TMI Blog2023 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... cation dated 09.04.1999 was subsequently rescinded by a notification dated 01.03.2003. In M/S GAP INTERNATIONAL SOURCING (INDIA) PVT. LTD. VERSUS CST, DELHI [ 2014 (3) TMI 696 - CESTAT NEW DELHI] , the dispute before the Tribunal was for the period from 19.04.2006 to 31.05.2007. The service provided by the appellant situated in India to GAP International 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 services provided by the appellant were BAS. The dispute, however, was whether the services qualified as export of service in terms of the 2005 Export Rules and, therefore, not taxable in India. It clearly transpires from the decision of the Bombay High Court in THE COMMISSIONER OF SERVICE TAX, MUMBAI-VI COMMISSIONERATE VERSUS M/S. A.T.E. ENTERPRISES PVT. LTD. [ 2017 (8) TMI 1233 - BOMBAY HIGH COURT] that in a case where the Indian entity only helps the foreign ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ‟ as contemplated under rule 3 of the 2005 Export Rules; and (ii) Arcelor France is an agent of the foreign steel mills and Arcelor India is its sub-agent. Arcelor India provides the necessary details of the customers in India to the foreign steel mills and, thereafter, the foreign steel mills and the Indian customers execute a contract for supply of the goods. The goods are directly supplied by the foreign steel mills to the Indian customers. Arcelor India also satisfies condition (b) of rule 3(2) as payments for such service have been received in convertible foreign exchange. - HON‟BLE MR. JUSTICE DILIP GUPTA, PRESIDENT, HON‟BLE MR. C.J. MATHEW, MEMBER (TECHNICAL) AND HON'BLE MR. P.A. AUGUSTIAN, MEMBER (JUDICIAL) Shri V. Sridharan, Senior Advocate, Shri Vinay Jain and Shri Somesh Jain, Advocates for the Appellant Shri Anand Kumar, Authorized Representative for the Department. JUSTICE DILIP GUPTA: M/s. Arcelor Mittal Stainless International India Pvt. Ltd. Arcelor India , the appellant, is a wholly-owned subsidiary of Arcelor Mittal Stainless International, Paris, France Arcelor France . It was appointed as a sub-agent by Arc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion bench, while hearing the appeal, noticed that: 5.9 The services provided by the appellant to AMSI France are in relation to business activities relating to the specified territories in India, Bangladesh and Sri Lanka. When the appellant are providing the services to the AMSI, France which is consumed by the AMSI, France for developing its business in India, we would not be in position to agree with the arguments of the appellant, stating that services provided by them have been consumed/used by the recipient of services outside India. (emphasis supplied) 4. After placing reliance upon the decision of the Supreme Court in GVK Industries Ltd. vs. Income Tax Officer 2015 (2) TMI 730 (Supreme Court) , the division bench observed: 5.9 ***** In view of the principle of law stated by the Apex Court in the above decision its crystal clear that the services received or provided by the foreign entity even if he is located outside India are in relation to his business activities in India. We are very clear that in the present case the services received by the AMSI, France from the appellant, were for development of their business in India and hence were used/ con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to commerce or industry and the recipient of such services is located outside India used in Rule 3(3)(i) of Export of Services Rules, 2005 upto 18.04.2006. ii. What is extant and scope of phrase such service is delivered outside India and used outside India used in Rule 3(2)(a) of Export of Service Rules, 2005 from 19.04.2006 to 28.02.2007. iii. What is extant and scope of phrase services provided from India and used outside India used in Rule 3(2)(a) of Export of Services Rules, 2005 from 01.03.2007 onwards. iv. Whether the services rendered to foreign entity located outside India for development of its business in India will qualify as Export of Service in terms of the above phrases used in the Export of Services Rules, 2005 from time to time and the decision of Apex Court in case of GVK Industries? 7. What has to be examined is whether the service provided by Arcelor India would be export of service‟ under the 2005 Export Rules, but before proceeding to analyse the various legal provisions and the decisions, it would be useful to briefly consider the history of export of services‟ under the service tax law. 8. The Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued, the Hon‟ble Finance Minister also made a statement in the Lok Sabha clarifying that services exported out of India would not be leviable to service tax. The relevant extract of the speech of the Hon‟ble Finance Minister in the Parliament is as follows: Some Hon. Members as also some trade representatives have also expressed apprehension that the withdrawal of exemption from service tax arising from payments received in convertible foreign exchange could affect out export of services. I want to clarify that a service tax is location based. Whatever service is exported abroad whether it be through outsource computer or medical, it will, by law, be outside the proposed code of service tax. Therefore, there ought to be no apprehension or worry in this regard. (emphasis supplied) 11. Thereafter, the exemption extended by notification dated 09.04.1999 was again reintroduced by a notification dated 20.11.2003. This notification dated 20.11.2003 is reproduced below: In exercise of the powers conferred by Section 93 of the Finacne Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough its agent, i.e., assessee. The principal was not the beneficiary. A service provider acting directly or indirectly through its agent is not the beneficiary of service so provided while providing of service is its contractual obligation under terms of contract with clients/customers. Therefore, in the instant case, no service had occasioned to move out of India to a place outside India. Further to provide service, expenses were incurred in India for which the assessee got reimbursements by way of commission. Condition 2 i.e. the service should be used outside India, is not satisfied Had the service been provided to the foreign principal not resulting in ultimate supply of goods or provision of service to the consumer in India, such services might have assumed the character or nature of export of service from India. But in instant case the noticee is an intermediary meant to provide welldefined services to its clients/customers in India with the technical assistance of foreign principal. Thus it is observed by me that the noticee had performed service in India for ultimate consumption thereof in India by its clients/customers in India. The service was destined to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ordered is delivered outside India and used in business outside India; and (c) payment for such service provided is received by the service provider in convertible foreign 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. (emphasis supplied) 20. Rule 3 of the 2005 Export Rules was substituted w.e.f. 19.04.2006 and the relevant portion is reproduced below: 3 (1) Export of taxable service shall, in relation to taxable services, (i) ***** (ii) ***** (iii) specified in clause (105) of section 65 of the Act, ***** When provided in relation to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that these activities do no satisfy the condition used outside India‟,- (i) Call centers 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; (iv) 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertakes all the activities within India and receives commission for his services from the foreign seller in convertible foreign exchange. The officers of the department, however, were taking a view that since the activities pertaining to the provision of service were undertaken in India, the use of service would not be outside India. The CBEC Circular clarifies that for the services to fall under rule 3(1)(iii) of the 2005 Export Rules, the relevant factor is the location of the service receiver and not the place of performance and the phrase used outside India‟ should be interpreted to mean that the benefit of the service should accrue outside India. Thus, in this category export of service‟ may take place even when all the relevant activities take place in India so long as the benefit of these services accrues outside India. 25. Having noted the aforesaid facts, it would be appropriate, at this stage, to first refer to the decisions referred to by the learned senior counsel for the appellant to support the contention that the services rendered by Arcelor India were export services under the 2005 Export Rules and, therefore, not leviable to service tax. 26. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (iii) of Rule 3 (1) of Export Service Rules, 2005, as these services are in relation to business or commerce and in terms of this clause, readwith sub-rule (2) of Rule 3, these services would be treated as exported out of India if the recipient is located outside India and the same have been delivered outside India and used India and payment for the same has been received by the service provided in convertible foreign exchange. There is no dispute that the payment for these services has been received in convertible foreign exchange and the payment has been made by M/s GAP, U.S.A. located abroad, not having any establishment or branch in India. The department‟s contention, however, is that the conditions of delivery outside India and use outside India are not satisfied, as the services have been performed in India and the same are not capable of being used in territory other than the place where the same have been provided. Xxxxxxxxx. 7. In our view the arguments of the department are absurd as the DR has not mentioned as to who is the consumer of the services in India, if the services, in question, provided in India by the appellant have not been used and consumed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the rendering of services, if any, by the appellant is towards the foreign or overseas manufacturers. In our view, this activity though culminates in supplies to Indian company, cannot be considered as services provided in India. We are fortified in our view by the ratio of the Tribunal in the case of Vodafone Essar Cellular Ltd. (supra). 9. In this case we find that there was an agreement between the appellant and the foreign telecom service provider as per which the appellant had agreed to provide telecom services to the customers of foreign telecom service provider when he is in India and using the appellant telecom networks. Revenue held a view that the consideration for services rendered in India is taxable under Business Auxiliary Service. The Bench after considering the provisions of Export Services Rules and Board clarifications, and the decision of Microsoft Corporation (I) Pvt. Ltd. case held in favour of the assessee by recording as under : ***** (emphasis supplied) 28. It clearly transpires from the aforesaid decision of the Bombay High Court in ATE Enterprise that in a case where the Indian entity only helps the foreign entity to place orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us as to why above Circular cannot be read in the manner in which the Commissioner of Service Tax and the Tribunal has read it. 9. The decision of the Tribunal in the case of Blue Star Ltd., rendered on 24th September, 2014 [2008 (11) S.T.R. 23 (Tribunal)] which was also a subject matter of appeal before this Court being Commissioner of Service Tax, Mumbai VII, Commissionerate v. M/s. Blue Star Ltd. (Central Excise Appeal No. 173 of 2017). This appeal on an identical issue, was dismissed on 11th September, 2018, as not giving rise to any substantial questions of law. (emphasis supplied) 30. The Delhi High Court in Verizon Communication India Private Limited vs. Assistant Commissioner of Service Tax, Delhi 2018 (8) GSTL 32 (Delhi ) approved the view taken by the Tribunal in Paul Merchants, and the relevant portion of the decision is reproduced below: 50. The decision of Larger Bench of CESTAT in Paul Merchants Ltd. v. CCE, Chandigarh (supra) may be referred to at this stage. The period with which the dispute in that case related to was between 1st July, 2003 and 30th June, 2007. It involved, therefore, the interpretation of the ESR, 2005 as amended and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted the contention of the department and held that the appellant had exported service under the 2005 Export Rules. The relevant portions of the decision of the Tribunal are as follows: 4. The appellants filed a refund claim with the Department to the tune of Rs. 9,87,235/- on the ground that the services rendered by them amounts to Export of Services in terms of Rule 3(2) of the Export of Services Rules, 2005 and, therefore, they are entitled for the refund of the Service Tax already paid by them. The learned Advocate stated that the appellants actually book orders for their Principal in USA/UK/other countries. The orders are booked in India and after the orders are booked, the parties concerned directly get in touch with the foreign suppliers. Once the foreign suppliers export the goods to India and receive their payments, a commission is paid to the appellant. It was urged that the service which is rendered by the appellant amounts to Business Auxiliary Service. However, the service is provided from India and used outside India. Further, the payment for such service has been received in convertible foreign exchange. The learned advocate invited my attention to the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of service should accrue outside India and that export of service may take place even when all the relevant activities take place in India but the benefit of the service accrues outside India. 35. Learned authorized representative appearing for the department, however, relied upon the decision of the Supreme Court in GVK Industries to contend that the services rendered by Arcelor India are services performed and consumed in India and so they would not qualify as export of service‟ under the 2005 Export Rules. This decision was also relied upon by the division bench of the Tribunal while referring the issues to the Lager Bench of the Tribunal. 36. It would, therefore, be necessary to examine this judgment of the Supreme Court. GVK Industries, which is a company whose object is to generate and sell electricity, sought services of a consultant and eventually entered into an agreement with a Non-Resident Company in Switzerland NRC, Switzerland . For the services so provided NRC, Switzerland was to be paid success fee at the rate of 0.75% of the total debt financing. After successful rendering of services, NRC, Switzerland sent invoices to GVK Industries for payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing legislation with respect to extra territorial aspects or causes that do not have, nor expected to have, any direct or indirect, tangible or intangible impact on or consequences in the territory of India. This was answered by the Constitution Bench in the following manner: The answer to the above would be yes. However, Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes - events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like - that occur, arise or exist or may be expected to do so, naturally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. The consultant was paid a fee of 0.75% of the total debt financed. The contention of GVK was that tax was not required to be deducted on payments made to NRC, Switzerland since the consultant had no place of business in India and had provided all services from outside India and, therefore, income tax liability did not arise in India under the Income Tax Act. 40. It is not in dispute that the income of NRC, Switzerland did not accrue or arise in India. However, the Income Tax Department contended that as per section 5(2) read with section 9(1)(vii)(b) of the Income Tax Act, the income of NRC, Switzerland would be deemed to have accrued or arisen in India and hence, GVK Industries was liable to deduct tax. GVK India challenged the constitutional validity of section 9(1)(vii)(b) of the Income Tax Act on the ground of legislative competence. The Supreme Court held that the Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, within the territory of India, and also with respect to extra-territorial aspects or causes that have a nexus with India. It is in exercise of such a power that the Parliament had enacted a deeming fiction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is borne by the consumer. 7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax. 44. The concept that service tax is a destination based consumption tax is also in conformity with international practice in respect of value added taxes. Thus, in a destination based consumption tax, the tax is levied only at the place where the consumption takes place. It is for this reason that exports are not taxed and imports are taxed on same basis as domestic supplies. 45. The 2005 Export Rules were introduced to achieve the destination based consumption tax concept and so exemption is provided from payment of service tax to services exported out of India. The 2005 Export Rules set out various conditions for a service to qualify as export of service. Basically, the service recipient should be outside India; service should be provided from India and delivered outside India; and payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A service recipient is a person who makes a request for a service, in exchange of a consideration. In fact, he is the person who is liable to pay for the services received. Service recipient is not a person who is affected by the performance of the service. The Finance Act does not define the term service recipient‟. However the same has been clarified in the CBEC Education Guide as follows: 5.3.3 Who is the service receiver? Normally, the person who is legally entitled to receive a service and, therefore, obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf. 49. It is, therefore, clear that the recipient of service is the person at whose desire the activity is done in exchange for a consideration, i.e., the person who is obliged to make payment for the service. The recipient of service would, therefore, be a person at whose instance and expense the service is provided, whether or not he is the beneficiary of the service. 50. Arcelor France and Arcelor India act as main agent and subagent for foreign mills and not as an agent or service provider for the customers in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(b) of the Income Tax Act, under which the income is deemed to have accrued in India. The Finance Act and the 2005 Export Rules do not contain a provision providing a deeming fiction. The distinguishing features of the decision of the Supreme Court in GVK Industries have been pointed in the earlier paragraphs of this order. The decision of the Supreme Court in GVK Industries, therefore, cannot be applied to the facts of the present case. 54. The four issues raised in the reference order have been dealt with extensively and as they are intermingled, the reference is answered in the following manner: (i) Arcelor India, a service provider, is providing BAS service to Arcelor France, which is a service recipient. Arcelor India is, therefore, providing service to Arcelor France which is situated outside India and Arcelor India receives consideration in convertible foreign exchange. The service provided by Arcelor India is, therefore, delivered outside India and used outside India as is the requirement under the 2005 Export Rules prior to 01.03.2007 and Arcelor India provides services from India which are used outside India as is the requirement after 01.03.2007. It cannot, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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