In the instant case instead of foreign exchange going out of India, there is conservation of foreign exchange in India to the extent of commission earned by the service provider appellant in view of the arrangement made by the service recipient abroad in that behalf through Indian Railways. Instead of appellant earning foreign exchange, the foreign exchange which otherwise would have flown out of India, due to import by Indian Railways, has been conserved. This appears to have fulfilled the object of export of service.
CESTAT, New Delhi Bench
National Engineering Industries Ltd.
Commissioner of Central Excise, Jaipur
Final Order No. ST/456 of 2011
Appeal No. ST/598 of 2007-CU[DB]
July 26, 2011
D.N. Panda, Judicial Member – The short question involved in this case is whether the service provider appellant in India getting rupee value being equivalent of commission amount of 5% in US$ shall be liable to service tax on the allegation of non-fulfilment of condition of Rule 3(1)(3) of Export Service Rules, 2005. The learned Appellate Authority was of the view that the appellant did not fulfil the condition of either of Rule 3(ii)(i)(a) or Rule 3(ii)(i)(b) of Export Service Rules, 2005 cannot be held to have exported taxable service for which it is liable to service tax.
2. Show Cause Notice by para 2 thereof brought out the fact that the appellant made a refund claim on the ground that it had exported taxable service to M/s General Motor Corporation, USA. The service so exported was liable to service tax in India under the category of business auxiliary service under Section 65(105)(zzb) of Finance Act, 1994. There is no dispute about the levy of tax in India if such service is provided in India but the dispute arose by para 3 of the show cause notice when Revenue was of the view that payment was required to be received by the service provider in convertible foreign exchange. That not being received, the appellant was denied refund.
3. With the aforesaid background, the Appellant lost its appeal before the Appellate Authority and came before Tribunal twice prior to this appeal. Its first Appeals was Appeal No. ST/262/2007-SM decided on 13.12.2007 and National Engg. Industries Ltd. v. CCE  17 STT 398 (New Delhi-Cestat). On the second occasion, on similar dispute, the appellant was in Appeal No. ST/239/2007-CUS decided on 5.3.2009 by the Tribunal. This decision has been National Engg. Ind. Ltd. v. CCE [Final Order No. ST/105/2009 (PB), dated 5-3-2009]. It was made known to us today by Revenue that they had gone in appeal before the Hon’ble High Court of Rajasthan reported in 2008 (15) STR 68 (Trib-Del).
4. The Assessee has succeeded in the past as aforesaid. There is no dispute that the appellant booked business for the foreign supplier M/s General Motor Corporation for export of goods to Indian Railways. Such aspect remained undisputed. Payment in foreign exchange was made to General Motor Corporation by Indian Railways. Instead of General Motors sending remittances to the appellant directly towards consideration of the later, Indian Railways paid its equivalent rupee value commission to the Appellant deducting such amount from the payment made to General Motors in foreign exchange. Indian Railways discharged liability of the foreign exporter i.e. M/s General Motor Corporation towards commission payable to the Appellant by the later. This resulted in no movement of foreign exchange from India to the extent of commission payable to the appellant and foreign exchange was conserved to the extent of commission paid to the Appellant.
5. While the matter stood thus, learned Advocate appearing on behalf of the appellant submits that there is no dispute about the consideration paid to the present appellant for the taxable service provided to the foreign exporter. The commission payable is exhibited by para 4(iii) of the Appellate order. The foreign exporter having no office in India, arranged to compensate the appellant by Indian rupee to the equivalent value of foreign exchange towards commission of the appellant through Indian Railways. Considering that neither commercial nor industrial establishment of the exporter existed in India, the Tribunal has rightly held in para 5 of the reported decision National Engg. Ind. Ltd. (supra) in favour of the Appellant.
6. On the other hand, Revenue contends that if the foreign exporter had no office in India, the appellant should have earned convertible foreign exchange and the department had made proper allegation in the show cause notice as well as dealt the matter properly in adjudication.
7. There is no cogent evidence on record to find that the exporter had any office in India. When the exporter had no office in India, the proviso to sub-rule (3) of Rule 3 of the Export Service Rules, 2005 does not apply. If the recipient of service had no commercial or industrial establishment or any office in India, the service provided to that recipient has resulted in saving of foreign exchange in India, the appellant is governed by the reasoning given by Tribunal in the past. For convenience of reading, paras 4 and 5 of the decision National Engg. Ind. Ltd. (supra) is reproduced as under:-
4. Rule 3 of Export of Service, Rules, 2005 reads as under :
“3. Export to taxable service. – The export of taxable service shall mean, -
(1) in relation to taxable services specified in sub-clauses (d), (P), (q), (v) and (ZZP) of clause (105) of section 65 of the Act, such taxable services as are provided in relation to an immovable property which is situated outside India,
(2) in relation to taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx) and (zzy) of clause (105) of Section 65 of the Act, such services as are performed outside India :
Provided that if such a taxable service is partly performed outside India, it shall be considered to have been performed outside India;
(3) in relation to taxable services, other than, -
(i) the taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (p), (q), (s), (t), (u), (v), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzm), (zzn), (zzo), (zzp), (zzq), (zzs), (zzt), (zzv), (zzw), (zzx), and (zzy); and
(ii) the taxable service specified in sub-clause (d) as are provided in relation to an immovable property, of clause (105) of Section 65 of the Act,-
(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;
(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.
Explanation – For the purposes of this rule “India” includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs Nos. S.0.429(E), dt. 18th July, 1986 and S.O. 643(E), dt. 19th Sept ’06″.
5. The service provided by the Appellant to GMC is taxable under Section 65(105)(zzb) of the Finance Act, 1994 and this service is covered by sub-rule (3) of Rule 3, as there is no dispute about the fact that it has been provided in relation to the business of the recipient, located outside India. The Deptt.’s contention is that since the payment for the service has been received in Indian currency from Railways, in view of the proviso to sub-rule (3), this cannot be treated as service export. However, the proviso is applicable only if the service recipient have any commercial or industrial establishment or any office relating thereto, in India, and only in such a situation conditions enumerated mentioned in clauses (a), (b) and (c) have to be satisfied. In this case, it is not the case of the Deptt. that GMC, USA have any office of commercial or industrial establishment in India. Therefore, the proviso to sub-rule (3) and the conditions (a), (b) and (c) enumerated therein are not applicable. We find that the Tribunal, in the Appellant’s own case, reported in 2008-TIOL-939-CESTATDel. has held that just because commission was received by the Appellant through Indian Railways in Indian rupees as Indian Railways made payment to GMC in foreign currency after deducting the commission payable to GMC, it cannot be said that the service provided by the Appellant to GMC, USA is not export of service. In the case of ETA Travel Agency Pvt. Ltd. (supra) cited by Id. DR, the offshore service receiver had an office in India and the commission had been received from the bank account of such local office of the offshore service receiver and in view of the facts of the case, the Tribunal held that the service has been provided and received in India and it was not a case of export of service. Therefore, this judgment of the Tribunal is not applicable to the facts of this case. We, therefore, held that the service provided by the Appellant to GMC, USA has to be treated as ‘export of service’ under Rule 3(3) of the Export of Service Rules and therefore, the terms of the provisions of Rule 5 ibid, the Appellants were eligible for refund of the service tax paid on such service exported to GMC, USA.
8. From the aforesaid discussion, we note that instead of foreign exchange going out of India, there is conservation of foreign exchange in India to the extent of commission earned by the service provider appellant in view of the arrangement made by the service recipient abroad in that behalf through Indian Railways. Instead of appellant earning foreign exchange, the foreign exchange which otherwise would have flown out of India, due to import by Indian Railways, has been conserved. This appears to have fulfilled the object of export of service.
9. In the result, the appeal is allowed.