Delay condoned.
Leave granted.
1.1 These Civil Appeals have been filed by the Revenue, i.e. the
Service Tax Department, being aggrieved by various orders passed
by the Customs, Excise and Service Tax Appellate Tribunal
(“CESTAT”, for the sake of convenience).
2.The orders passed by CESTAT in all these appeals have been in favour of the respondents-assessees. The CESTAT has held that the services provided by the respondents-assessees have been in fact exported out of India. Consequently, service tax is not payable by the assessees on such services so exported, vide Rule 4 of the Export of Service Rules, 2005 (“Rules”, for the sake of brevity). It has also held that the assessees had rightly availed payment of CENVAT credit on inputs and input services used for providing such services vide Rule 5 of the Rules.
3.The period under consideration in these appeals range from the year 2003 till the year 2014. During this period, there were several amendments made to the law governing the taxability of export of services, which can be discussed at this stage itself.
4.The policy governing taxability of export of service was initiated in the year 1999 and in the year 2003, it was reiterated. Since service tax is a destination-based consumption tax, services that were exported out of India were not meant to be taxed. The benchmark in the year 1999 was, whether payment was received in convertible foreign exchange. Ultimately, in the year 2010, the benchmark again came to be fixed as receipt of payment in
5.A brief outline of the amendments made from the year 1999
till 2012 are highlighted as under:
I. From 1999 to 2003:
5.1 During the period from the year 1999 to 2003, any taxable
service for which payment was received in convertible foreign
exchange was exempted from payment of service tax. A notification
in this regard was issued vide Notification No.6/99-S.T., dated
09.04.1999, whereby exemption was made in respect of the taxable
services specified in sub-section (48) of Section 65 of the Finance
Act, 1994. This Notification was however rescinded vide Notification
No.2/2003-Service Tax, dated 01.03.2003, the reason being that
the exemption would be of no consequence as whatever service was
exported out of India was in any case outside the scope of levy of
service tax. This was because service tax is location-based and
whatever service is exported abroad, is outside the scope of service
tax. Consequently, Circular No.56/5/2003-S.T., dated 25.04.2003
was issued, clarifying that since service tax is destination-based
consumption tax, no such tax was leviable on export of services.
5.2 Subsequently, Notification No.21/2003-S.T., dated 20.11.2003
was issued, providing exemption from payment of service tax on
export of services in terms of sub-section (105) of Section 65 of the
Finance Act, 1994, provided taxable services to any person in
respect of which payment is received in India is received in
5.3 When the position stood thus, the Government of India
decided to formulate Rules regarding export of services.
II. From 2005 to 2010:
5.4 The Rules were introduced vide Notification No.9/2005 dated
03.03.2005 which categorized services into three categories as per
Rule 3 of the said Rules, which is described as under:
i. Category I related to immovable property and stated that if the
specified services were provided in relation to immovable
property situated outside India, then the said service would be
treated to have been exported;
ii. Category II related to performance-based services and stated
that if the specified services were either wholly or partly
performed outside India, then the same would be treated to
have been exported;
iii. Category III covered the remaining services and provided that
such services would be treated as having been exported if
provided to a customer located outside India. This sub-rule has
two other conditions- (i) that the service is delivered outside
India and used in business outside India; and (ii) that the
payment for such service is received in convertible foreign
exchange.
The controversy in these cases relate to category (iii) services,
namely, whether such services were delivered or used or consumed
outside India; and partially to category (ii) services, i.e., whether
such services were wholly or partly performed outside India.
5.5 Rule 3 of the Rules underwent several amendments from the
year 2005 till 2010, which are extracted as under:
(3) in relation to taxable services, other than, -
(i) ….
(ii) …
(i) such taxable services which are provided and 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 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;”
Rule 3 was recast as under:
(1) Export of taxable services shall, in relation to taxable services,—
(i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India;
(ii) specified in sub-clauses (a), (f), (h), (i), (j), (l), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf) and (zzzp) of clause (105) of section 65 of the Act, be provision of such services as are performed outside
Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India;
(iii) specified in clause (105) of section 65 of the Act, but excluding,—
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc)
and (zzzr) does not relate to immovable property; and
(c) those specified in clause (i) 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.
(2) The provision of any taxable service shall be treated are satisfied, namely:-
(a) such service is delivered outside India and used outside India; and
x x x
(2) The provision of any taxable service shall be treated are satisfied, namely:
27.02.2010 upto 30.06.2012
… (2) The provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied, namely:
(a) [omitted]
III. Post 2012:
5.6 A new regime called the Negative List Regime was introduced
in service tax on 01.07.2012. The Place of Provision of Service
Rules, 2012 (for short “POP”) was also introduced.
5.7 At the outset, we shall first refer to the brief sketch of the
matters under consideration, as provided by learned counsel, as
under:
C.A. No.10815- April 2006 to Rs. 36,44,18,798/- Category III Findings in OIA dated 20.09.2013 10819/2014 March 2012 (Page 314, para 11)
(refund) Telecom – inbound roaming service provided Commissioner of Para 1, pg. 1 • Company has made roaming to Foreign Telecom Service Tax III facility available to subscribers Operators (‘FTOs’) v. of foreign telecom operators in M/S Vodafone Company is providing terms of agreement with India Limited International Inbound foreign telecom operators.
Roaming Services to FTOs. Hence, Company has In this regard, Company contractual obligation only to entered into International foreign telecom operators and GSM Roaming Agreements not to their subscribers. (Para with various FTOs to 20, pg. 322)
provide International • Invoice is raised on foreign Inbound Roaming services telecom operator and payment to subscribers of FTOs in is made by foreign telecom India for which operator. (Para 20 pg. 323)
consideration is paid by • Services accrue to foreign the FTOs to Company in telecom operator and they are convertible foreign the recipient of service and exchange. consideration is paid by foreign telecom operator and not by subscriber. (Para 21 pg.
324)
• Relevant factor is location of service receiver and not place of performance. (Para 24 pg.
328)
• Circular 111/5/2009-ST dated 24.02.2009 C.A. No. 15.03.2005 to Rs. 5,12,34,843 Category III • Western Union is providing the 5252/2015 31.03.2008 consideration for the said IO at Pg. 4 of Business Auxiliary services and is situated outside IO at Pg. 4 of Paperbook Services - SectionCommissioner of India. (Para 5.1, pg. 9-10) PaperbookService Tax-I 65(105)(zzb) of the Finance • Follows the decision in the case v. Act, 1994 of Paul Merchants and Fine Weizman Forex Forex. (Para 5.1, pg. 11)
Limited Company is an agent for Western Union in India and undertakes money transfer services for Western Union in India and charges a commission from Western Union situated abroad.
CA No. Category III Business auxiliary service is 5307/2015 Apr 2006 to Category III services where export Business Auxiliary Dec 2007 Rs. 127 Cr status is decided based on the Services: Section 65Commissioner of location of service recipient (Page (Demand) (105)(zzb) of the FinanceService Tax 100)
Act, 1994 –Delhi-IV No dispute that services of Commissioner The Respondent has a Respondents are business v. contract with an entity auxiliary services falling under M/S Microsoft located in Singapore under Category III (Page 101)Corporation “Market Development (India) Pvt. Ltd. Mar 2005 to Rs. 244 Cr Agreement, (Page 186) Customer of Respondents for Managing Mar 2010 (Demand) which are in the nature of marketing and product support Director marketing and product services is the entity in Singapore support services with and not the person buying the respect to the products software in India from theCA No 8045 – sold by the overseas entity Singapore entity (Page 106)8046 2018 Rs 55 Cr to Indian customers.
Commissioner of Service was delivered, used, Dec 2006 to Consideration for the Central Excise (Refund) consumed outside India as Dec 2009 service is received in India Delhi III promotion was for products by Respondents in foreign v. belonging to an entity abroad (Page currency. Microsoft 107)
Corporation Service is provided to SingaporeIndia Pvt. Ltd.
entity, to be used by them in Singapore, for the sale of their CA No 12468 – products in India and to provide 12471/2024 product support service for their Commissioner of customers in India (Page 139)
Service Tax Delhi Services provided by Respondents v. to the entity in Singapore was M/S Microsoft delivered and used outside India – Corporation (Page 144)
(India) Pvt Ltd (Note: All page numbers are from Civil Appeal No5307/2015. Issues in other Civil Appeals are common.)
C.A. No. 19.04.2006 – Demand of Category III Activities of Respondent company 6556/2015 31.05.2007 Rs.5,66,98,112 and fall within the scope of Export of Business Auxiliary penalty of Service Rules 2005, there is no Services: SectionCommissioner of Rs.5,66,98,112 and liability of service tax - relied on Paul 65(105)(zzb) read withService Tax-II Rs.1000 – Services Merchant Section 65(19) of thev. relating to (Impugned order at para 10, p.54 of Finance Act, 1994 –M/s Gap procurement of Paperbook)
Services relating toInternational goods Procurement of goodsSourcing (India)
Pvt. Ltd.
C.A. No. 2402- 01.07.2003 to Rs. 40,62,49,905/- Category III Findings on services rendered by 2403/2016 31.03.2008 (SCN) period from Respondent company Business Auxiliary 01.07.2003 to Services: Section (Impugned Order at para 21 – pg.Commissioner of 31.03.2008 65(105)(zzb) of the Finance 51 of Paperbook Vol I)Service Tax (Impugned Order at Act, 1994 – Distribution /Delhi pg. 15 of Paperbook marketing [ImpugnedV.
Vol I) Order at pg. 13, Para (c) -M/S Amadeus 14 of Paperbook Vol I].
India Pvt. Ltd. Services provided by the Respondent company fall outside OIO confirmed the the scope of BAS demand of Rs. Amadeus India Pvt. Ltd. 13,98,16,429/- for [‘AIPL’/’Respondent’] is a (Impugned Order at para 22 – pg.
the period April company registered as a 52and para 24, 25 – pg. 53-54 of 2007 to March 100% Export Oriented Paperbook Vol I)
2008. Unit [‘EOU’] under the Finding of CESTAT that the Software Technology Parks (Impugned Order at Respondent was engaged in export of India [‘STP’], since the pg. 15-16 of of computer software. year 1995. As per the agreement between [Impugned Order at Pg. 27 (“…in Service tax demand Amadeus Marketing, S. A. this sense the assesses on extended period [‘Amadeus, Spain’] and manufacture, produce and export of limitation set AIPL/Respondent, the software to the overseas entities.”), aside latter was entrusted with Pg. 28 & Pg. 53 of Paperbook Vol I] the distribution of (Impugned Order at Computer Reservation Activities of Respondent company pg. 57 of Paperbook; System [‘CRS’], within fall within the scope of Export of OIO at pgs. 378-384 India. Amadeus Spain Service Rules, 2005, there is no of Paperbook Vol II) evolved and maintained liability of service tax – reliance the CRS, the requisite placed on enunciation in the case No Question of law software and a data base of Paul Merchant.
proposed or Ground involving a variety of (Impugned Order at para 26 – pg. raised in the Civil information / data relating 54-56 of Paperbook Vol I) Appeal assailing the to Airlines, hotels and host findings of CESTAT of other international on invocation of travel related services. The extended period of situs of the core computer limitation. system is at Germany / Spain. The CRS is Bifurcation of accessed by the Travel demand (OIO at pg.
Agents for booking 385 of Paperbook Vol tickets/hotels across the II)
globe.
The Respondent / AIPL supplements the functions of Amadeus, Spain, by preparing and transmitting the locally generated travel related data abroad for incorporation and synthesis into their core data base, so as to enable the Tour Operators [operating within India] to access the information / data stored in the core computer system abroad and to enable Amadeus, Spain to access information / data entered by the Tour operators.
(Impugned Order at pg. 2330 of Paperbook Vol I).
There is no dispute that the consideration for the service is received by AIPL in convertible foreign exchange, from Amadeus Marketing.
The Respondent/AIPL was also deemed eligible for exemption u/s 80HHE [Deduction of profits from export of computer software] and later u/s 10A/10B [deduction of profits and gains of a 100% Export Oriented undertaking derived from export of articles/things/computer software] of the Income Tax Act, 1961.
C.A. No. 571- 01.07.2003 to Rs. 32,88,68,402/- Category III Findings on services rendered by 572/2016 31.03.2008 proposed in SCN for Respondent company amounting Business Auxiliary period from to marketing and data processing Commissioner of 01.07.2003 to Services: Section 65 (Impugned Order at para 21 – pg.Service Tax 31.03.2008 (105)(zzb) of the Finance 47 of Paperbook Vol I)Delhi IV Act, 1994 – marketing and (Impugned Order at v. distributing Services provided by the pg. 22 of PaperbookM/S Acquire Respondent company fall outside Vol I)Services Pvt. (Impugned Order at pg. 20 the scope of BAS Ltd. OIO confirmed the of Paperbook Vol I)
(Impugned Order at para 22 – pg. demand of Rs.
48 of Paperbook Vol I) 2,56,05,193/- for the period April
2007 to March 2008 Interglobe Enterprises Information Technology services established Acquire are provided by the Respondent (Impugned Order at Services in India. As per company which are excluded pg. 22 of Paperbook the agreement between component of BAS Vol I) Interglobe and Galileo (Impugned Order at para 24, 25 – Service tax demand International USA, Acquire pg. 49 of Paperbook Vol I) on extended period was marketing and of limitation set distributing the hardware aside and software to Indian Activities of Respondent company travel agents to enable (Impugned Order at fall within the scope of Export of them to connect to the pg. 52 of Paperbook; Service Rules, 2005, there is no Galileo’s host CRS OIO at pg. 440 of liability of service tax - relied on [Computer Reservation Paperbook Vol II) Paul Merchant System] in the US. CRS is Bifurcation of used for booking tickets to (Impugned Order at para 26 – pg.
demand (OIO at pg. and from across the globe. 50 of Paperbook Vol I)
443 of Paperbook Vol Consideration for the II) service is received in India Entire Transaction explained from by Acquire in foreign Page 393 – Page 396.
currency.
C.A. No. 07/2003-09- Demand of Category III Activities of Respondent company 10885/2016 2007 Rs.2,96,35,979 and fall within the scope of Export of Business Auxiliary penalty of Service Rules 2005, there is no Services: Section 65(19)(ii)Commissioner of Rs.2,96,35,979 and liability of service tax - relied on Paul of the Finance Act, 1994 –Service Tax Rs.1000.- Money Merchant Advertise and Promote theDelhi III Transfer and Money Transfer Servicev. Related Service (Impugned order at para 8, Pp.29M/s Transcorp 30 of Paperbook)
International Ltd.
C.A. No. 2005-06 to Order-in-Original Category III Respondent is providing services to 3692/2017 2011-12 [Pg. confirmed the overseas entities. [Impugned Order Respondent is providing D – Synopsis – demand on three at Para 3 – Pg. 6 of the Appeal Business AuxiliaryCommissioner of Appeal counts: (1) Export of Paperbook] Services to its foreignService Tax Paperbook] Service – Rs.
affiliate [Para 2 of Appeal Services provided by theDelhi IV 66,96,09,360/-; (2) at Pg. 15 of the Appeal Respondent qualifies under exportvs. Salary paid to Paperbook]. of service as per Rule 3 of ExportM/s Nortel Seconded employees of Service Rules. [Impugned OrderNetworks India is liable to service Business Auxiliary at Para 4 – Pg. 8-9 of the AppealPvt. Ltd. tax – Rs. Services fall under Paperbook] 2,52,20,279/-; and Category III – Rule 3(3) up (3) Non-payment of till 15.06.2005 and Rule Tribunal placed reliance on interest on delayed 3(1)(iii) w.e.f. 18.04.2006. Microsoft Corporation India Pvt. Ltd.
payment of tax – vs. CST, New Delhi [2014 (36) STR Respondent had entered INR 94,24,777/- 766 (Tri. Del.)] [CA Appeal No. into two agreements with 5307/2015], GAP International See Order-in Original its overseas entities, (1) Sourcing India Pvt. Ltd. vs. CST dated 29.08.2014 at Agreement dated Pg. 379, 391, 397 and [2014-TIOL-465-CESTAT-DEL] [CA 01.07.2000 with M/s 404 of the Appeal No. 6556/2015], Vodafone Cellular Nortel Networks Singapore Paperbook and Pg. D Ltd. vs. CCE [2014 (34) STR 890 Pte. Ltd. wherein it collects – Synopsis of the (Tri. Mum.)] [CA No. 10815/2014], information and future Appeal Paperbook. Paul Merchants Ltd. vs. CCE [2013 requirements of various (29) STR 257 (Tri. Del.)] and Alpine types of Modular Interiors Pvt. Ltd. [2014
CESTAT vide telecommunication (36) STR 454 (Tri. – Del.)].
Impugned Order equipment; and (2) [Impugned Order at Para 4 – Pg. 9 dropped the entire Agreement dated of the Appeal Paperbook].
demand. Present 01.04.2003/ 01.04.2006 Entire Transaction explained from appeal is filed by the with M/s Nortel Networks PDF Pg. 572 to 575 – Counter Department only Ltd. Canada wherein Affidavit of the Appeal Paperbook with respect to the Respondent has provided and PDF Pg. 768 and 769 – Written question of Export technical support service. Arguments of the Appeal of Service – Pg. C, G The summary of the work Paperbook. and 15 of the Appeal carried out by the Book.
respondent is given in Service tax demand Appellant’s Written in dispute towards Arguments at PDF Pg. 768 export of service is -771 and Pg. 16 & 17 of the Rs. 66,96,09,360/- Appeal Paperbook.
for the period 200506 to 2011-12. [Pg.
C – Synopsis of Appeal Paperbook]
C.A. No. 01.03.2003 – Rs. 3,63,91,232/- Category III The issue is settled and thus the 1469/2017 30.11.2005 demand is unsustainable.
Business Auxiliary Services:
Section 65 (105)(zzb) of the [Impugned Order, Page 9-10, PaperCommissioner of Finance Act, 1994 – Sales Book-Vol-I]Central Excise, promotion and Marketing Customs, and services For the period March 2003 to Service Tax-II November 2003, there being no Bangalore IBM India Ltd., as the dispute that the services are v. business partner of M/s exported and payment has been M/s IBM India IBM World Trade received in foreign exchange, Corporation, USA providedPvt Ltd. liability cannot be imposed for “Business Auxiliary Service” withdrawal of notification. in the nature of canvassing, selling, obtaining orders, providing market support, to identify and promote IBM [Impugned Order, Page 10-14, products in India and Paper Book-Vol-I] received a commission in freely convertible foreign exchange.
[Impugned Order, Page 8, Paper Book-Vol-I]
C.A. No. 2005-2010 BAS: Category - III Para 2 at pg.4 of paperbook 9152/2017 (BAS) Rs.5,45,75,893/Business Auxiliary Services: BAS - Covered by Paul Merchants, Commissioner of 2007-2009 Manpower Section 65 (105)(zzb) of the Microsoft Corporation, and Gap Service Tax, New and 2010-11 Recruitment/Supply Finance Act, 1994 – service International Delhi (Manpower) Agency: Rs. fee and handling v. commission Para 4 at pg.5 of paperbook – 4,76,196 /M/s Marubeni 2008-2011 Marubeni India Pvt. Ltd. is aIndia Private Ltd. (IT) Information subsidiary of Marubeni Manpower Recruitment/Supply Technology Service:
Corporation, Japan Agency -covered by various Rs. 1,59,828/providing management decisions: Demand set aside.
services for the transactions pertaining to importation of
goods into India and export Para 6 at pg.7 of paperbook of goods from India. (BAS)
Information Technology Service set aside - demand beyond SCN It was also paying a licence fee to Marubeni, Japan for using SAP software.
(Information Technology Software Services: Section 65(53a))
It was also receiving manpower supply services in the form of specialized employees being sent to India who were being paid by the branch overseas but controlled by the Respondent. (Manpower Recruitment or Supply Agency Services: Section 65(105)(k))
Para 9.1.1 at pg. 93,94 of paperbook
Commission income towards helping overseas group entities in marketing/procurement of goods from India and seeks new business opportunities for holding company
Para 9.1.2 at pg. 95 of paperbook
Service fees -towards advisory, information, provision of market information and business development services to overseas group entities
C.A. No. FY 2004-05 to Service Tax demand Category III Findings on services rendered by 4009/2018 FY 2010-2011 of Rs. 5,32,96,615/- Respondent company: amounts to proposed in the SCN Business Auxiliary procurement of orders for the Commissioner of dated 19.03.2009 for Services: Section 65 foreign supplier.
Service tax, the period FY 2004- (105)(zzb) of the Finance 05 to 2007-08. Act, 1994 (CESTAT Order at para 7 to 8 – pg.Mumbai 221 to 223 of Paperbook Vol I)
v. Service Tax demand (Impugned Order at pg. 2 of M/s A.T.E. of Rs. 1,08,74,142/- Paperbook Vol I) Activities of Respondent company Enterprises Pvt. proposed in the SCN fall within the scope of Export of ATE EnterprisesLtd. dated 21.10.2009 for Service Rules 2005; there is no the period FY 2008- (Respondent) obtained liability of service tax - relied on 09. orders for various types of Paul Merchant machineries from various Service Tax demand Indian Companies and (CESTAT Order at para 10 – pg.
of Rs. 1,12,67,338/- passed them on to the 227 of Paperbook Vol I)
proposed in the SCN supplier located outside
dated 28.09.2010 India. The foreign supplier for the period FY on receiving such orders Activities of Respondent company 2009-10. delivers the goods to the fall within the scope of Export of Indian Companies. The Service Tax demand Service Rules 2005; there is no Respondent received of Rs. 1,33,88,372/- liability of service tax commission in Convertible proposed in the SCN Foreign Exchange from the (Impugned Order at para 6, 7 – pg. dated 18.10.2011 foreign supplier on such 8 to 14 of Paperbook Vol I) for the period FY deliveries of ordered goods. 2010-11. Entire Transaction explained from The Respondent does not Page 216 – Page 224 In total Service Tax engage himself in demand of Rs. assembling and organizing 8,88,26,467/- of the imports. The proposed in the Respondent is supposed to SCNs for the period procure the orders and FY 2004-05 to 2010- pass it on to the foreign 11. supplier. The entire transaction is of (OIO at pg. 110 - 111 procurement of orders and of Paperbook Vol I) rendering of services OIO confirmed the towards the foreign demand of Rs. supplier.
8,81,19,194/- for the period FY 200405 to 2010-11 along with interest and penalty.
(OIO at pg. 206-209
Service tax demand set aside by CESTAT vide order dated 07.01.2015
(CESTAT Order at pg. 233 of Paperbook Vol I)
Revenue department filed appeal before the Bombay High court. Appeal dismissed vide order dated 31.07.2017
Impugned Order at pg. 1-17 of
Bifurcation of demand (OIO at pg.
193-194 of Paperbook Vol II)
SLP(C) No. 01.01.2011 to Cenvat credit Category III - a) Telecommunication services 25413-25414 & 30.09.2014 refunds for period provided by the respondent to its Rule 3(1)(iii) of Export of25416/2018 from 01.01.2011 to overseas customer qualify as services Rules 2005 and 30.09.2014 were exports both during the period Assistant Rule 6A(1) of the Service rejected alleging January 2011 to June 2012 and Commissioner of Tax Rules, 1994. services do not during the period July 2012 to Service Tax qualify as exports Telecommunication September 2014 under Rule 3(1)Delhi III under Rule 3 (1) (iii) Services: Section 65(109a) (iii) of the Export of Services Rules,v. of Export of Services r/w 65(105)(zzzx) of the 2005 and Rule 6A (1) of the ServiceVerizon Rules, 2005 (pre Finance Act, 1994 – upto Tax Rules 1994 read with Rule 3Communication negative list) and 30.6.2012 of the POP Rules 2012India Pvt. Ltd. Rule 6A(1) of the respectively. Telecommunication Services Tax Rules, Services: Rule 2(q) read b) The provision of service by the 1994 (post negative with Rule 3 of the Place of respondent to its overseas list) as these Provision of Services customer complied with the services are Rules, 2012 and the conditions to be considered as provided within Finance Act, 1994 – from export of service. Payment for the India.
1.7 2012 service was received by the (Para 7 of Impugned respondent in convertible foreign Relevant period in the Order at pg. 8-9of exchange and recipient of the matters is post 27.2.2010 Paperbook Part I) service was Verizon US which was Following 2 periods are located outside India.
involved in these SLPs: c) The subscribers to the services January 2011 to June of Verizon US may be “users” but 2012 (pre-negative list) under the master supply agreement, it was Verizon US who July 2012 to September was the “recipient” of such services 2014 (post negative list) and it is Verizon US who paid for the services.
a) Period involved in this SLP is after 27/02/2010. d) Denial of refund of Cenvat credit During the entire relevant to the respondent was not period of 01/04/2012 to sustainable in law and the orders 30/09/2014 the denying the refund of Cenvat requirement of “delivered credit were set aside.
outside India”, or “provided outside India” or “used (Impugned Order at para 54 (i) to outside India” was not there (vi) and para 55 – pg. 59-63 of and these had already been Paperbook Part I)
omitted long prior to the relevant period.
b) In rule 3 (2) of the Export of Service Rules, 2005 (ESR)
the expressions during earlier periods were “delivered outside India”, “used outside India”, “provided outside India” at different places from time to time. All these expressions were omitted from time to time before the relevant period.
c) After the amendments made from 27/02/2010, the only twin requirements of rule 3 of ESR were the following:
i) Rule 3 (1) (iii) – that the recipient of service is “located outside India”;
and
ii)Rule 3 (2) (b) – “payment for such service is received by the service provider in exchange”.
d) On 01/07/2012, the old provisions of ESR were superseded and following provisions came into force:
i) Rule 6A providing for “Export of Services” was inserted in Service Tax Rules, 1994 (STR).
ii) Place of Provision of Service Rules, 2012 (POP)
came into force.
e) Rule 6A continued with the requirement of recipient of service being located outside India and payment being received in exchange. Rule 3 of POP specifically provided that the place of provision of a service shall be the location of the service recipient.
(Impugned Order at para 26 to 30 - pg. 33-38 of Paperbook Part I)
Nature of Services: Verizon Communications India Pvt Ltd (VCIPL) entered into an agreement with MCI International Inc. (‘Verizon US’), to render connectivity services to Verizon US.
Verizon US is a Company located outside India and is inter alia engaged in
provision of telecommunication services to its customers across the globe. Verizon US does not have the capacity to provide such services in all geographical locations, hence, it takes services from other entities including VCIPL to provide data connectivity from/to India to its customers. The connectivity services were provided by VCIPL to Verizon US on its own account and on principalto-principal basis. For these services, VCIPL raised invoices on Verizon US and received payment from Verizon US in exchange. The services were claimed as exports under Rule 3(1) (iii) of the Export of Services Rules, 2005 and Rule 6A(1) of the Service Tax Rules 2005 read with Rule 3 of the POPS Rules 2012 for the pre-negative list and post negative list regimes respectively.
C.A. No. 9139- 01.04.2007 to Service tax demand Category III Post 27.02.2010, for an Export of 9140/2018 31.03.2012 of Rs. 5,57,68,593/- Service to be made out, only two Business Auxiliary Services proposed in SCN for conditions were to be satisfied i.e.Commissioner of (marketing and period from provision of service must be to aCentral Excise distributing): Section 65 01.04.2007 to recipient located outside India by aNoida (105)(zzb) of the Finance 31.03.2012 person inside India and thatv. Act, 1994 payment of such service is to beM/s Samsung India Electronics (SCN dated Category II received by the service provider in Pvt. Ltd. 18.09.2012 at pg. Management, maintenance convertible foreign currency. It was 172-173 of or repair services : Section contended that for the relevant (C.A. No. Paperbook Vol II) 65(105)(zzg) of the Finance period, M/s Samsung India 9139/2108 Act, 1994 Electronics Pvt. Ltd. was satisfying pertaining to SCN OIO dated these conditions. However, on the dated 09.01.2008 28.03.2014 M/s Samsung India issue as above, no findings were and OIO dated confirmed the Electronics Pvt. Ltd. was returned by the Ld. CESTAT.
24.11.2008 were demand of Rs. engaged in the activity of dismissed by this 5,57,68,593/- for identifying new prospective Facts of the instant case were Hon’ble Court the period customers and effectively found to be similar to the case of vide Order dated 01.04.2007 to communicating to them the Blue Star Ltd. (rendered by the Ld.
19.08.2021 due 31.03.2012 features of their foreign CESTAT) which pertained to export to low tax effect) clients’ CDMA products. of the services of maintenance of
(OIO dated M/s Samsung India equipment on behalf of foreign 28.03.2014 at pg. Electronics Pvt. Ltd. also clients to Indian buyers.
280 of Paperbook Vol provided customer care (Impugned Order at para 6, pg. 6 of II) services to the customers Paperbook Vol I) of CDMA mobile phones in India on behalf of Paul Merchant was referred to in Samsung Electronics the decision of Blue Star Ltd.
Company Ltd., Korea.
(Impugned Order at para 9 of For these two activities, Paperbook Vol I)
M/s Samsung India The facts of the instant case are Electronics Pvt. Ltd. was similar to the case of Blue Star Ltd.. receiving a commission It was therefore held that M/s from their foreign client in Samsung India Electronics Pvt. Ltd.
foreign exchange. had provided services of Business (Impugned Order at pg. 3 of Support and maintenance and repair Paperbook Vol I) to their client located outside India and performed in India on behalf of the client located outside India.
(Impugned Order at para 8, pg. 28 of
The extended Period of Limitation vide OIO dated 28.03.2014 was contested on the ground that Revenue had in knowledge all facts pertaining the services provided by M/s Samsung India Electronics Pvt. Ltd. inasmuch as for the previous period of dispute of July, 2003 to November, 2003 and March, 2005 to May, 2006, Revenue had issued an SCN dated 09.01.2008 qua the very same services under consideration.
Thus, in terms of Nizam Sugar Factory vs. Collector of Central Excise 2008 (9) STR (S.C.) extended period of limitation could not be invoked. However, as the Ld.
CESTAT had decided the issue of export of services on merits, it did not consider the issue on limitation as above.
(Impugned Order at para 9, pg. 30
M/s Samsung India Electronics Pvt. Ltd. is not required to pay service tax at all. Question of penalty does not arise.
(Impugned Order at para 10, pg. 30
C.A. No. April 2008 to Rs.11,33,4S,443/- Category III Pg. 19 of Paperbook 10349/2018 November (Only BAS demand Business Auxiliary Principal to principal and not as 2009 is mentioned @ Page Services (marketing and agentCommissioner of Pg. 69 of B of Synopsis) promotion): Section 65 Central Excise & Para 7 at pg. 21-22 of Paperbook paperbook (105)(zzb) of the FinanceService Tax Act, 1994 No consideration for servicev.
Canon India Sole distributorship of Reference to Clauses of agreement Canon Singapore’s Previous period finding – activity products. Heavy not BAS expenditure undertaken by Canon India for promotion Para 8 at Pg. 22 of paperbook in India, which is Covered by Gap subsidized by Canon Singapore by way of reimbursement. This reimbursement is alleged to be paid towards provision of BAS services, which do not amount to export.
C.A. No. Show Cause Rs. 7,47,96,885/- Category III Issues framed 9745/2018 Notice dated for BAS Business Auxiliary (Impugned Order at para 4 – pg. 4 19.10.2011 (Annexure A1 at pg. Services (marketing and of Paperbook)Commissioner of (2006-07 to 86, 95 of Paperbook) distributing): Section 65Service Tax Respondent company is exclusive 2009-10) (105)(zzb) of the Finance v. agent of Olympus Singapore PTE Act, 1994 M/S J Mitra and (Annexure A1 Ltd. in India for promotion of sales Rs. 58,500/- forCompany Pvt. at pg. 58, 86 (Impugned Order at pg. 2 of and services of Olympus ‘supply of tangibleLtd. of Paperbook) Paperbook)
goods service’ (Impugned Order at para 5 – pg. 4 J. Mitra appointed by of Paperbook)
(Annexure A1 at pg. foreign entity for Show Cause 96 of Paperbook) For export of service, CESTAT promotion and sales of the Notice dated relied on Paul Merchant and Gap Rs. 6,52,794/- for latter’s endoscopy 16.04.2012 International commissioner equipment in India. (2010-11) received from (Impugned Order at para 5.1 – pg. 5 foreign currency of Paperbook)
(Annexure A2 at pg. 103, (Annexure A2 at pg. On whether hiring of endoscope 106 of 106 of Paperbook) would amount to ‘supply of Paperbook) tangible goods for use service’ or not – matter was remanded to original authority to determine whether there is a ‘service’ or ‘sale’?
(Impugned Order at para 6.4 – pg.
21 of Paperbook)
Note: remand is not challenged in SLP.
C.A. No. Show Cause Rs. 6,20,48,263/- Category III Relied on Paul Merchant 10071/2018 Notice dated on export of service Business Auxiliary (Impugned Order at para 4 – pg. 3 19.10.2011 / BAS Services: Section 65 of Paperbook Vol I)Commissioner of (2006-07 to (Show Cause Notice (105)(zzb) of the FinanceService Tax 2009-10) at Annexure A2 – pg. Act, 1994Delhi 116, 163 of v. (Annexure A2 Management or Business Paperbook Vol I)
SGC Services at pg. 115 of Consultants Services and Pvt. Ltd. Paperbook Vol Rs. 24,12,00,011/- BAS I) on reimbursement (Show Cause Notice at pg. of expenses Show Cause 115 of Paperbook Vol I)
Notice dated (Show Cause Notice Contract with foreign 18.04.2012 at Annexure A2 – pg.
hotels for providing rented 164, 182 of (01.04.2010 space, infrastructure and Paperbook Vol I)
to staff, for their development 30.09.2011) Rs. 27,58,18,333/- on centres.
export of service /BAS (Annexure A3 and reimbursement of Payroll processing for at pg. 198 of expenses foreign company for the Paperbook Vol (Show Cause Notice at latter’s clients based in I) Annexure A3 – pg. 208 India & the Middle East Show Cause of Paperbook Vol I)
Notice dated Rs.1,58,19,80,761/31.03.2013 on export of services & Rs.18,27,12,058/- on (01.10.2011 reimbursement of to expenses 30.09.2012)
(Show Cause Notice (Annexure A4 at Annexure A4 – at pg. 215 of para 7, pg. 223 of Paperbook Vol Paperbook Vol I)
I)
C.A. No. 11837- SCN dated Rs. 8,13,15,324/- Category III CESTAT Delhi order dated 11838/2018 26.09.2007 13.10.2015 (Rs. 6,97,58,354/- BAS - Marketing and BAS - under Business distributing Para 3 at pg. 4 of paperbook -Commissioner of 01.07.2003 to Auxiliary Service)
Central Excise Agilent provided sales Department did not contest the 19.11. 2003 (ADJ) promotion, admin support position that services constitute and v. (Rs. 1,15,56,970/- and market study reports Export of Services 19.04.2006 to Agilent for Management, to Agilent Singapore.
31.03.2007 Followed the decisions in the caseTechnologies Maintenance or Management, Category II Management, of Paul Merchant and MicrosoftIndia Private repair service)
Maintenance Maintenance or repair CorporationLimited or repair service CESTAT Delhi order dated service – Agilent also undertakes 31.07.2017 - 01.07.2003 to tech support, installation 19.11.2003 Para 3 at pg. 9 of paperbook facilities for Agilent and Singapore’s customers in Followed the above Order dated 01.03.2005 to India. 13.10.2015 for the previous period 31.03.2007 in the case of Agilent
SCN dated 17.10.2008, 14.10.2009, 19.10.2010, 24.10.2011 -
April 2007March 2011
C.A. No. 2005-06 to Rs. 6,80,39,260/- Category III The assessee has provided 1440/2019 2008-09 marketing and support services Business AuxiliaryCommissioner which admittedly is covered under Services: Section 65Central Excise the Business Auxiliary Services (105)(zzb) of the FinanceDelhi-II category, for which provision of Act, 1994 – Salesv. service is determined as per the promotion and MarketingM/s Research in location of the recipient. In the servicesMotion India present case, beneficiary is RIM Pvt. Ltd. [Period- October 2005- Singapore, who paid the March 2006 and June consideration for service. It is 2009-February 2010] settled that in such situations, the services are considered exported.
Research in Motion India Pvt. Ltd. entered into a [Impugned Order, Page 10-11, service agreement with Paper Book-Vol-I] Research in Motion, Issue also has been decided in the Singapore, for providing assessee’s own case and the order sales promotion and has attained finality. marketing service.
[Impugned Order, Page 12-13, [Impugned Order, Page 5, Paper Book-Vol-I] Paper Book-Vol-I] The decisions relied upon are applicable and thus the credit cannot be denied.
[Impugned Order, Page 11, Paper Book-Vol-I]
Interest cannot be levied when provision was brought in S. 67 from 10.05.2008.
[Impugned Order, Page 12, Paper Book-Vol-I]
SLP(C) No. April 2008 to Rs. 3,45,75,127 Category III Receiving commission from foreign 10281/2019 March 2009 based principal for promotion and Business Auxiliary sale of products in India. Services: Section 65 Principal (105)(zzb) of the Finance Commissioner of Act, 1994 – Sales Service Tax promotion and Marketing v. services M/S Wartsila India Limited
C.A. No. April 2007 to Rs. 13,67,38,768 Category III Company is providing telecom 4959/2019 September services to customer of foreign Telecom – inbound 2010 telecom service provider while he is roaming service providedCST in India using Company’s network, to foreign telecomv. there is no contract or agreement operatorsVodafone Mobile between the Company and the Service Limited subscriber.
(Para 9, Page 12)
The agreement is with FTO located outside India and subscriber of the said FTO (who is the customer / service recipient of the Company).
Customer is not customer of Company.
C.A. No. 2006-2011 Rs. 27,54,39,641/- Category-III Consideration received in 7483/2019 convertible foreign exchange and Business Auxiliary Service in lieu of services provided. The Commissioner of Section 65(105)(zzb) and activities undertaken would qualifyService Tax, Information Technology as export of service (Page 9)Delhi Software Service - Section v. 65(105)(zzzx) With respect to the remainder M/S Autodesk demand of Rs. 31,80,857/-, anIndia Private Autodesk India Pvt. Ltd. is a Limited wholly owned subsidiary of amount of Rs. 24,17,526/- stands Autodesk Inc. paid. (Page 10)
USA. Autodesk is engaged in providing marketing and Remainder demand of Rs.
technical support services to 7,63,331/- set aside as the M/s Autodesk Asia Pte. Ltd., classification of the service is Singapore (‘AAPL’) which in misplaced. (Page 12-13) turn in engaged in the business of developing, manufacturing, distributing and supporting certain computer software and related products in India.
C.A. No.9008- 01.12.2005 to Rs. 24,96,37,632 Category III IBM India provides services to 9009/2019 their foreign company situated 01.09.2007 Business Auxiliary Services: Section 65 outside India and their parentCommissioner of (105)(zzb) of the Finance company does not have anyCentral Excise, Act, 1994 – Sales commercial or industrialand Service Tax, promotion and Marketing establishment or any office inBangalore LTU servicesv. India and the services by IBM M/s IBM India The assessee entered into India are provided in relation to Pvt Ltd. an agreement with M/s. provision of service recipient i.e.
IBM World Trade IBM WTC. Further, the IBM India Corporation, USA terms of has satisfied the conditions that which the assessee was are required under the Export of appointed as IBM USA’s
Business Partner in India Service Rules, 2005.
for the purpose of marketing selected IBM [Impugned Order, Page 11] products. The assessee There is no condition under Export received payment of of Service Rules, 2005 that the commission in convertible foreign exchange. The services performed in India would assessee undertook not qualify as export of services.
various activities viz.
[Impugned Order, Page 11] promotion, marketing, sales, procurement of orders, and provide marketing support to identify and promote the products of IBM USA in India.
[Impugned Order, Page 3]
Diary No. 2005-2006 to 1.Rs. 8,64,15,782/- Category III Relied on the decision of Paul 38417/2019 2009-2010 Commission Merchants (Del Tri) [Page 10] and Business Auxiliary Microsoft (Del Tri.) [Page 11] Commissioner of 2.Rs.2,90,09,918/- Services: Section 65 Service Tax - Service Fee (105)(zzb) of the Finance Recipients of service are foreign Delhi Act, 1994 entities and they are the v. 3.Rs.1,40,76,983/- - consumers of the services being M/S Sumitomo Demand for Sumitomo Corporation provided from India [Page 10] Corporation Reversal of credit India is involved in trading India Private Total demand of ST: of goods in India. Apart The customers to whom the goods Limited Rs. 11,54,25,700 from that, Sumitomo India were sold or people from whom also extends services to information was collected were not Penalty under parent companies in the recipients of service provided Section 78: Rs. relation to import of goods by Sumitomo. [Page 10] 11,54,25,700 into India. The services provided are in the nature The customers to whom the goods Penalty under Rule of transmitting proposals, were sold by foreign entity or 15(3): Rs. delivering contract sheets, people from whom information was 25,53,340/- checking vessel and collected were not the recipients of Penalty under schedules, loading service provided by Indian entity.
Section 77:Rs.5000 unloading services etc. [Page 10] For these services, Sumitomo India obtains a commission from the Person who requested for the said foreign entities in foreign service and liable to make payment exchange in India. for the same, has to be treated as recipient of service and not the Similarly, Sumitomo also person affected by the performance undertakes promotion & of service. [Para 11] marketing of products / business for foreign companies in India and charges a ‘service fee’ for these services.
CA No. 2009-10 till Service tax demand Category III The CESTAT in the impugned 2634/2020 2012-13 of Rs. order held that the operating Business Auxiliary 28,92,48,439/- expenses that were incurred for Commissioner of proposed in SCN Services: Section 65 the purpose of developing and Service Tax VII dated 13.10.2014 (105)(zzb) of the Finance expanding the market of the Mumbai (Now for period from Act, 1994 – marketing and products in India were sought to known as 2009-10 till 2012-13 distributing be reimbursed by the ALOG to the Commissioner of Assessee and such reimbursable (Impugned Order atCentral Goods (Impugned Order at pg. 42 expenses incurred cannot be pg. 7 of Appeal)and Service Tax, of the appeal) included in the taxable value of Excise and OIO dropped the services rendered. The Assessee was trading Customs, Navi proceedings vide in nutritional products in (Impugned Order at pg. 37 of theMumbai) order dated India as a distributor of appeal) v. 04.03.2015 initiated imported goods from its M/s Abbott against the Services provided by the fellow subsidiary company Healthcare Pvt. Respondent vide Respondent company fall within Abbott Logistics B.V. Limited SCN dated the scope of BAS as also admitted Netherland (hereinafter 13.10.2014. by the Revenue referred to as “ALOG”) on (Impugned Order at principal-to-principal (Impugned Order at para 5.7 – pg.
pg. 2 of Appeal) basis. The products are 42 of Appeal)
imported by the Assessee.
In order to increase its Activities of Respondent company market share and grow in fall within the scope of Export of Bifurcation of the market, the Assessee Service Rules 2005, there is no demand (Impugned entered into an liability of service tax Order at pg. 3 of arrangement with ALOG Appeal) (Impugned Order at para 5.7 & 5.8 whereby it was mutually – pg. 43 & 44 of Appeal) agreed that extraordinary or operating expenses incurred by the Assessee in respect of advertising of imported goods under distribution modelling hiring skilled personnel etc. in each financial year would be reimbursed to enable the Assessee to continue to earn an arm’s length margin in its existing trading business.
C.A. Nos.3546- 01.04.2012 to CENVAT credit Category III - Rule 3(1) (iii) The CESTAT Delhi held that 3549/2020 30.09.2014 refunds for period of Export of Services “it is evident that the services of the from 01.04.2012 to Rules, 2005 and Rule Commissioner of 30.09.2014 were 6A(1) of the Service Tax Appellant (Verizon India) to Verizon Service Tax rejected alleging Rules, 1994 US do not merit classification under services do not the category of intermediaryDelhi -III qualify as exports Following 2 periods are servicesv.
under Rule 3 (1) (iii) involved in this matter:
M/s. Verizon Accordingly, we hold that the of Export of Services India Pvt. Ltd. April 2012 to June 2012 appellants have rendered Rules, 2005 (upto 30.6.2012) and Rule (pre-negative list) services to Verizon US as principal 6A of the Services Tax service provider and not as July 2012 to September intermediary” Rules, 1994 (from 2014 (post negative list) 1.07.2012)
(Impugned Order at Business Support Service Accordingly, we hold that the pg. 1 to 70 of 65(104c) r/w 65(105)(zzzq) appellants (Verizon India) are entitled Paperbook Part I) of the Finance Act, 1994– to refund under rule 5 of the Cenvat upto 30.6.2012 Credit Rules, 2004 read with the Assistance concerned notification.”
Commissioner Support Services: Section sanctioned service 65B (49) of the Finance (Impugned Order at para 31 – pg.
tax refund Act, 1994 – From 69-70 of Paperbook Part I)
01.07.2012 (OIO at pg. 106 to The adjudicating authority 133 of Paperbook Nature of Services: Verizon analysed 6 issues conditions for Part I) India Pvt Ltd is rendering determination as to whether the Business Services to services were “export of service”
Verizon US. The services and decided the same in favour of provided by VIPL to the respondent. The service Verizon US were classified recipient (Verizon US) was located as ‘Business Support in USA, that is, outside India. The Services’ (‘BSS’) in the place of provision of service was service tax returns and outside India. Payment was claimed as exports in received by the respondent in terms of under Rule 3(1) convertible foreign exchange.
(iii) of the Export of Under rule 3 of the POPS Rules, Services Rules, 2005 and the Place of provision of service Rule 6A (1) of the Service was the location of service Tax Rules 1994 read with recipient which was outside India.
Rule 3 of the POPS Rules (Impugned Order at para 7 – pg. 312012 under pre-negative 43 of Paperbook Part I)
list and post negative list regimes respectively. Further, admitted facts as Consideration for the recorded by the CESTAT are that services is received by the respondent provided services VIPL in convertible foreign and raised invoices on principal to exchange. principal basis on Verizon US. Its contract was with Verizon US which was located outside India.
The respondent received remittance in convertible foreign exchange. The respondent satisfied all the conditions for the services being treated as export of service.
(Impugned Order at para 30 – pg.
67 of Paperbook Part I)
Diary No. - Rs. 13,19,52,397 – Category II Services have been performed from 24028-2020 Export of technical India. Principal or the service Clinical and pharmaceuticalC.C.E. and S.T testing service receiver is located outside India. research on new drugs Bangalore LTU Thus, the technical testing and through testing and analysis v. analysis services have been of their effect on human M/S Fanuc delivered by the appellant outside beings / volunteers with India Pvt. Ltd. resultant data being India and have been used by the evaluated by experts service receiver outside India.
situated abroad who analyze (findings of Hon’ble Tribunal in 5.2) the data and arrive at the conclusions/outcome of the test results.
C.A.No. 05/2006 – Rs. 13,58,18,217 – Category II and III “The ‘technical testing and analysis 2424/2022 09/2009; Technical Testing service’… have been delivered by the Clinical and 07/2007- and Analysis; appellant outside India and have pharmaceutical researchCommissioner of 03/2009 Catering Service; been used by the service receiver on new drugs throughCentral Tax Renting Service outside India.”
testing and analysis ofBangalore North their effect on human (Impugned order at para 5.2, P.8 ofv.
beings / volunteers Paperbook)Lotus Lab Pvt.
Ltd. “So far as denial of CENVAT credit on catering services is concerned, the issue stands settled in favour of the [assessee]”
(Impugned order at para 5.3, P.8 of Paperbook)
“We hold that rent paid even for the period, the premises were under repair/renovation to make them suitable for the use of the appellant/assessee, is also deemed to be used for business purposes.”
(Impugned order at para 5.4, PP.8-9 of Paperbook)
SLP(C) No. - - Category III Receiving commission from foreign 26382/2023 based principal for promotion and Business Auxiliary Services: Section 65 sale of products in India.
Commissioner of (105)(zzb) of the Finance CGST & Central Act, 1994 – Sales Excise Belapur promotion and Marketing v. services Wartsila India Limited
Submissions:
6.During the course of submissions, learned Additional Solicitor General (ASG) Sri Vikramjit Banerjee appearing for the appellant Revenue as well as learned senior counsel and counsel for the respondents-assessees drew our attention to the fact that in this batch of appeals, the services are all in either Category (ii) or Category (iii) services, vide Rule 3 of Rules. It is also not in dispute that the clients/customers of the assessees with whom the contract of service has been entered into and from whom payment in convertible foreign currency is received by the respondent assessees herein are all located outside India. Further, CESTAT has rendered findings of fact that the services have indeed been delivered outside India to the customers located outside India and hence, no substantive questions of law arise in these appeals. Of course, this submission is assailed by the appellant Revenue in these appeals. 6.1 Further, in respect of category No.(ii) services, CESTAT has observed that even the performance test has been satisfied. According to the respondent assessees, the actual services that have been rendered by them in these appeals are (i) Business auxiliary services (category-III); (ii) Telecommunication services (category-III); and (iii) Management, maintenance and repair services (category-II) under Rule 3 of the Rules. The relevant provisions of the Finance Act, 1994 pertaining to the aforesaid taxable services are extracted as under: (i) “Business Auxiliary Services … (19) "business auxiliary service" means any service in relation to, -(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this subclause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods.” … “(105) "taxable service" means any service provided or to be provided – (zzb) to a client, by any person in relation to business auxiliary service;” (ii) Telecommunication Service (109a) "telecommunication service" means service of any description provided by means of any transmission, emission or reception of signs, signals, writing, images and sounds or intelligence or information of any nature, by wire, radio, optical, visual or other electromagnetic means or systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception by a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885 (13 of 1885) and includes— (i) voice mail, data services, audio tax services, video tax services, radio paging; (ii) fixed telephone services including provision of access to arid use of the public switched telephone network for the transmission and switching of voice, data and video, inbound and outbound telephone service to arid from national and international destinations; (iii) cellular mobile telephone services including provision of access to and use of switched or non-switched networks for the transmission of voice, data arid video, inbound arid outbound roaming service to and from national and international destinations; (iv) carrier services including provision of wired or wireless facilities to originate, terminate or transit calls, charging for interconnection, settlement or termination of domestic or international calls, charging for jointly used facilities including pole attachments, charging for the exclusive use of circuits, a leased circuit or a dedicated link including a speech circuit, data circuit or a telegraph circuit; (v) provision of call management services for a fee including call waiting, call forwarding, caller identification, three-way calling, call display, call return, call screen, call blocking, automatic call-back, call answer, voice mail, voice menus and video conferencing; (vi) private network services including provision of wired or wireless telecommunication link between specified points for the exclusive use of the client; (vii) data transmission services including provision of access to wired or wireless facilities and services specifically designed for efficient transmission of data; and (viii)communication through facsimile, pager, telegraph and telex, but does not include service provided by— (a) any person in relation to on-line information and database access or retrieval or both referred to in sub-clause (zh) of clause (105); (b) a broadcasting agency or organisation in relation to broadcasting referred to in sub-clause (zk) of clause (105); and (c) any person in relation to internet telecommunication service referred to in sub-clause (zzzu) of clause (105);” … “(105) "taxable service" means any service provided or to be provided – (zzzx) to any person, by the telegraph authority in relation to telecommunication service” (iii) Management, maintenance and repair service … (64) "management, maintenance or repair" means any service provided by(i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorised by him, in relation to, (a) management of properties, whether immovable or not; (b) maintenance or repair of properties, whether immovable or not; (c) maintenance or repair including reconditioning or restoration, or servicing of any goods, excluding a motor vehicle; Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this clause,-(a) "goods" includes computer software; (b) "properties" includes information technology software;” … “(105) "taxable service" means any service provided or to be provided -… (zzg) to any person, by any person in relation to management, maintenance or repair;”
7.One of the points of controversy raised in these appeals by learned ASG Sri Vikramjit Banerjee appearing for the appellant herein revolves around the interpretation of the expressions “delivered outside India and used outside India” and “provided from India and used outside India” in Rule 3 of the Rules. According to the learned ASG, even if the contractual customer is located outside India, if the beneficiaries of the services are located within India, then they do not fall within the scope of the exemption. 7.1 In light of the aforesaid controversy, the learned ASG placed reliance on Paul Merchant vs. CCE, 2013 (29) STR 252 (Tri.-Del.) (“Paul Merchant”), paragraph 16 of the said order, which reads as under: “16. The entire argument of Revenue is based on the fact that the activities of PML are performed in India though words like “used in India” are used while arguing the point. We say so because there is no doubt that the use of the service is by the person paying for it that is Western Union and through them the person abroad who wants to remit the money and hence the use is outside India. But Revenue wants that the issue of export should be decided with reference to place of performance of service by PML, ignoring the fact that Business Auxiliary Service is not specified in Rule 3(1)(ii) where performance of service is the criterion but specified in Rule 3(1)(iii) wherein criteria are different. If performance is the criterion to be adopted for deciding what constitutes export for Business Auxiliary Service what is required is to specify the service defined in Section 65(105)(zzb) in Rule 3(1)(ii) of the Export of Services Rules, 2005. It is a different matter that even under Rule 3(1)(ii), the criteria laid down indicate that if the service is performed partly outside India, it will be considered that the service is performed outside India and specifying the service under Rule 3(1)(ii) itself may not result in the outcome as desired by the ld. SDR. At any rate, after specifying it in Rule 3(1)(iii), it is fallacious to argue that the criterion applicable for services in Rule 3(1)(ii) should be applied for this service.”
8.In response to this submission, learned Senior counsel and learned counsel for the respondents submitted that service tax is a contract-based levy and therefore, it is the contract which determines the relationship between a service provider and a service recipient. Even if certain beneficiaries may be located in India, the service provider has no contractual relationship with such beneficiaries. There is no privity of contract between the beneficiary and the service provider. Therefore, the mere fact that the beneficiary of the service is located in India would not be a determinant factor for the levy of service tax under the Rules as the service is, in fact, provided to a recipient located outside India. 8.1 It was further contended on behalf of the respondent assessees that various preparatory activities, such as sourcing vendors, identifying customers etc. may occur in India but such activities alone would not mean that the service has not been exported to a party located overseas. Even if the customer has requested for some service within India, what is of significance is to whom the service is provided and where the recipient of the service is located and secondly, from whom the payment in convertible foreign exchange is received and whether, the recipient is located outside India. 8.2 Learned senior counsel and learned counsel for the respondents contended that the reasoning in Paul Merchant is correct and CESTAT has rightly found that the Revenue has conflated the two categories and is subjecting category (III) services to the rigors of the performance-based services under category (II) of the Rules. It was therefore their contention that the present appeals may simply be dismissed.
9.Another issue which was highlighted was with regard to the judgment of this Court in C.A. No. 10349 of 2018 (Commissioner of Central Excise and Service Tax vs. Canon India private Limited). It was submitted that where the assessee in these cases is a principal-to-principal distributor of the foreign company, i.e., where the assessee purchases goods from the foreign company and further sells them on its own account to independent customers in India, the finding of the CESTAT that the assessee is carrying out the sales and promotion on their own behalf is correct. In such a case, the assessee's activities are not covered under the definition of business auxiliary service within sub-section (19) of Section 65 of the Finance Act, 1994. Hence, it is not liable to pay any service tax on the receipts from the foreign company as a reimbursement of marketing expenses. The CESTAT has also rightly found that no service tax would be payable under the Rules and therefore had rightly set aside the demand.
10.In sum and substance, it was contended by learned senior counsel and learned counsel for the assessees that there is no merit in these appeals and the same may be dismissed.
11.Sri S.K. Bagaria, learned senior counsel appearing on behalf
of the respondent-assessee in C.A. Nos.3546-3549 of 2020 (Verizon
Communication India Pvt. Ltd.) submitted that the issue in these
cases relates to export of telecommunication services and the
respondent assessee is in the business of providing data
connectivity service. The assessee entered into a contract with its
overseas customer (Verizon, USA) to provide the said service. That
Verizon, USA provides telecommunication service to its own
customers across the world and to enable data transfer from/to
India, Verizon, US availed connectivity services from the respondent
assessee (Verizon Communications India Private Limited) for
enabling data transfer from India to overseas. That the nature of the
transaction has been encapsulated as under:
“i. The respondent’s contract was with Verizon US who
alone had the contractual right and liability to
receive the service and pay for the same.
ii. The respondent raised its bills on Verizon US.
iii. Verizon US paid the bills in convertible foreign
exchange directly to the respondent.
iv. The said services were provided by the respondent to
Verizon US on its own account and on principal-to-
principal basis.
v. There was no privity of contract between the
respondent and customers of Verizon US.”
11.1 It was submitted by the learned senior counsel, Sri Bagaria,
in the matters where he is appearing for the assessees, that the
periods involved are between January-2011 to June-2012 (pre-
negative list) and July-2014 to September-2014 (post-negative list).
11.2 Learned senior counsel drew our attention to the extant rule
and its amendments during the periods referred to above, as under:
“3. Pre-Negative List Period of January 2011 to June
3.1 During pre-negative list period mentioned above,
export of service was governed by the Export of
Service Rules, 2005.
3.2 Rule 3 of the Rules provided about “export of
taxable service”. Rule 3(1) (i) and (ii) did not apply to
the present case and there is no dispute in that
regard. Rule 3 (1) (iii) required that the recipient of
service is “located outside India”. In the present case
Verizon US is located in USA (that is, outside India).
3.3. Rule 3(2) was amended from time to time and
relevant portions of the said rule during different
periods are set out below:
“(2) The provision of any taxable service shall be treated
are satisfied, namely –
(a) such service is delivered outside India and
used outside India; and
convertible foreign exchange.”
subrule (1) shall be treated as export of service
when the following conditions are satisfied, namely –
convertible foreign exchange.”
subrule (1) shall be treated as export of service
when the following conditions are satisfied namely –
27.02.2010 up to 30.06.2012 (this was during relevant period involved in present case)
sub-rule (1) shall be treated as export of service
when the following conditions are satisfied namely –
(a) (omitted)
11.3 Thus, according to the learned senior counsel, the
requirements of “delivered outside India”, “provided outside India”
and “used outside India” have been omitted long prior to the
relevant period. During the relevant period, the only twin
requirements of Rule 3 were the following:
a. the recipient of service is located outside India; and
b. payment for the service is received in convertible
foreign exchange.
11.4 According to the learned senior counsel, both these
conditions were satisfied in respect of the services exported by the
respondent to its overseas customer Verizon US.
11.5 In response to the submissions made by the learned ASG,
appearing on behalf of the Revenue, that even though the
expression “used outside India” was omitted on 27.02.2010, the
issue whether the said condition “could still be applied to the
transaction after the said omission” and the issue whether the
services by respondent assessees were “provided within India” still
remain, learned senior counsel, Sri Bagaria, made the following
submissions:
a) Firstly, requirement of “delivered outside India”, “provided
outside India” and “used outside India” has already been
omitted long prior to relevant period and there can be no scope
to read any such requirement in the rule, even after such
omission.
b) Secondly, during the relevant period, as stated above, the only
twin requirements were that, i) recipient of service is located
outside India; and ii) payment for the service is received in
convertible foreign exchange, and both these requirements were
fully satisfied.
c) The respondent’s contract was with Verizon US, exports were
made to Verizon US, bills were raised by the respondent on
Verizon US and payments in convertible foreign exchange were
made by Verizon US directly to the respondent. The respondent
provided its service on principal-to-principal basis and on its
own account to Verizon US who was the recipient of the service
and who paid for the same. In terms of contract between the
parties, Verizon US alone had the contractual right and liability
to receive the service and pay for the same.
11.6 With regard to the “post negative list” for the period from
07.07.2012 to 2014, learned senior counsel referred to the
amendments made as under:
a) That on 01.07.2012 the old provisions of Rules were
superseded and following new provisions came into force:
i. Rule 6A providing for “Export of Services” was inserted in
Service Tax Rules, 1994 (for short “STR”)
ii. Place of Provision of Service Rules, 2012 came into force.
b) That Rule 6A of STR continued with the earlier requirements
under Rules relating to provider of service being located in
taxable territory, recipient of service being located outside India
and payment being received in convertible foreign-exchange. It
also imposed following new conditions:
i. Service is not specified in section 66D (negative list of
services)
ii. Place of provision of service is outside India,
iii. Provider and recipient are not merely establishments of a
distinct person in accordance with item (b) of Explanation 3
of Section 65B (44).
The learned senior counsel contended that all these conditions
were fully satisfied in respect of the services exported by the
respondent to Verizon US. That the respondent is located in India,
the recipient was located in USA, service provided by the
respondent was not specified in section 66D, payment for the
service was received in convertible foreign exchange and the
provider and recipient were not merely establishments of a distinct
person in any manner.
c) That POP provides for place of provision of service. In this
regard, the submissions were as under:
i. Rule 3 of POP provides that “the place of provision of a
service shall be the location of the recipient of service”. The
expression “location of the service receiver” has been
defined in Rule 2(i) of POP. In the present case, as per the
said definition, location of the service recipient shall be
location of business establishment of Verizon US in USA.
Accordingly, under Rule 3 of POP, place of provision of
service was USA, that is, location of the service recipient.
ii. Rules 4-8 relate to specific cases mentioned in the said
Rules and these are undisputedly not applicable to the
present case.
iii. In the appeal, for the first time, new allegation has been
made that the service provided by the respondent falls
under the category of “intermediary service” under rule 9 (c)
of POP.
iv. Firstly, this was never the case made out by the
Department at any stage. This was not the case either in
the Assistant Commissioner’s order or in the counter-
affidavit filed by the Department before the Hon’ble High
Court. Secondly, the expression “intermediary” has been
defined in rule 2(f) of POP and during the relevant period,
the said definition read as under:
“ “Intermediary” means a broker, an agent or any
other person, by whatever name called, who
arranges or facilitates a provision of a service
(hereinafter called the “main” service”) between
two or more persons, but does not include a
person who provides the main service on his
account”.
v. The said definition is not satisfied in any way in the present
case. The respondent always exported its service to Verizon
US on its own account and on principal-to-principal basis,
raised its bills on Verizon US and received payments in
convertible foreign exchange from Verizon US. The
respondent never acted as a broker or agent not it arranged
or facilitated any service between two or more persons.
There is absolutely no basis or factual foundation for any
such allegation nor any such finding was given by the
authorities below.
vi. The aforesaid submissions of the respondent relating to
meaning and scope of the expression “intermediary” are
also fully supported by the following circulars of the
Government of India, Ministry of Finance which clearly
show that there is no scope to treat the respondent’s export
service as intermediary service:
I. Circular no.230/24/2024-GST dated 10.09.2024;
II. Circular no.232/26/2024-GST dated 10.09.2024;
III. Circular no.159/15/2021-GST dated 20.09.2021; and
IV. Service Tax Education Guide dated 19.06.2012 issued
by CBEC.
11.7 It was the contention of Sri Bagaria, learned senior counsel
for the respondent assessee that since the services provided by the
respondent to Verizon US were “export of services”, both under Rule
3 of the Rules during “pre negative list” regime and Rule 6A of STR),
read with Rule 3 of POP (during the post negative list period),
consequential reliefs to the respondent were rightly granted by the
High Court in the said case.
11.8 It was further submitted that SLP(C) No.25415 of 2018 has
been rendered infructuous vide order dated 06.10.2021 passed by
this Court. This was because the dispute was settled by Discharge
Certificate in terms of Sabka Vishwas (Legacy Dispute Resolution)
Scheme, 2019. That in fact, four writ petitions were filed which
were all allowed by the High Court. Out of the four, WP (C)
No.11575 of 2016 related to the show-cause notice No.27/2016
dated 11.11.2016 and the remaining three writ petitions challenged
the orders passed by the Assistant Commissioner, rejecting the
claims for refund of CENVAT credits on export of services.
11.9 In response to these submissions, learned ASG reiterated
that the services rendered by the respondent assessee do not fall
within the parameters of the proviso to sub-rule (3) of Rule 3 of the
Rules and therefore, the CESTAT was not correct in granting them
the benefit of the proviso. It was reiterated that though the service
delivered by the respondent-assessee was outside India,
nevertheless, it was delivered from India and hence there can be no
exemption from payment of service tax.
12.We have analyzed the nature of the activity of the respondent-assessee in light of the parameters delineated in the proviso to sub-rule (3) of Rule 3 and as to, whether, the CESTAT was right in granting benefit of the exclusion from taxable services to the activities of the respondent assessee as being an activity of export of service. We find that the CESTAT in all these cases has rightly analyzed the activity and granted the relief.
13.We also note that in these cases, what has been determined by the CESTAT are purely findings of facts. We do not find any perversity in the determination of the findings of facts. In the circumstances, we find no reason to interfere with the impugned orders of the CESTAT and the High Court.
14.In the circumstances, we find that the factual determination made by the CESTAT would not call for any re-determination in these appeals. Hence, these appeals are dismissed. (B.V. NAGARATHNA) (SATISH CHANDRA SHARMA) NEW DELHI; MAY 06, 2025.