used in a territory other than from where these have been provided. There is no denying of the fact that the benefits in this case would definitely flow to foreign clients located outside but that does not lent credence that services have been used outside India. (emphasis supplied) 7. The Commissioner thereafter examined the two Circulars dated February 24, 2009 and May 13, 2011 issued by the Central Board of Excise and Customs, New Delhi [ CBEC ] , and observed as follows : 4.12 I have perused Circular No. 111/05/2009-ST dated 24.02.09 and Circular No. 141/10/2011-TRU dated 13.05.2011 along with Export of Service Rules as referred to by the notice. I find that the Export of Service Rules 2005 do not approve plea of export made by the noticee in view of Circular No.141/10/2011-TRU dated 13.05.2011. The Rules envisaged that services have to flow abroad for consumption thereat so as to qualify to be export of service. The Circular simply r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the period of services rendered i.e. the assessee has not submitted the proof that the amount claimed to have been received by them after 27.02.2010 is in respect of services rendered after 27.02.2010 and not before that date i.e. the date on which the above said amendment was carried out. (emphasis supplied) 9. Shri B.L. Narasimhan, learned counsel for the appellant made the following submissions: (i) The appellant is not liable to pay service tax on commission received from foreign companies and the findings recorded in the impugned order are clearly contrary to the principles laid down in various decisions that promotion and marketing of goods of foreign companies in India would qualify as export of service. (ii) In support of this submission, learned counsel placed reliance upon the following decisions : 1. Paul Merchants Ltd. vs. Commissioner of C. Ex, Chandigarh [2013 (29) STR 0257(Tri.Del)]; 2. ABS India Ltd. vs. Commissioner of SERVICE Tax, Bangalore [2009 (13) STR 65 (Tri.-Bang.)]; . 3. Blue Star Limited vs. Commissioner of Central Excise, Bangalore [2008 (11) STR 23 (Tri.-Bang.)]; 4. GAP International Sourcing (India) Pvt. Ltd. vs. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized representative of the Department, however, supported the impugned order and made the following submissions: (i) The Commissioner was justified in confirming the demand of service tax for the service provided by the appellant from April, 2006 to February 26, 2010. Even for the period commencing February 27, 2010, the Commissioner was justified in confirming the demand of service tax since the appellant failed to correlate the receipt of commission with the period of service; (ii) Appeals against some of the decisions or the Tribunal, on which reliance has been placed by learned counsel for the appellant, are pending in the High Court or the Supreme Court and so these decisions should not be taken into consideration. In support of this contention, reliance has been placed on the decisions of the Supreme Court in Union of India vs. West Coast Paper Mills Ltd.[ 2004 (166) ELT 290 (SC)] and Kunhayammed vs. State of Kerala [2001 (129) ELT 11 (SC)]; (iii) A Division Bench of the Tribunal in ARCELOR Mittal Projects India Pvt. Ltd. vs. Commr. of S.T., Mumbai-II [Order dated July 4, 2019 in service tax appeal No. 88483/2014] has referred the matter to the President of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In terms of rule 3(2) (a) of the Export of Services Rules 2005, a taxable service shall be treated as export of service if such service is provided from India and used outside India . Instances have come to notice that certain activities, illustrations of which are given below, are denied the benefit of export of services and the refund of service tax under rule 5 of the Cenvat Credit Rules 2004 ( Notification No 5/2006-CE (N.T.) dated 14-3-2006 on the ground that these activities do no satisfy the condition used outside India ,- (i) Call centres engaged by foreign companies who attend to calls from customers or prospective 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; 7. Foreign financial institution desiring transfer of remittances to India, engaging an Indian organisation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undersigned. These instructions should be given wide publicity among trade and field officers. (emphasis supplied) 17. When the 2005 Rules were amended w.e.f February 27, 2010, another Circular dated May 13, 2011 was issued by CBEC and the relevant portion is reproduced below: Circular No. 111/05/2009-S.T. was issued on 24th February 2009 [2009 (13)S.T.R. C87] on the applicability of the provisions of Export of Service Rules, 2005 in certain situations. It had clarified on the expression used outside India in Rule 3(2)(a) of the Export of Service Tax Rules, 2005 as prevalent at that time. The condition specified in Rule 3(2) has been omitted vide Notification 6/2010-S.T. dated 27 Feb. 2010. In the context of the stated circular an issue has been raised, whether for the period prior to 28-2-2010 the requirement that the service should be used outside India invariably means the location of the recipient? 2. In the stated circular it was inter alia, clarified that the words, used, outside India should be interpreted to mean that the benefit of the service should accrued outside India . It is well known that services, being largely intangibles, are capable of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 (2) of the 2005 Rules, as it existed prior to February 27, 2010, would indicate that the provision of any taxable service specified in sub-rule (1) of rule 3 shall be treated as export of service when the following two conditions are satisfied: (a) such service is provided from India and used outside India; and (b) payment of such service is received by the service provider in convertible foreign exchange. 19. There is no dispute in the present appeal that the payment for the service was received by the appellant in convertible foreign exchange. The dispute is whether the service was provided from India and used outside India. The Commissioner has observed, for the period prior to February 27, 2010, that the appellant was providing services in relation to procurement of orders from customers located in India and these services cannot be delivered outside India. Thus, the appellant would not satisfy the condition of requiring the services to be used outside India and in this connection, the Commissioner placed reliance upon the Circular dated May 13, 2011. Thus, the demand has been confirmed on the premise that the appellant was rendering services in relation to promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Noticee then raises an invoice for its commission on the foreign companies. A sample copy of such an invoice raised by the Notice is enclosed as Annexure-5. The commission is paid by the foreign companies in convertible foreign currency. Documents evidencing the fact that the payment was received by the Noticee in convertible foreign currency are enclosed as Annexure-6. 2.6. As is clear from the above, the Noticee is giving technical support to such foreign companies for procurement of orders in India and promotion of goods dealt by the foreign companies. The Noticee assists the foreign companies for liasioning, preparing documents, obtaining tenders and follow up of the same. The Noticee negotiates the tenders on behalf of the foreign companies in India and ensures collection of payments through cheques, etc. on behalf of foreign companies. 22. It would be seen from the aforesaid factual position stated by the appellant in reply to the show cause notice that the appellant had been representing various foreign companies in India and these foreign companies did not have any business or any other office in India. The appellant promoted the business of such foreign compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he service provided by the appellant to M/s GAP, U.S.A., is in relation to procurement of goods from India. For this purpose, the appellant conduct the survey of the manufacturers of various products required by M/s GAP, U.S.A., and recommend the vendors who can supply the goods of the desired quality. They also conduct inspection of the export consignments and issue inspection certificates. In selecting the vendors they also examine not only the quality of their products, but also whether they conform to child labour norms, Pollution control norms etc. as compliance with these norms is important for their Principals. They also recommend the Transporters and logistic service providers for export of the products purchased. Thus, the services being provided by the appellant to their principal are the services in relation to procurement of the goods and there is no dispute that these services are Business Auxiliary Services covered by Section 65 (105) (zzb) read with Section 65 (19) of the Finance Act, 1994. The only point of dispute is as to whether the services are taxable in India or the same are export of service outside India in terms of Service Rules, 2005 and for this reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with child labour laws and pollution control norms and also provide the services of inspection of the export consignments, besides identifying the logistic service providers for smooth transportation of the goods purchased to the port for their export, the user and beneficiary of all these services is their principal abroad. It would be absurd to say that the recipient and user of these services are the persons in India and not M/s GAP, U.S.A. for whom all these services provided by the appellant are meant, who have used these services for their business and have made payment for these service in convertible foreign exchange. (emphasis supplied) 24. The Circular dated February 27, 2010 was found to be contrary to the provisions of rule 3(1) of the 2005 Rules. 25. In A.T.E. Enterprises , the following substantial questions of law were framed by the Bombay High Court: (a)Whether the services provided by the Respondent herein, in accordance with various contracts entered into with overseas manufacturers, is classifiable under Business Auxiliary Services as defined under section 65(105)(zzb) of the Finance Act, 1994 and if so, whether the said services provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign based principals for promotion of sale of the products/goods in India. The Department was of the view that the services provided by the respondent would fall under the category of BAS chargeable to service tax. The case of the respondent assessee, however, was, and which case was accepted by the Commissioner of Service Tax, that the services rendered by the respondent to its foreign principals would constitute export of service covered by the 2005 Rules, and so no tax could be levied. The Bombay High Court, after referring to the decision of the Bombay High Court in A.T.E Enterprises and the Circular dated February 24, 2009, dismissed the appeal that had been filed by the Department. The relevant portion of the decision of the High Court is reproduced below: 8. We find that the issue raised herein is no longer res integra. An identical nature of services as rendered by the respondent to its foreign clients, had come up for consideration before this Court in Commissioner of Service Tax, Mumbai v. ATE Enterprises (P) Ltd., 2018 (8) GSTL 123 (Bom.) This Court followed its earlier decision in SGS India (P) Ltd. v. Commissioner of Service Tax 34 STR 554 (Bom.) and held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CCE, Chandigarh (supra) is right in holding that The service recipient is the person on whose instructions/orders the service is provided who is obliged to make the payment from the same and whose need is satisfied by the provision of the service. The Court further affirms the following passage in the said judgment in Paul Merchants Ltd. v. CCE, Chandigarh (supra) which correctly explains the legal position: 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. (emphasis supplied) 30. Learned authorized representative of the Department has, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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