Goldman Sachs (India) Securities Pvt. Ltd. Vs Commissioner of Service Tax (CESTAT Mumbai)
The appellant was engaged, inter alia, in providing non-binding investment advisory services to various overseas group companies under contractual arrangements. The appellant treated such services as export of service and did not discharge service tax on the services provided to the overseas entities.
The Department disputed the non-payment of service tax on the ground that the investment advisory services were intended for investment in the Indian stock market and Indian companies and, therefore, did not qualify as export of service under Rule 3(2)(a) of the Export of Service Rules, 2005. The Department also objected to the availment of CENVAT credit on rent-a-cab service, outdoor catering service and air travel agent service, alleging that these services were not utilized for providing the appellant’s output services.
A show cause notice dated 19.10.2012 was adjudicated by the Commissioner of Service Tax-V, Mumbai through Order-in-Original No. 28/STC-V/SKD/16-17 dated 16.07.2016, confirming a service tax demand of Rs. 25,62,89,761/- along with interest and imposing penalties under Sections 77 and 78 of the Finance Act, 1994. Aggrieved by the order, the appellant filed an appeal before the Tribunal.
Before the Tribunal, the appellant submitted that the non-binding investment advisory services were classifiable under Category III services under Rule 3(1)(iii) of the Export of Service Rules, 2005. It argued that the services were provided in relation to business or commerce to recipients located outside India and that the conditions prescribed under Rule 3(2) had been fulfilled since the service recipients were overseas entities. The appellant relied upon the Larger Bench decision in Arcelor Mittal Stainless India Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai – 2023-TIOL-469-CESTAT-MUM-LB, contending that services provided to overseas group entities qualified as export of service and no service tax was payable.
With regard to the denial of CENVAT credit, the appellant submitted that it had specifically stated in its reply to the show cause notice that the disputed services were used in connection with providing the output services and, therefore, qualified as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004.
The Revenue supported the findings contained in the impugned order.
The Tribunal noted that it was an admitted fact that the appellant had entered into agreements with overseas entities for providing non-binding investment advisory services and that the consideration for such services had been received in convertible foreign exchange. It observed that the services were provided for the benefit of the overseas entities and fell within Category III services under Rule 3(1)(iii).
The Tribunal referred to CBEC Circular No. 111/5/2009-ST dated 24.02.2009, which clarified that for Category III services, the relevant factor is the location of the service recipient and not the place where the services are performed. The Circular explained that the expression “used outside India” means that the benefit of the services should accrue outside India and that export of service could take place even if all the activities were performed in India, provided the benefit accrued outside India.
The Tribunal also referred to the CBEC Circular dated 13.05.2011, which clarified that the phrase “used outside India” should be interpreted in the context of the effective use and enjoyment of the service and that the accrual of benefit should be in favour of the overseas entity.
Further, the Tribunal observed that the issue was no longer open to debate in view of the Larger Bench decision in Arcelor Mittal Stainless India Pvt. Ltd., wherein it had been held that where the benefit of the service accrues outside India, such service qualifies as export of service under the Export of Service Rules, 2005.
On the issue of CENVAT credit, the Tribunal noted that the appellant had categorically stated in its reply to the show cause notice that the disputed services had been used for providing the output services. It observed that the adjudicating authority denied the credit solely on the ground that documentary evidence had not been produced to establish that the services qualified as input services. The Tribunal held that, since the appellant was a business entity, had utilized the services for providing output services and had paid service tax on the input services, it could not be concluded that the services had not been used for providing the output services. It held that the disputed services, being used for accomplishing the business purpose, qualified as “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004.
Accordingly, the Tribunal found no merit in the impugned order insofar as it confirmed the service tax demand against the appellant. It set aside the impugned order and allowed the appeal in favour of the appellant.
Cases Discussed
- Arcelor Mittal Stainless India Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai (CESTAT Larger Bench), 2023-TIOL-469-CESTAT-MUM-LB
Five Alternative SEO Titles
Service Tax Demand on Overseas Investment Advisory Services Set Aside as Export: CESTAT Mumbai
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CENVAT Credit on Rent-a-Cab, Catering and Air Travel Services Allowed: CESTAT Mumbai
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FULL TEXT OF THE CESTAT MUMBAI ORDER
Briefly stated, the facts of the case are that the appellants herein are engaged inter alia, in the business of providing nonbinding investment advisory services to various overseas clients (Group companies) as per the contractual norms agreed upon by them. The activities undertaken pursuant to the agreement were considered by the appellants export of service and accordingly, no service tax liability was discharged by them for provision of the services in favour of the overseas entities. However, the department objected to the fact of non-payment of service tax on the ground that the investment advisory services were meant for investment in stock market in India/Indian companies and as such, those services would not be qualify as export of service as per the conditions laid down under Rule 3(2)(a) of the Export of Service Rule, 2005. The department had also objected to the fact of availment of Cenvat Credit on the input services namely, rent-a-cab service, outdoor catering service and air travel agent service on the ground that those services were not utilized for provision of the output services by the appellants. The show cause notice dated 19.10.2012 issued in this regard was adjudicated by the learned Commissioner of Service Tax-V, Mumbai vide order-in-original No.28/STC-V/SKD/16-17 dated 16.07.2016 (for short, referred to as the ‘impugned order’), wherein service tax demand of Rs.25,62,89,761/- was confirmed along with interest and also penalties were imposed under Section 77 & 78 of the Finance Act, 1994. Feeling aggrieved with the impugned order, the appellants have preferred this appeal before the Tribunal.
2. Learned Advocate appearing for the appellant submitted that the non-binding investment advisory services are classifiable under category (iii) services, as per Rule 3(1) (iii) of Export of Service Rules, 2005 and therefore the disputed transaction should be construed as export, when provided in relation to business and commerce to a recipient located outside India. He further submitted that the conditions prescribed under Rule 3 (2) ibid have been duly complied with by the appellant inasmuch as the service recipient is the overseas entity. In this context, learned Advocate has relied upon the order of the Larger Bench of this Tribunal in the case Arcelor Mittal Stainless India Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai – 2023-TIOL-469-CESTAT-MUM-LB,to support the case of the appellant that the benefit of export should be available on provision of output services to the group entities located abroad and no service tax was payable on provision of such services. With regard to denial of Cenvat Credit on the input services, he submitted that in reply to show cause notice, the appellant had categorically stated that those disputed services were used/utilized in connection with the provision of the output service and as such, qualify as ‘input service’ in terms of Rule 2(1) of the Cenvat Credit Rule, 2004 for the purpose of consideration as input service for utilization towards payment of service tax on the output services.
3. On the other hand, the learned AR appearing for the Revenue reiterated the findings recorded in the impugned order.
4. Heard both sides and perused the case records.
5. It is an admitted fact on record that the appellants have entered into the agreement with the overseas entities for providing the services under the category of non-binding investment advisory services in their behalf. The payment for provision of said services were also received in convertible foreign exchange. The services provided by the appellants were for the benefit of the overseas entities and as such, falls under the Category-III of services defined under Rule 3(1) (iii) With regard to the classification of such service for the purpose of consideration as export, the CBEC vide Circular No.111/5/2009-S.T. dated24.02.2009 had explained the scope of “used outside India” and had clarified as under:
“For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase ‘used outside India’ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India.”
Further, the CBEC vide Circular dated 13.05.2011 has also clarified the said phrase ‘used outside India’, mentioning that the benefit should accrue in favour of the overseas entities for the purpose of qualifying certain transaction as export of service. The relevant paragraph in the said circular is also extracted herein below:
“It may be noted that the words “accrual of benefit” are not restricted to mere impact on the bottom-line of the person who pays for the service. If that were the intention it would render the requirement of services being used outside India during the period prior to 28.2.2010 infructuous. These words should be given a harmonious interpretation keeping in view that during the period upto 27.2.2010 the explicit condition was provided in the rule that the service should be used outside India. In other words these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. The effective use and enjoyment of the service will of course depend on the nature of the service. For example effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place’.
Further, we also find that the issue arising out of the present dispute is no more open for any debate, in view of the order dated 09.06.2023 passed by this Tribunal in the case of Arcelor Mittal Stainless India Pvt. Ltd.(supra). The Larger Bench of the Tribunal in said case has held that since the benefit of service is accruing outside India, the said service should qualify as export of service in terms of the Rules, 2005.
6. We find that in the reply to show cause notice, the appellants had categorically stated that the disputed services were used/utilized for provisions of the output service. However, while dealing with the matter, the adjudicating authority has denied the benefit of Cenvat Credit solely on the ground that no documentary evidences were produced to demonstrate that those disputed services would be considered as input service. Since, the appellants are the business entity and utilized the services for provision of the output services and also paid the service tax on the input services, it cannot be said that those disputed services were not used/utilized for provisions of the output services. Since, the disputed services were used for accomplishing the purpose of the business, the said service, in our considered view, should qualify as ‘input service’, defined under Rule 2(1) ibid.
7. In view of the foregoing discussions, we do not find any merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellant. Therefore by setting aside the impugned order, the appeal is allowed in favour of the appellant.
(Dictated and pronounced in open court)
