Rebecca Andrews

Final Pronouncement by Delhi CESTAT today, Wednesday, the 21st Nov. 12 :

After the 2-member bench consisting of Mr. DN Panda & Mr. Mathew John pronounced a Difference of Opinion order in October, 2011, the matter was referred for opinion to a 3rd Member Mr. Rakesh Kumar. Last month, he held in favour of assessee and against the Department. Matter thereupon was remanded to the original bench for passing of a majority order.

Western Union Money Transfer through its main agents Paul Merchants Ltd. and Transcorp had been fighting a protracted battle in North & South Indian CESTAT. Most of the interim decisions of Bangalore CESTAT have been in favour of the sub-agents, holding that the services are not taxable, as these are not rendered in India. What is rendered in India is only the money to the recipient but the real service receiver is the person who hands over the money to the money transfer entity (say WUMT) who becomes the service provider. There is a contractual obligation between them and the requisite fee is paid by the remitter in a foreign country and not by the recipient in India, who has no contractual obligation with anyone. The recipient can walk into any of the about 80,000 of such outlets in India, disclose the secret code sent by remitter to the Agent / sub-agent of (say) WUMT alongwith his / her identity. The Agent / sub-agent logs into the system of WUMT to confirm details and advances money to the recipient from his own pocket and claims it from WUMT for reimbursement, which is then paid to him through the main agent. As the amount of remittance and commission is received in foreign exchange by the first nominated bank, it is eligible as being considered as export of service under the previous EOS rules.

Key Questions being decided today :

(i) who is the recipient of the service provided by Agents and the sub-agents whether the WU located abroad or the persons in India who received the money sent by their relatives, friends etc. abroad through WU;
(ii) Whether the services, in question, have been used and consumed, abroad by the WU or used and consumed in India by the intended beneficiaries of the money sent by persons abroad through WU;

Further, whether the benefit of EOS be restricted only to the main agent in whose bank account the convertible foreign exchange or also to the sub-agent who gets the money in Indian currency thru the main agent , is also an issue. In this case, the commission was paid to him after TDS by main agent.

Or whether the sub-agent is also an agent of WUMT and thus eligible for similar exemption, was another query ?

Whether such sub-agents whose commission was below the threshold limit, eligible to SSI benefit, though they represented the brand name of a registered foreign entity, was ably argued by CA Ankit Gulgulia before CESTAT, Delhi.

Case on behalf of main agents was argued by Senior Advocate Joseph Vellapally, Advocates Mr. Rakesh Chitkara & Mr. Bipin Garg.

We shall bring you the final order today.

PS : 1.Applicability of this order may be only upto 30.06.2012. The Service Tax law has undergone a sea change from 1.7.12.  Even having an intermediary in India will take away the exemption, as per new law. The CBEC circular  no. 163/14/2012 issued  on 10-07-2012 Clarification on service tax on remittancs gives the impression that such services have become exempt. What is not said is the crux of the issue. More controversies on the way.

2. Weizmann, the main assessee has also been fighting a battle in CESTAT (Mumbai) which has yet to pronounce finally.

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Update on 21.11.2012

Majority order was pronounced today in favour of Paul Merchants Ltd., one of the main agents of Western Union.

Cases of all others would be pronounced by respective benches in due course in January, February.

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FULL TEXT IS AS FOLLOWS:-

CESTAT, NEW DELHI BENCH (THIRD MEMBER)

Paul Merchants Ltd.

v.

Commissioner of Central Excise, Chandigarh

FINAL ORDER NO. ST/A/699 OF 2012 – CUS.

MISC. ORDER NO. ST/166 OF 2011

APPEAL NOS. ST/311 OF 2009 & OTHERS

COD NOS. 75, 78-81, 84-86 & 93 OF 2010

STAY NOS. 526-527, 578, 1504, 1538 & 2175 OF 2010

NOVEMBER 27, 2012

ORDER

Mathew John, Technical Member – In this proceeding 10 COD applications, 6 stay applications and 42 appeals are being decided. Out of these 42 Appeals 15 are filed by assesses where the main issue is decided against the assessees and 27 by Department where the main issue was decided against the department. The facts and issues involved are common except that the facts and issues relating to Paul Merchants Ltd (hereinafter referred to as ‘PML’) are slightly different from that of others because PML is a main agent to Western Union Network Ltd. (hereinafter referred to as ‘Western Union’) and others are sub-agents to PML or to other main agents of Western Union similarly placed as PML.

Appeal No. ST-311/2009 filed by PML

2. The dispute relates to the period 01-07-2003 to 30-06-07.

3. PML entered into an agreement with Western Union Network Ltd, Ireland a company engaged in money transfer from persons located in one country to persons located in any country. PML was executing part of the activities, in territory assigned to PML in India, necessary for Western Union to carry out its business. The contract entered into between the two parties deals with remittances from persons abroad to persons located in India as well as remittances from persons located in India to persons located outside India. However it is affirmed by PML that they have not done any business of the latter type because such business requires permissions from RBI which they have not got. So it is asserted that the dispute before the Tribunal is in relation to remittance from persons abroad to persons in India. This statement is not contradicted by Revenue. In this business the person located abroad approaches any of the offices of the Western Union or its agents and give money to be remitted to a person in India. The office abroad charges the person abroad commission for remitting money to India. They convert the foreign exchange into Indian rupees and pay the recipient in India following a system to ensure the identity of the person to whom the money is delivered. No charges are levied from the recipient of money in India. PML gets their remuneration from Western Union by sharing the commission collected from the person abroad. They also make some profits due to changes in exchange rate between the date of receipt of money abroad and date of delivery of equivalent Indian Rupees in India. However this profit is subject to the risk of loss if the exchange rate changes adversely for the Western Union and its agents.

4. PML does some promotional activities like advertising, organizing promotional programs, distributing promotional material etc. The amount incurred by PML for promotional activities was reimbursed by Western Union to the extent of Rs. 1,02,08,980/- during the relevant period. On this amount received service tax amounting to Rs. 11,69,838/- is demanded

5. PML appointed sub-agents within the territories allotted to them to establish a large number of outlets in the area to make it easy for the recipient in India to get the money easily without much travel and hassles. PML compensates these sub-agents by sharing the commission received by them from Western Union which commission itself is received from the person located abroad remitting the money to India.

6. The crucial question is whether PML should pay service tax amounting to Rs. 3,23,72,254/- on the commission amounting to 28,10,71,565/- received by them in this business during the period 01-07-2003 to 30-06-07. A Show-Cause Notice issued by the Directorate General of Anti-evasion alleging that service tax is to be paid on such commission and re-imbursements has been adjudicated by the impugned order confirming tax demand of Rs. 3,35,42,092/- against PML with applicable interest. Penalty equal to the duty confirmed was imposed under section 78 of the Finance Act 1994 in addition to penalties under sections 76 and 77 of the Finance Act. Aggrieved by this order PML is before this Tribunal. The SCN and the impugned order classified the service provided by PML as ‘Business Auxiliary Service’ as defined under section 65(105)(zzb) of Finance Act, 1994.

7. It may be convenient to record the main points argued by the Appellants before getting into details of the arguments. The main arguments are the following:

 (i)  The service rendered by them are more akin to ‘Banking and Financial Service’ and it is covered under this category from 01-05-2006 after amendment made by section 68 of Finance Act 2006 in 65(12) of Finance Act 1994. So it is to be presumed that prior to this date this service was not taxable under ‘Banking and Financial Service’ or any other entry like ‘Business Auxiliary Service’

(ii) Whatever be the classification of services the service was rendered to clients located outside India and hence were exported. There cannot be any service tax on services exported.

(iii) The question whether the services has been exported has been decided by taking law as was in force for a fraction of the period in question and applying it for the entire period ignoring different laws in existence for different periods.

(iv) The demand is time-barred because the entire matter arises out of different interpretations of law and not on account of any suppression on the part of PML and hence extended period cannot be invoked.

(v)  There is no such demand issued to various banks which were doing the same service during the relevant period.

(vi) No tax has been demanded for services prior to the period specified in the SCN and for period after the period specified in the SCN . The nature of service has remained the same. The laws have changed only marginally by way of some clarificatory amendments. Since no tax is being demanded for the current period it is obvious that Revenue is conceding that the service in question is exported.

Classification of the service during the relevant period

8. As already explained the argument of PML is that their activity is specifically covered under Banking and Financial Services w.e.f 01-05-2006 consequent to amendment carried out by Finance Act, 2006. Since the intrinsic nature of the service is that of Banking and Financial Service and it was not covered till 01-05-06 under the entry for Banking and Financial Service as defined, the service could not have been covered under the heading for ‘Business Auxiliary Service’ which is in the nature of a residuary heading.

9. Revenue argues that PML was undertaking the service promised by the Western Union to the person remitting money from abroad and thus was doing a services on behalf of their client as envisaged in clause (vi) of section 65(19) of Finance Act, 1994 for ‘Business Auxiliary Service’.

10. They further point out that they were doing advertising of the services of Western Union, distributing promotional literature and holding promotional activities as envisaged in clause (ii) of section 65(19) and activities incidental to such promotion as envisaged in clause (vii) of 65(19). The fact that from 01-05-2006 the service is covered by the entry for ‘Banking and Financial Service’ cannot imply that the service was not covered by another entry for the previous period. This issue has to be seen with reference to the definition of the service for the relevant time.

11. As argued by Revenue, PML was providing service on behalf of Western Union when delivering money to the recipient in India, was providing the service of money transfer undertaken by Western Union abroad when it accepted money from a customer abroad. In fact PML was acting using the name and style of Western Union and there is hardly any scope to doubt the argument that PML was providing service to a customer on behalf of Western Union and their activity came within the definition at clause (vi) of section 65(19). PML was also doing activities of promotion and marketing of services provided by Western Union and hence covered also under clause (ii) of 65(19). However for the period after 01-05-2006, the service is covered under Banking and financial service as defined in 65(105)(zm).

The Issue whether the service provided by PML was exported?

12. Services being intangible, what constitutes export of services is difficult to conceive and define unlike in the case of goods which are tangible. There appears to be difficulty in identifying its direction of movement. But the matter has been receiving attention of world trading community and norms have evolved. Based on such norms, on 03-03-2005, Government of India notified Export of Services Rules, 2005 to prescribe the Rules in this regard which rules came into force on 15.3.2005. So from 15-3-2005 the matter is to be tested in terms of the rules laid down in the said Rules and not according to the varying opinions of individuals. The period under dispute starts from 01-07-2003. So there is some dispute as to what should be the criteria to be adopted for the period prior to 15-03-2005. In fact one of the major contentions of the PML is that the case has been adjudicated without considering different laws that existed for different parts of the period in question. It is also relevant to note that after 15-03-2005 there have been few amendments in Export of Services Rules, 2005. So even after 15-03- 2005 the issue may have to be examined for different periods.

13. After hearing both sides at length on the issue whether the service is exported or not, it is seen the contrast in the arguments on both sides is as under:

(i)  PML argues that it is providing services to Western Union situated abroad with whom PML is having a contract for providing services and PML gets its remuneration from Western Union. Further the ultimate beneficiary of the service is the person situated abroad who approaches the office of Western Union abroad and who pays for the services. So this is a case of Export of Services as laid down in Export of Services Rules, 2005.

(ii) The Revenue contests that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. The receiver of its service is the person receiving the remittance in India. The Revenue argues that no part of the service done by PML is exported. To buttress this argument the Ld. SDR relies on clauses 1, 3,4A and 4B of the contract. However there is no need to reproduce these clauses in this order because there is no contest on the issue that the activities of PML are carried out in India.

14. Now it is beneficial to study the Export of Services Rules, 2005. As per these Rules, taxable services are categorized into three categories and for different categories different criteria are laid down to decide whether the service is exported. The position is explained below :

(In the discussion below it may be noted that the Rule numbers are quoted with reference to the position after amendment of the Export of Service Rules by Notification No. 13/2006-ST dated 19-04-2006. The Rule 3(1)(i) corresponded to Rule 3(1) earlier Rule 3(1)(ii) corresponded to Rule 3(2) earlier and Rule 3(1)(iii) corresponded to Rule 3(3) earlier.)

14.1 Category-I i.e. For Services specified in Rule 3(1)(i)

For services specified under this sub-rule, export of services shall be provision of services as are in relation to an immovable property situated outside India.

14.2 Category-II i.e. For Services specified in Rule 3(1)(ii)

For services specified under this sub-rule, export of taxable services shall be provision of such services as are performed outside India. There are some additional conditions specified which are not relevant to the dispute at hand and hence not elaborated.

14.3 Category-III-i.e. For Services Specified in Rule 3(1)(iii)

For services specified under this sub-rule the export of taxable services shall be when such services are provided in relation to business or commerce and when provision of such service is to a recipient located outside India at the time of provision of such service. It needs to be recorded that Business Auxiliary Service defined at 65(105)(zzb) falls in this category and there is no dispute about it. So is the case of Banking and Financial Service defined at section 65(105)(zm). There are additional conditions which need to be examined. There is also the complication that these additional conditions were changed from time to time during the disputed period.

15. In the matter of services rendered by intermediaries like that of a stockbroker, commission agent, insurance agent etc there are two sets of beneficiaries of the activity of the intermediary. In the case of a stockbroker the buyer and seller of the stock are beneficiaries. In the case of a commission agent also the buyer and seller are beneficiaries. In the case of insurance policy, the insurer and the insured are beneficiaries. In the scheme of service tax levy, there is tax only if any remuneration is received by the person providing service. In the case of stockbroker , commission is paid by both the buyer and the seller and both the commissions are subject to tax. In the case of insurance policy only the insurer pays commission and not the insured. The commission paid by the insurer is subject to tax. In the case of impugned service the recipient of money in India is not paying any commission. So we are clearly not dealing with the service rendered by PML to the receiver of money. The entire discussion is about the commission received from Western Union and this commission is obviously for the service rendered to Western Union. Once it is recognized that service and consideration paid for such service flows in opposite directions, so long as the arrangement for payment is bona fide and is in the ordinary course of business, the entire issue can be dealt with clarity. Once this clarity is achieved the other issues that emerge can be very easily sorted out.

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 at Rule 3(1)(ii) where performance of service is the criterion but specified at Rule 3(1)(iii) where in 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 at section 65(105)(zzb) in Rule 3(1)(ii) of the Export of Service 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 at Rule 3(1)(ii) should be applied for this service.

17. Though the issue is fundamentally clear from what is stated above it is necessary to deal with the matter in more detail because of the cobweb accumulated by the arguments of Revenue. It is also appropriate to note that the issue has been clarified by the Ministry vide Circular No. 111/05/2009-ST dated 24-02-2009 which is reproduced below:

“Subject: Applicability of the provisions of the Export of Services Rules, 2005 in certain situations

In terms of rule 3(2)(a) of the Export of Services Rules 2005, a taxable service shall be treated as export of service if ‘such service is provided from India and used outside India’ Instances have come to notice that certain activities, illustrations of which are given below, are denied the benefit of export of services and the refund of service tax under rule 5 of the Cenvat Credit Rules, 2004 [notification No. 5/2006-CE (NT) dated 14.03.2006] on the ground that these activities do not satisfy the condition ‘used outside India’,-

 (i)  Call centres engaged by foreign companies who attend to calls from customers or prospective customers from all around the world including from India;

(ii)  Medical transcription where the case history of a patient as dictated by the doctor abroad is typed out in India and forwarded back to him ;

(iii) Indian agents who undertake marketing in India of goods of a foreign seller. In this case, the agent undertakes all activities within India and receives commission for his services from foreign seller in convertible foreign exchange ;

(iv) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organisation to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organisation in foreign exchange for the entire activity being undertaken in India . (emphasis supplied)

The departmental officers seem to have taken a view in such cases that since the activities pertaining to provision of service are undertaken in India, it cannot be said that the use of the service has been outside India.

2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule, 2005 categorizes the services into three categories:

 (i)  Category (I) [Rule 3(1)(i)]: For services (such as Architect service, General Insurance service, Construction service, Site Preparation service) that have some nexus with immovable property, it is provided that the provision of such service would be ‘export’ if they are provided in relation to an immovable property situated outside India.

(ii)  Category (II) [Rule 3(1)(ii)]: For services (such as Rent-a-Cab operator, Market Research Agency service, Survey and Exploration of Minerals service, Convention service, Security Agency service, Storage and Warehousing service) where the place of performance of service can be established, it is provided that provision of such services would be ‘export’ if they are performed (or even partly performed) outside India .

(iii) Category (III) [Rule 3(1)(iii)]: For the remaining services (that would not fall under category I or II), which would generally include knowledge or technique based services, which are not linked to an identifiable immovable property or whose location of performance cannot be readily identifiable (such as, Banking and Other Financial services, Business Auxiliary services and Telecom services), it has been specified that they would be ‘export’ ,-

(a)  If they are provided in relation to business or commerce to a recipient located outside India; and

(b)  If they are provided in relation to activities other than business or commerce to a recipient located outside India at the time when such services are provided.

3. It is an accepted legal principle that the law has to be read harmoniously so as to avoid contradictions within a legislation . Keeping this principle in view, the meaning of the term ‘used outside India’ has to be understood in the context of the characteristics of a particular category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect prepares a design sitting in India for a property located in U.K. and hands it over to the owner of such property having his business and residence in India, it would have to be presumed that service has been used outside India. Similarly, if an Indian event manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian company in U.K. the service has to be treated to have been used outside India because the place of performance is U.K. even though the benefit of such a seminar may flow back to the employees serving the company in India. 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. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)] services as well.

4. All pending cases may be disposed of accordingly. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned. These instructions should be given wide publicity among trade and field officers.

5. Please acknowledge receipt.

6. Hindi version follows.”

18. Because of the confusion that was building on the interpretation of Export of Service Rules, GOI amended Export of service rules vide Notification No. 6/2010-ST dated 27-02-2010 and also issued Circular vide Letter D.O.F . No. 334/1/2010- TRU dated 26-02-2010. Some relevant extracts from the letter are given below:

“7. Amendment to Export of Service Rules, 2005

7.1 Export of Service Rules, 2005 have been amended as follows:

The taxable service, namely’ Mandap Keeper Service’ has been shifted from the list under rule 3(1)(ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely ‘Chartered Accountant Services’, ‘Cost Accountant Services’ and ‘Company Secretary’s Services’, have been shifted from the list under rule 3(1)(ii) [i.e. performance related services] to the list under rule 3(1)(iii) [residual category of services]. Notification No. 6/2010-ST, dated 27th February, 2010 refers. Identical changes have been made under the Taxation of services (Provided from Outside India and Received in India) Rules, 2006 as well (Notification No. 16/2010-ST, dated 27th February, 2010 refers) ;

*The condition prescribed under rule (2)(a) i.e. ‘such service is provided from India and used outside India’ has been deleted (Notification No. 6/2010-ST, dated 27th February 2010 refers).

6.1 (sic) These changes have been carried out keeping in view of certain difficulties that were faced by the trade while following the aforesaid rules.”

19. The Ld. Representative of the Department feels that these clarifications are not in conformity with the Rules and legal principles at large because service tax is a destination based consumption tax as held by the Hon’ble Supreme Court in All India Federation of Tax Practitioners v. Union of India [2007] 10 STT 166 and the service is consumed in India and the service is terminated in India according to his perception. (This perception needs testing against the fundamental postulate that the taxable part of the service provided by the service provider to the two parties and payment in consideration flows in opposite directions, so long as there is nothing artificial about the funds flow). At any rate the ld. SDR has serious reservation in applying these clarifications issued in 2009 and 2010 to a dispute for the period 2003 to 2007. Even with the clarification he has an argument because he does not agree that “benefits of these services accrue outside India”. The matter has also been decided by the Bangalore Bench of the Tribunal in Muthoot Fincorp Ltd v. CCE [2009] 23 STT 475 (Bang. – CESTAT). But the ld. SDR has serious reservations in accepting this decision. He argues that this decision relies on the decision of Nipuna Services Ltd. v. CCE&ST (Appeals II) [2009] 19 STT 263 (Bang. – CESTAT) which deals mainly with the issue whether the payments were received in foreign exchange and does not deal with the issue whether service was utilized outside India and that decision does not give any ratio applicable for this case. The reservation of the Ld. SDR in accepting the decision in Muthoot Fincorp Ltd (supra) is so vociferous that this bench is of the view that a second examination of the issue without any reference either to the Board’s Circular or the decision of the Tribunal in the case of Muthoot Fincorp Ltd. (supra) may help in avoiding such arguments in future on the same issue.

20. For this the legal position prior to Notification of Export of Service Rules, 2005 on 03-03-2005 and amendments made in the said Rules after 03-03-2005 need to be stated and examined.

20.1 From 09-04-1999 to 28-02-2003

The service was exempt under Notification 6/99-ST 09-04-99 so long as payment for the service was received in convertible foreign exchange. The impugned order is bad in law because the matter relating to this period is not examined with reference to this Notification.

20.2 From 01-03-2003 to 19-11-2003

Notification No. 6/99-ST dt 09-04-99 was rescinded by Notification No. 2/03-ST dated 01-03-03. But Board issued a clarification vide Circular 56/05/2003-ST dated 25-04-03. Para 3 is reproduced below :

“3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination-based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax-free even after withdrawal of Notification No. 6/99 dated 9.4.99. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed at present as inter- sectoral tax credit between services and goods are not allowed.”

20.3 From 20-11-2003 to 02-03-2005

The exemption was restored under Notification No. 21/2003-ST dated 20-11-2003 subject to the condition that payment is received in foreign exchange. The impugned order is bad in law because the matter relating to this period is not examined with reference to this Notification.

20.4 Position from 03-03-2005 to 15-06-2005.

For services specified under this sub-rule the taxable services shall be considered as exported if

“(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.O.429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September, 1996.”

The Ld. SDR is harping on the condition (i) (b) as highlighted above which is applicable only if such recipient has any commercial or industrial establishment or any office relating thereto, in India. There is no case that Western Union had an office in India and the order the agreement was signed by any office of Western Union in India. Of Course the Notification as amended for later periods this condition was made applicable without reference to office in India.

20.5 Position from 16-06-2005 to 18-04-2006

“After the first proviso, the following proviso shall be inserted namely :-

Provided further that for the purposes of this sub-rule, any taxable services provided shall be treated as export of services only if-

(a)  such service is delivered outside India and used in business or for any other purpose outside India; and

(b)  payment for such service provided is received by the service provider in convertible foreign exchange.”

20.6 Position from 19-04-2006 to 28-02-2007

“The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, namely :-

(a)  such service is delivered outside India and used outside India; and

(b)  payment for such service provided outside India is received by the service provider in convertible foreign exchange.”

20.7 Position from 01-03-2007 to 31-03-2008

“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)  Such service is provided from India and used outside India; and

(b)  Payment for such service provided outside India is received by the service provider in convertible foreign exchange.”

21. It may be seen that the phrase ‘delivered outside India’ used initially could not have been understood clearly in the case of services which is intangible and so the expression was replaced by ‘is provided from India’ which is an expression better understood. However the meaning of the expression ‘used outside India’ continued to create interpretational difficulty till this expression also finally got deleted on 27-02-2010. PML argues that their services are used in the business of Western Union in their business outside India. Revenue argues that the service is utilized in the business of Western Union in India, because all the activities of PML are carried out in India. Here it is to be noted that Revenue is equating ‘used’ with ‘performed’ though they are directly not stating so. After having used the word ‘performed’ in Rule 3(1)(iii) of Export Rules, if the same word is not used and a different word is used in Rule 3(1)(iii) it is obvious that the words are not interchangeable. Further as already explained PML is getting their payment from Western Union located abroad and it is very obvious that the service is used by the person making the payment and not the recipient of money in India who does not make any payment. The Western Union is getting their payment from the person remitting money abroad and hence obviously the services rendered by PML is ultimately used by the person remitting the money from abroad. So we come to the conclusion that the impugned service is used outside India and would qualify as export of services as per conditions laid down in Rule 3(1)(iii) of Export of Services Rules, 2005. These arguments are equally applicable for the period from 01-05-2006, since when the service is classifiable as ‘Banking and Financial Services’, because this service is also specified under Rule 3(1)(iii) of Export of Service Rules, 2005 and not under Rule 3(1)(ii).

22. Now there is the issue whether any tax has to be paid on the amounts reimbursed by Western Union for expenses incurred in promoting the business of Western Union in India. In the context these services PML makes it clear that for the advertisements given, the advertising agency has charged service tax from them and they have paid such tax. These services allegedly provided by PML to Western Union are also sought to be classified under Business Auxiliary Services and hence the arguments given in respect of commission received from Western Union is equally applicable to these reimbursements also. So there is no scope for any separate examination of this issue.

23.1 Having formed our views we have checked whether our views are in conformity with the previous decisions of this Tribunal. We find that in the matter of classification of service the Tribunal in the case of Muthoot Fincorp Ltd. (supra) had not given any specific ruling. We have ruled that the service was classifiable as Business Auxiliary Service prior to 01-05-2006 and as Banking and Financial Service from 01-05-2006. At any rate this finding is not of consequence to the final outcome of the dispute.

23.2 In the matter whether the service was exported the finding is the same as in previous decisions though the reasoning used and presentation of such arguments for arriving at the finding are different. The finding is essentially that the issue should be decided using the parameters specified in the relevant law, specifically the Export of Services Rules 2005 after its notification and not according to any other criteria that may appear appealing to common sense. The ruling is also that the service is used by the person paying for the service and hence in this case it is used by persons abroad and as per provisions of laws in existence prior to 15-03-2005 and for the period thereafter as per provisions of Export of Service Rules 2005, the services are exported. The Appeal could have been disposed of by such brief observations and relying on the following decisions of the Tribunal namely ,-

(i)  Nipuna Services Ltd. (supra).

(ii) Muthoot Fincorp Ltd. (supra)

23.3 Instead we have given more elaborate arguments to reaffirm the finding in the above decisions with the hope that it will clear up the cob web in the ideas relating to the issue of export of services and will help in deciding such disputes in future.

24. There are difficulties in defining what constitutes export of service. Law in this regard has to evolve based on internationally accepted principles. GOI is taking adequate steps in this regard by making clarificatory amendments in laws. The case laws in this regard also are evolving in a consistent direction. The consistent progress in one direction cannot be reversed to support the enthusiasm of Revenue to book one or two cases involving a few crore. If the Revenue has a case that the Rules are not resulting in a desired outcome, the proper course is to amend the rules rather than selectively book cases a few persons canvassing a particular interpretation of rules. Such an approach very essential of achieve better certainty of tax incidence and reduce business risk of unexpected tax demands which surface suddenly lone after the events . [sic As in the certified copy – editor]

25. The Appellant succeeds on merits of the issue. The appellant also succeeds on time bar because the Appellants have acted in bona fide manner considering the exemption Notifications in force, clarifications issued by CBEC. Further the very fact that the Tribunal in the past have accepted that these services are exported and the Revenue itself has not initiated action against the major entities like Commercial Banks providing such service during the same period, would justify the stand of the assesses that there was no intention on their part to evade service tax.

26. Accordingly it is held that the amount confirmed in the impugned order is not maintainable and the appeal is allowed by setting aside the impugned order.

Now the appeals filed by sub-agents are to be examined in two sets as under:

First Set of Appeals- ST Appeal Nos. 833-837/2008 (5), 652/2008, 14/2009, 423/2009, 206/2010, 224/2010, 230/2010 filed by different assesses.

Second Set of Appeals- ST Appeal Nos. 10/2009, 20/2009, 107/2010, 274-278/2010, 298/2010, 300/2010, 314-17/2010, 321-23/2010, 359/2010, 296-97/2010, 1085/2010, 802/2010, 810/2010, 388/2010, 1019/2010, 380-81/2010 filed by Department

27. In the first set of Appeals the Appellants and in the second set of Appeals the Respondents are sub-agents of PML or another agent similarly placed like PML. Hereafter the word ‘assessee’ is used to refer to the person against whom demand is sought to be confirmed.

28. There are COD Applications 75/2010, 77-81/2010, 84-86/2010, 93/2010 in Appeal Nos. 298, 300, 314-317, 321-323 which are allowed and Appeals admitted. There are stay applications in Appeal Nos. 359, 296-297, 1085, 802 and 810, the stay applications are rejected because the Appeal itself are being decided.

29. The counsels for these assessees adopt all the arguments given by the senior Counsel representing PML.

30. Further the crux of the argument of the assessees is that the classification of the service or the answer to the question whether the service was exported or not cannot change whether the service was done by the main agent or the sub-agent. They rely on Board s circular No. 56/05/2003 St dated 25-04-2003

“4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported.”

31. The Counsel further points out that these assessees had taken the plea that the service was classifiable as Banking and Financial service at the First Appellate stage unlike PML which has raised the plea for the first time before the Tribunal. Further it is pointed out that in the case of the assesse in Appeal No. ST-834/2008, the demand itself was made under Banking and Financial service. The order-in-appeal records that they were contesting that they were acting as ‘foreign commission agents’ and were exempt from payment of tax. The assessee also has an argument that it is eligible for the exemption for small service providers in Notification 13/2005-ST.

32. In reply the ld SDR submits that the assessee did not contest the service tax liability as is recorded by the Commissioner Appeal. It is the argument of the ld. SDR that they cannot context the liability at this second stage of Appeal. The ld. SDR also points out that the assessees are providing the service using the brand name of Western Union and in such cases the exemption under Notification 13/2005-ST is not applicable.

33. The counsel for this Appellant has the additional submission that the Revenue has accepted the decision of the Tribunal in Muthoot Fincorp Ltd. (supra) and hence cannot take a different stand in the case of present Appellant. Further he argues that the Circular issued by the CBEC is binding on the Departmental Officers as per judicial pronouncements and therefore the adjudicating authority and the lD. SDR can not take a stand diametrically opposite to the contents of the Circular issued by CBEC. It is also the contention that making demand for the periods prior to 03-03-2005, when there was exemption for services for which payment was received in foreign exchange amounts to retrospective taxation which is not legally sustainable. He further contends that since the matter is one of interpretation of legal provisions, the extended period cannot be invoked and the demand is barred by limitation of time.

Appeal ST-206/2010 filed by Transcorporation International Ltd

34. Apart from adopting all the arguments of the other counsels in the matter of export of the service, this Appellant points out that there is a demand on him for the gains received on account of fluctuation in foreign exchange rates. It is argued that this money cannot form part of the gross value received as consideration for service rendered. This type of business gains is subject to the risk of losses when exchange rates fluctuates adversely and therefore cannot be considered as gross value for services rendered.

35. They also argue that the service provided by them is ‘Banking and Financial Service’ and is taxable only from 01-05-2006.

36. It is pointed out by the SDR that during adjudication proceeding the pleading was that the service is of the category of Business Auxiliary Service. Further attention is invited to para 6.3 of the contract which specifies the activities carried out by the Appellant which clearly justifies its classification as Business Auxiliary Service.

37. Counsel for this Appellant also pleads the ground of limitation and draws attention specifically to the letter written by the Superintendent.

Appeal ST-285/2009 filed by Banwari Trading Company

38. This Appellant is a sub-agent who acts on behalf of Moneygram instead of Western Union. But the nature of activity remains the same. This Appellant adopts the arguments given by PML. This Appellant also pleads that it is eligible for Small Scale exemption.

Appeal ST/520/2010 filed by Novelty Finance

39. Apart from adopting all the arguments of the other counsels in the matter of export of the service, this Appellant argues that he is doing business support service. He argues that Business Support Services is taxable from 01-05-2006 only. He relies on the orders passed by Commissioner (Appeal) Chandigarh in matters relating to M/s Ramble Consumer Services Patiala and M/s Jolly Enterprises Patiala. The Counsel also relies on para 4 of CBEC’s circular 56/5/2003 ST dated 25-04-03. This para reads as under:

“4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported.”

40. He stresses that the demand for the period prior to 03-03-2005 the service was exempt under Notification No. 21/2003-ST dated 20-11-03 wherein such services were exempt if consideration was received in foreign exchange.

41. He also argues that the demand is barred by limitation of time because there was no wilful suppression of material facts.

42. In the matter of Appeal listed in this part (Part-II) of this order our main finding is that the nature of service will not change in the hands of a sub-agent who does essentially the same service for a certain leg of the activities to complete the service and hence our finding in the matter of classification of service and export of service given for the main applicant will apply to these appeals also. The demands issued beyond the period of normal period of one year are also time-barred for reasons recorded in para 25 above. The denial of small scale exemption for the reason that the service is provided using the brand name of another person is also not a correct argument because the finding is that the service is provided to Western Union or Moneygram as the case may be. That being the case there is fallacy in the argument that service is provided to them using their names. Such denial will be meaningful only if it is considered that service is provided to the person in India. Though the person in India gets some benefit out of the service he does not pay for it and therefore the service provided to such a person is not subjected to service tax.

43. Accordingly demand against these assessees, are not maintainable. So we allow the Appeals in the first set of Appeals filed by assessees and reject the Appeals filed by the department in the second set of Appeals.

ORDER


D.N. Panda, Judicial Member : I have gone through the decision and reasons thereof recorded by my learned brother Sri Mathew John. Material facts of the case, cogent evidence on record, dominant object of terms of contract between parties, law relating to Service Tax laid down by Apex Court, rules of classification of taxable service, constitutional provision relating to export, applicability of theory of equivalence to service tax law and law laid down by Apex Court in respect of export, calling for different decision, I felt it necessary to record my separate decision and reason for the same hereunder, respectfully disagreeing with the reasons of decision and decision recorded by my learned brother.

44.1 In this batch of appeal both assessees and Revenue is in appeal. While some assessees are Representatives of foreign principal to provide money transfer service India on behalf of the foreign principal, in some cases they are sub-representatives of the Representative and following questions were raised in this batch of appeals for answering:

(1) Whether the activity of delivery of money in India by representatives and sub-representatives (in India) for a consideration, on behalf of their foreign principal transferring such money from abroad, is business auxiliary service and taxable u/s 65 (zzb) read with section 65 (19) of Finance Act, 1994? And whether such service is export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994 ?

(2) Whether the activity of advertisement, publicity and market promotion done by representatives and sub-representatives in India on behalf of their foreign principal, to advance the object of money transfer is business auxiliary service and taxable u/s 65(zzb) read with section 65(19) of Finance Act, 1994? And whether such service is export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994 ?

(3) Whether money transfer shall be taxable as “banking and other financial service” with effect from 1.6.2005 u/s 65(105)(zm) read with section 65(12) of Finance Act, 1994 or taxable as support service of business or commerce u/s 65 (105)(zzzq) read with section 65 (104c) of Finance Act, 1994? And whether such services are export of service under the provisions of Export of Service Rules 2005 and immune from service tax under the provisions of Finance Act, 1994 ?

(4) Whether small tax payers benefit is available under Notification No. 6/2005 dt 1.3.2005?

(5) Whether the Adjudications were time barred?

(6) Whether the Assessees are liable to penalty?

(7) Whether the gain arising out of fluctuation in the foreign exchange rate shall be taxable under Finance Act, 1994? If so under which taxable entry?

(8) Whether payment by representatives to sub- representatives shall be deductible from Assessable value of representatives.

44.2 Extensive arguments were made by learned Sr. Counsel Mr. Vallaypally in Appeal Case No. 311/09 in the case of Paul Merchants, and Sri Sudhir Malhotra argued in Appeal Case No. 833/834/09 and their arguments were adopted by learned counsels appearing in other cases while every case has its own fact involving any of the questions of as aforesaid.

44.3 While Assessees prayed to answer that the Assessees have no liability under law and adjudications were time barred and no penalty is leviable, Revenue’s prayer was to hold that there is liability of Assessees under Finance Act, 1994 with penal consequences to follow and adjudications were not time-barred.

44.4 Adjudication arose out of common cause of money transfer by foreign principal from abroad for delivery thereof in India on its behalf by its representatives and sub-representatives in India for a consideration in terms of certain agreed terms and advertisements as well as publicity was made for a consideration by such representatives and sub-representatives to subserve as well as advance the object of money transfer. In order to answer the questions arose as aforesaid , the law relating to levy of service tax and meaning of export, law relating thereto is necessary to be dealt first

Law of Service tax Follows principle of Equivalence and is a value added destination based concumption (as in the certified copy – editor) tax

45. In para 22 of the judgment in Association of Leasing & Financial Service Companies v. Union of India [2010] 29 STT 316 (SC), Apex Court reiterated jurisprudence of service tax in following terms:

“In All India Federation of Tax Practitioners’ case (supra), this Court explained the concept of service tax and held that service tax is a Value Added Tax (‘VAT’ for short) which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a “sale” from “service”. That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on an activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a c hartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or produced or sold. Thus, service tax is imposed every time service is rendered to the customer/client. This is clear from the provisions of Section 65(105)(zm) of the Finance Act, 1994 (as amended). Thus, the taxable event is each exercise/activity undertaken by the service provider and each time service tax gets attracted. The same view is reiterated broadly in the earlier judgment of this Court in Godfrey Phillips India Ltd. v. State of U.P. [(2005 (2) SCC 515] = (2005-TIOL-10- SC-LT-CB) in which a Constitution Bench observed that in the classical sense a tax is composed of two elements : the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax is, thus, a tax on activity whereas sales tax is a tax on sale of a thing or goods” [Emphasis supplied].

45.1 While delivering judgment in the case of All India Federation of Tax Practitioners (supra), Apex Court noticed that Economics holds the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs (para-4 of the Judgment). In para 6 and 7 the Hon’ble Court held as under:

“6. At this stage, we may refer to the concept of “Value Added Tax” (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer

7. In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax”. [Emphasis supplied]

45.2 While dealing with meaning of “service tax” Hon’ble Court in Para 17 to 20 held as under :

“17. As stated above, the source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of Service Industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary Entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of Article 268A in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new Entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that “service tax” is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client.

18. In Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad – 1995 (76) E.L.T . 241 (S.C.) = (2002-TIOL-24- SC-CX ) we get a clue of an important principle, namely, “principle of equivalence”. In that judgment, this Court was required to explain the words excisable” goods” and “produced or manufactured It was held by this Court that the expression “excisable goods” has been defined in Section 2 of the Central Excise Act, 1944 to mean goods specified in the Schedule. It was held that the object for having a Schedule in the Act was to fix rates under different entries including residuary entry. At this stage, we may say that the object of the Finance Act is also to fix rates of duty under different entries. However the question which arose before this Court in Moti Laminates (supra) was the meaning of the word “goods” in Central Excise Act, 1944. This Court noticed that Section 3 of the 1944 Act levied duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured, therefore, this Court laid down the test that where goods are specified in the schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the assessee. This Court further explained that the expression “produced or manufactured” would mean that the goods produced must satisfy the test of saleability/marketability. The reason being that the duty under the 1944 Act is on manufacture/production but the manufacture/production is intended for taking such goods to the market for sale. It was observed that the obvious reason for levying excise duty linked with production or manufacture is that the goods so produced must be a distinct commodity known in the market. We quote hereinbelow para 7 of the said judgment, which is as follows:

“The duty of excise being on production and manufacture which means bringing out a new commodity, it is implicit that such goods must be useable, moveable, saleable and marketable. The duty is on manufacture or production but the production or manufacture is carried on for taking such goods to the market for sale. The obvious rationale for levying excise duty linking it with production or manufacture is that the goods so produced must be a distinct commodity known as such in common parlance or to the commercial community for purposes of buying and selling. Since the solution that was produced could not be used as such without any further processing or application of heat or pressure, it could not be considered as goods on which any excise duty could be levied.

Therefore, even if an item is manufactured or produced, it will not fall in the concept of goods till the test of marketability is satisfied. In the case of Moti Laminates (supra) the “solution” was an intermediate product produced in the course of manufacture of laminated sheets. It had a short shelf life, It was not marketable, therefore, this Court took the view that the solution was not “goods” and, therefore, not dutiable.

19. The importance of the above judgment of this Court is twofold. Firstly, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is in-built into the concept of service tax, which has received legal support in the form of Finance Act, 1994. To give an illustration, an Event Manager (professional) undertakes an activity, namely, of organizing shows. He belongs to the profession of Event Manager. As long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. However, that tax under Entry 60 of List II will not cover his activity of organizing shows for consideration which provide entertainment to the connoisseurs. For each show he plans and creates based on his skill, experience and training. In each show he undertakes an activity which is commercial and which he places before his audience for its consumption. The tax on service is levied for each show. This situation is very similar to a situation where goods are manufacture or produced with the intention of being cleared for home consumption under the Central Excise Act, 1944. This is how the principle of equivalence equates consumption of goods with consumption of services as both satisfy the human needs. In the case of Internet Service Provider, service tax is leviable for on-line information and database provided by web sites. But no service tax is leviable on E-commerce as there is no Database Access.

20. On the basis of the above discussion, it is clear that service tax is VAT which in turn is both a general tax as well as destination based consumption tax leviable on services provided within the country”. (Emphasis supplied)

45.3 Applying the principle of equivalence as has been laid down aforesaid by Apex Court, which is inbuilt into the concept of service tax under the Finance Act, 1994, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It follows that service tax being a tax on an activity is also destination based value added tax. There is no ambiguity that taxable service provided in India is meant to be taxed under the provision of Finance Act, 1994. Through different clauses, number of taxable service entries are spread over section 65(105) of the said Act. Terms and expressions used in these clauses are defined by various sub-sections of section 65 of that Act.

Meaning of “export” and existence of two Termini is prerequisite for export of service

46. Material facts, Agreements and recorded statement as well as modus operandi of the Assessees came to light in the course of hearing suggest that foreign principal viz., Western Union intended money transfer service to be provided in India by its representative and sub-representatives to the consumers in India. As a result of which such service travelled from abroad to India for provision thereof in India on behalf of the foreign principal and ultimately terminated in India upon delivery of money to the intended consumer in India. Elements of agency are implicit in the contract. “Export” of goods is nothing new to the fiscal legislations of this Country. While Article 286(1)(b) of the Constitution defines this term, well tested and experienced Customs Act, 1962 in term of section 2(18) thereof states “taking out of India to a place outside India” is export. Activity relating to goods is equated with activity related service following “Principles of Equivalence”. Meaning of “export” as has been stated in Constitution and tested by customs law as well as law of Central Sales Tax Act, 1956, enable to understood what “export” means in the context of export of service and governance thereof under the provisions of Finance Act, 1994 read with Export of Service Rules, 2005 when the economy is marching towards to Goods and Service Tax regime.

46.1 In the case of State of Kerala v. Cochin Coal Co. Ltd. [1961] 12 STC 1 (SC) it has been held that concept of “export” in Article 286(1)(b) of the Constitution postulated the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port. It therefore follows that there are two termini between which the services are intended to move or between which they were intended to travel and applying principle of equivalence, the termini of the money service is India when the advice of money transfer comes from principal abroad to India. The dominant object is delivery of the remittance on behalf of foreign principal to the receiver in India. Plea of sending of advice of delivery of money in India to foreign principal by Representative or sub-representative of India results the money transfer transaction to be export of service is inconceivable. The remittance advice by representative is of no significant to the Finance Act, 1994 which is not dominant object of the contract since even sender may also seek confirmation from the receiver of money for his satisfaction. Thus intimation of payment to the foreign principal is not decisive of the nature of money transfer to be export of service when dominant object is to deliver money so as to is to terminate the money transfer service in India.

46.2 In the present cases, India is the destination for providing money transfer service travelled from outside India for ultimate consumption and termination in India. Once the money given by the sender thereof to the foreign principal for transfer to India export of service occasions from abroad for its termination in India without further transfer of the said money by export to abroad. The position of law as laid down by Apex Court in the decision of Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. CTO [1960] 11 STC 764 is that in respect of “export” of goods all exports involve a taking out of the country. Such principle equally applies to taxable service provided following principle of equivalence. Just like the test that the goods must have a foreign destination where they can be said to be imported, taxable service provided in India should also satisfy such basic test to say that such service was exported from India. Crucial fact is sending of the service to a foreign destination where they would be received as imports. But no such fact was in the present set of appeals. Ultimate consumers of service were in India and terms of agreements relied upon by the parties established in substance that India was ultimate destination of the service which travelled from abroad. Consumption of such service was made in India and being terminated, no more goes back from India for delivery abroad.

46.3 The assessees were intermediary agents to provide the service travelling from abroad to the end user thereof on behalf of their principals. It may be reiterated that the destination based consumption of service ended with performance thereof in India and that satisfies the performance based service tax concept as has been held by Apex Court in All India Federation of Tax Practitioners (supra) of the judgment it has been held that service fall into two categories, namely, property based services and performance based services. Such fundamental concept brings the service performed in India to the fold of service tax under the provisions of Finance Act, 1994. Therefore place of origin and termination of service is also decisive to determine the nature of service whether export and provision of taxable service as well as consumption thereof equally contribute to determine incidence of levy.

46.4 The Assessees have performed service in India on behalf of their principals to serve the consumers in India. Since the services are destined to be exhausted in India that extinct soon after performance thereof. Post performance intimation by the Assessees to their foreign principal is not material for incidence of levy while the service provided in India on behalf of the foreign principal is material for the levy. Assessees provided taxable service on behalf of their foreign principal and made them liable to service tax u/s 65(19) of the Finance Act, 1994.

46.5 Reliance was placed by assessees on the decision of Tribunal in the case of Muthoot Fincorp Ltd. (supra) to submit that there was export of service of money transfer in that case which is similar to the activity of assessees. Principle of equivalence as has been held by Apex Court in the case of All India Federation of Tax Practitioners (supra). Constitutional provision and law laid down in aforesaid judgments of Apex Court relating to export has not received attention of the Bench while passing order. Therefore such decision shall not be profitable to the assessees.

46.6 The circulars issued by Board subscribe to the concept of “export” under Constitution and appears to have clear perception about such concept from the experience gained under Customs and Excise law in this country. Those Circulars call for reading in the analogy and spirit of basic concept of “export” explained as aforesaid by Apex Court without being misconstrued. This is clear from the context of different circulars issued by Board from time to time and Export Rules framed. Those Circulars also imply that when ultimate outcome of taxable service is consumed in India and extinct in India that does not have any utility for export from India in the same structure and nature as that was originated in abroad and travelled from that place. The money transfer looses (sic – as in certified copy – editor) utility thereof soon after delivery of money and the service comes to an end.

46.7 Service may have different aspects. Only that aspect of the activity which is taxable in India gives rise to incidence of levy in India. Accordingly, export of service plea of the Assessees is inconceivable and liable to be rejected when money transfer service is meant by foreign principal to come to an end in India upon delivery thereof on his behalf in India. Material facts of the cases also make it clear that the impugned services were meant to reach the consumers of Indian Territory and to exhaust hereupon provision. End users of service being in India, foreign principals intended that money transferred from abroad should be delivered on their behalf in India without further export of such money to abroad. Intimation of delivery of money in India is not attempted to be taxed in the present cases. Therefore law is not concerned with that to color the money transfer service to be export of service. No money transfer service having moved out of India to a place outside India in terms of representation agreement, plea of export of service is untenable.

46.8 Assessees relied on the Apex Court judgment in Ranadey Micronutrients v. Cdlector of Central Excise 1996 (87) ELT 19 to submit that Circular is binding on the Adjudicating Authority. There is no difference to such proposition. But a Circular is not law itself to bind a Court as has been held by five judges Bench of Apex Court in the case of CCE v. Ratan Melting & Wire Industries. [Civil Appeal Nos. 4022 of 1999, 3197 & 4789 of 2000, 1469 of 2002 & 3589-3592 of 2005, dated 14-10-2008] Courts have to declare what particular provision of statute says and not the Executive Circular contrary to statutory provisions and law laid down by Apex Court. Further, Circular contrary to statutory provisions has no existence in law. This is the reason why Board vide Circular No. 141/10/2011-TRU, dated 13-5-2011 removed the anomaly of Circular No. 111/05/2009 dated 24-2-2009 which was relied upon by the Assessees heavily. Board appears to have subscribed to the law laid down by Apex Court on export. Thus the demand raised for the impugned period discarding plea of export shall sustains and appeals of the Assessees shall fail on such count making them liable to service tax.

Market Promotion – Subservient to Money Transfer Service

47. It may be appreciated that in terms of the agreements, the Assessee Representative and sub-representatives in India made advertisement and publicity to promote money transfer service meant to be provided on behalf of their foreign principal in India. Apparent reimbursements plea in essence and substance as well as in reality were consideration received for the service of market promotion provided in India. Nothing is on record to appreciate that advertisement and promotion were either unproductive or futile and served no useful purpose of providing money transfer service in India which was dominant object of the parties. Thus the receipts made for promotion or marketing of service provided by the foreign principal was in respect of business auxiliary service and that was taxable. Assessees’ plea of no taxability claiming that reimbursements is not taxable is devoid of merit and they loose their claim on such count.

Classification of Service

48. Plea of coverage of scope of service provided by Assessees by a lateral taxing entry under the category of “Banking and financial service” and “support service of business or commerce” is of no help to them for the reason that nature and character of service is decisive for more appropriate and prudent classification. Object of service equally submits to the class which embraces it more specifically and meaningfully. Mere reclassification of service or inclusion of an aspect of a service under a different taxing entry does not immune the assessee from levy when an activity carried out by them inevitably is of the nature which is implicit within it. That can be classifiable by the entry existing during the impugned period. Legislature has wide latitude in the matter of taxation and classification. When express statutory grant by letters of law charges an activity to tax under a particular class following rule of prudence and classification declared by law, there is no scope to take shelter under any other taxing entry by a plea of coverage by lateral taxing entry and no innovating argument of lateral entry comes to rescue of assessees.

49. Reliance of Assessees on the decision of Tribunal in the case of Muthoot Fincorp Ltd. (supra) was made to submit that the money transfer shall fall under either of the above categories instead of falling under business auxiliary service. But decision in that case does not come to their rescue for the reason stated in Para – 13 of the said decision holding that “since we have disposed the appeals on merits itself , we are not recording our finding on other submissions made by both sides”.

50. What is called “banking and other financial services” has been explained by Apex Court in Paras 16 to 21 of the judgment in the case of Association of Leasing & Financial Service Companies (supra). Meaning of “Banking” is given by Indian Banking Regulations Act, 1949 and country’s monetary and banking system is regulated by Reserve Bank of India constituted under Reserve Bank of India Act, 1934. Financial services are like equipment leasing, extending hire purchase facilities and project financing etc. come under financial services. Non-Banking Financial Companies (NBFC) A governed by RBI Act, 1934 undertakes financial services subject to control under RBI Regulations.

51. In this batch of appeals we were given to understand that none of the assessees are NBFCs whereas Muthoot Fincorp Ltd. was a NBFC . When these NBFCs and other commercial concerns gradually entered into money transfer activity, Legislature also brought money transfer activity under the scope of “Banking and other financial services” to expand tax base bringing the entities defined by section 65(12) of Finance Act, 1994, while business auxiliary service continued to be in the statute book to bring activities of like nature carried out by other assessee to the fold of law who are not the similarly the plea of support of business or commerce service is of no help to assessees for the reason that they carried out the activity of money transfer in India on behalf of their foreign principals under proper class of “Business Auxiliary” service. Thus the Assessees were liable to service tax under the taxing entry “Business Auxiliary” service.

Gain on flactuation (sic. – as in original – editor) of exchange rate

52. There was grievance that the gain made out of fluctuation of foreign exchange rate should not form part of assessable value. When the money transfer is made from abroad, that is transacted in foreign exchange being an import to India. The difference arising out of fluctuation in exchange rate no doubt germane to the import itself. But case of Revenue could not demonstrate whether that gain in any way is a consideration for providing taxable service. Fluctuation in exchange rate may result in profit or loss to the transaction. If gain is to form part of assessable value, loss is deductible. But such aspect of transaction is beyond the scope of Finance Act, 1994 which not a law to tax Profits or gains of business or profession, while such gain is governed by Income-tax Act, 1961. Therefore the assessees shall succeed on this count and the assessable value shall be reduced to that extent of gain in foreign exchange if included in the assessable value.

Time Bar

53. So far as bar of limitation is concerned, it is a question of fact. Limitation shall be counted from the date in reverse order when the fact of escapement of levy is attributable to the wilful evasion that comes to the notice of Taxing Authority. Facts of each case needs to be tested under touch stone of law. It appears that money transfer service was known to the economy since long. Destination of the service and mutual interest of foreign principal and service provider assessees in India was well known to each other. Interest of both parties was concern of each other. The scope of law relating to business auxiliary service cannot be pleaded to be unknown to the parties. When parties fail to seek registration under Finance Act, 1994 they deprive Revenue to know about their modus operandi till Investigation unearths evasion. So also being registered when assessees do not disclose the transactions in the statutory returns and make false declaration therein that keep revenue in dark and deprives it to realize its legitimate dues. Intention to evade plays a vital role to invoke extended period of limitation and also levy of penalty. Therefore each and every case is to be decided on the facts of the respective case, statutory provisions, law laid down in various judicial pronouncements and guidelines stated above.

Cum-Tax Benefit

54. Where there is claim of cum-tax benefit, such benefit may be extended subject to provision contained in law relating to determination of assessable value under Finance Act, 1994 and also following law laid down in Amrit Agros v. CCE 2007 (210) ELT 183 (SC) depending on the facts of each case.

Small taxpayer’s benefit

55. Plea of small taxpayer ‘s benefit may be extended subject to scrutiny of facts and law applicable to the appropriate case to avoid hardship to the small taxpayers.

Deductions relating to payment made to sub-representatives

56. Cases where deduction is claimed towards payment made by Representatives to the sub-representatives, such deduction not being a statutory permission, it is very difficult to entertain such claim. But if the tax paid by representative is in respect of self same service provided by sub-representatives, subject to proof and nexus of the service, the sub-representative may get cenvat credit of that extent of tax paid by representative on the proved aspect of service subject to the Cenvat Credit Rules applicable at the relevant point of time.

57. This batch of appeals may be decided on the aforesaid backdrop of law.

58. Case of Paul Merchants Ltd. in Appeal Case No. 311/2009 having been extensively argued both on facts and law, that case is decided by this order remanding all other cases to the original authority to decide their cases examining their facts on record on the light of statute law, judicial pronouncements as well as taking principles laid down as aforesaid preferably within 6 (six) months of receipt of this order. Remand in those cases has become necessity for the reason that the appellants did not argue on the facts of their cases specifically and elaborately while they agreed with the material fact of money transfer and principles applicable as argued by learned Sr. Counsel Sri Vellapally and the counsel Sri Sudhir Malhotra as to the issue of levy.

Appeal No. ST – 311 of 2009

Paul Merchants v. CCE, Chandigarh

59.1 The Appellant M/s Paul Merchants Ltd. was Representative of Western Union in India for a defined territory and was also authorized by Western Union to appoint sub-representatives in India with the prior written approval of the said foreign principal for respective location, in such manner so as to successfully develop market for the service.

Initiation of Adjudication Proceeding

59.2 Adjudication proceeding was initiated issuing Show Cause Notice (SCN) dated 8-2-2008 (available at page 118 of appeal folder) relying on the agreement dated 27-4-1998 and 26-1-2007 as per RUD -1 to SCN (Ref: para-4 of Show Cause Notice), statement recorded from Mrs. Aarti Markan, Deputy Manager (Accounts) of the said company (as exhibited by RUD -2) [Ref : Para 5 (SCN)] and obtaining details of consideration received by that appellant for providing money transfer service in India for and on behalf of foreign principal, i.e., Western Union for the period 15.3.2005 to 30.6.2007 as well as promoting market to provide such service in India on behalf of foreign principal for the period 01.07.2003 to 30.6.2007 (Ref: Para 16 & 17 of SCN).

Governing Terms of Agreement

59.3 The allegation in the SCN dated 8.2.2008 was examined in Adjudication made by order dated 3.2.2009. Agreements dated 27.4.98 and 26.1.07 executed by Paul Merchants Ltd. with Western Union exhibiting understanding of the parties revealed by para 4 of the Show-Cause Notice in page 1 to 5 thereof were also examined

59.4 Governing terms of representation agreement dated 27.4.1998 as is clear from para 4 of that agreement reads as under :-

“A. Representative shall advertise and promote the Service in India at its own expense in such manner as to successfully develop the market for the Service and to promote customer interest in the Service. Representative agrees to meet or exceed the advertising and promotion program set forth in Exhibit B attached hereto and spending commitment specified in Exhibit B. All of representative’s advertising and promotional material must be submitted by its representative to Western Union for written approval prior to use. Western Union will furnish specifications for all signage and will provide at no cost decal signs for use at representative and its sub-representatives’ premises. Western Union will provide sample forms of promotion material to be used by representative and its sub- representative and to the extent proof of such promotional materials are available and necessary, Western Union may provide such proofs, according to Western Unions specifications or to purchase such promotional material from Western Union, if available. Representative agrees to promptly return any proofs supplied by Western Union within 30 days following their receipt by Representative. Western Union shall have the right, upon ninety (90) days written notice, to assume responsibility for advertising and ‘ promotion in India.”

59.5 Para 2 of agreement dt . 26.1.07 dealing with the subject read as

“2. Money Transfer Service:

2.1 During the terms of Agreement and strictly in accordance with applicable laws, rules, regulations, and the Service Requirements, REPRESENTATIVE shall offer to the general public the Money Transfer Services or which REPRESENTATIVE is authorized in Attachment B. If permissible under local laws and regulations and if authorized by appropriate authorities and by Western Union, REPRESENTATIVE will offer Commercial Transactions as part of the Money Transfer Service. REPRESENTATIVE represents and warrant s to WESTERN UNION that REPRESENTATIVE has and shall maintain during the Term of this Agreement all licenses, permits and authorizations necessary to offer the Money Transfer Services in the Territory, that REPRESENTATIVE is legally capable of offering such services under the terms of this Agreement, and that there is no restriction, covenant or obligation binding on REPRESENTATIVE which prohibits, prevents or limits its performance hereunder.

2.2 REPRESENTATIVE shall provide Money Transfer Services from each Location and agrees to meet or exceed the minimum outlet coverage goals set forth in Attachment A throughout the Term of this Agreement. REPRESENTATIVE shall use its best efforts to offer Money Transfer Services during hours of operation that are convenient for actual and potential. Consumers, including extended business hours, seven-day-a-week service and 24 hour service wherever possible and at strategic locations to provide convenient service to Consumers and Recipients in highly populated areas of the Territory, tourists areas and other areas to which the transfer of funds is likely to occur.

2.3 If REPRESENTATIVE wishes to engage sub-representatives to provide Money Transfer Services in the Territory and if the laws of the Territory permit the performance of the Money Transfer Services by the sub-representatives and if WESTERN UNION approves REPRESENTATIVES engagement of sub-representatives, then REPRESENTATIVE will execute WESTERN UNION’s standard Rider to the Representation Agreement for the engagement of sub-representatives. REPRESENTAT IVE must provide WESTERN UNION with true and complete copies of all contracts and other agreements to be entered into between REPRESENTATIVE and any proposed sub-representative, and no proposed sub-representative may begin offering the WESTERN UNION service until WESTERN UNION has approved such documents. REPRESENTATIVE will provide WESTERN UNION wit h all other information that WESTERN UNION may from time to time request (sic – as in original – editor) about such sub- representative and its proposed relationship with REPRESENTATIVE including but not limited to the locations of all sub-representative premises where the Money Transfer Service will be provided and information about the sub-representative’s ownership and business activities.

2.4 REPRESENTATIVE shall pay out all funds in cash, unless WESTERN UNION authorizes in writing payment by check or another means, or unless the laws of the Territory require payment by some other means. If REPRESENTATIVE pays Money Transfer Service transactions by any means other than cash (including by way of illustration and not limitation by crediting a deposit account or debit card or by issuing a check), then REPRESENTATIVE and not WESTERN UNION shall be responsible for ensuring that good funds are available to the Recipient immediately and at no additional cost to the Recipient. REPRESENTATIVE may pay Money Transfer Service transactions only in the currency designated by the Sender, as such currency is identified in the WESTERN UNION approves a different payment currency for a particular transaction in accordance with WESTERN UNION ‘s policies.

2.5 REPRESENTATIVE shall pay out all Money Transfer Service transactions in accordance with the time standards set for in the Service Requirements.

2.6 REPRESENTATIVE agrees to charge only the fees and charges specifically set forth in WESTERN UNIONS rate schedules, as they may be amended and modified by WESTERN UNION from time to time. REPRESENTATIVE shall not impose any fees or charges upon Money Transfer Services or any aspect thereof including but not limited to the delivery of funds within the Territory without the express prior written approval of WESTERN UNION. Without limiting the general force of the foregoing under no circumstances shall REPRESENTATIVE impose any fees or charges on any Recipient for the payment of a Money Transfer Service transaction.

2.7 Any taxes, charges, impositions or levies imposed on the Money Transfer Service or transactions on REPRESENTATIVE or on REPRESENTATIVE’s performance of its obligations hereunder (including without limitation, income taxes, VAR TVA, excise taxes and withholding or other tax reduces the amount that would otherwise be paid by the REPRESENT ATIVE, it being solely the REPRESENTATIVE’S obligation to collect and remit such taxes to the relevant taxing authorities. If any withholding or other tax reduces the amount that would otherwise be paid hereunder by REPRESENTATIVE to any Recipient or to WESTERN UNION, then REPRESENTATIVE shall pay such additional funds to the recipient and/or to WESTERN UNION so that the burden of the tax is borne by REPRESENTATIVE and not by the Recipient or by WESTERN UNION.

2.8 REPRESENTATIVE (as in original – editor) agrees at its expenses to establish and maintain a customer service center operating 24 hours a day, 365 days a year to respond to inquiries from the general public about the Money Transfer Service. In this connection REPRESENTATIVE shall establish and maintain one or more 24 hour toll-free telephone numbers for Recipients and other members of the general public to call for information about Money Transfer Services and REPRESENTATIVE Locations. The toll-free telephone numbers shall be listed under “Western Union Money Transfer” REPRESENTATIVE Name. In all local telephone directories and any other listings deemed appropriate by REPRESENTATIVE and WESTERN UNION. All such listings shall be transferred to WESTERN UNION at WESTERN UNIONS request or if this Agreement is terminated with REPRESENTATIVE remaining responsible for all costs and charges incurred prior to the date of any such transfer.

2.9 REPRESENTATIVE shall operate its customer service centre in compliance with service standards that WESTERN UNION establishes from time to time. Such service standards shall comprise part of the Service Requirements. The service standards shall be generally the same as service standards applied by WESTERN UNION to customer service centres operated by comparable representatives in the Territory and elsewhere. REPRESENTATIVE shall ensure that all calls to the customer service centre are answered promptly and professionally, and that inquiries about WESTERN UNION services not offered by REPRESENTATIVE shall be forwarded as WESTERN UNION shall from time to time direct.

2.10 If WESTERN UNION has appointed other representatives in the Territory or appoints additional representatives in the future, WESTERN UNION and REPRESENTATIVE will use best efforts to reach an agreement with respect to the creation of a joint call centre for all (as in original editor) representatives (“Joint Call Center”) that shall serve as a customer service centre for all potential users of the WESTERN UNION service in the Territory. If the parties cannot reach agreement on the establishment or operation of a Joint Call Center, then WESTERN UNION may create the Joint Call Center and may make in its sole discretion any and all decisions pertaining to same. REPRESENTATIVE agrees to cooperate with WESTERN UNION in this process. If WESTERN UNION establishes the Joint Call Centre, WESTERN UNION may offset REPRESENTAT IVE’s proportionate share of the actual cost of establishing and operating the Joint Call Centre from REPRESENTATIVES remuneration under this Agreement.

2.11 WESTERN UNION and/or any party authorized by WESTERN UNION may at any time visit the locations of REPRESENTATIVE and any sub-representative for the purpose of auditing REPRESENTATIVE’s compliance with the terms of this Agreement including without limitation, REPRESENTATIVE’s compliance with all laws, regulations and policies (both public and those promulgated by WESTERN UNION) intended to detect and prevent money laundering and other illicit, improper or illegal transfers or payments of funds.

2.12 In addition to WESTERN UNION one or more affiliates of WESTERN UNION may assist in providing equipment, customer service and other functions in connection with this Agreement.”

59.6 The appellant representative being authorized by agreement dt. 27.4.98 to appoint sub-representative, agreed terms between the parties in that behalf as per Para 3 of said agreement reads as under:

“3. Representative and Sub-Representative Outlets:

Representative shall provide the service from such of Representatives outlets that are approved in advance by Western Union writing and shall arrange for the provision of the service by sub-representatives appointed by Representative with the prior written approval of Western Union for each such sub-representative and sub-representative location in such manner as to successfully develop the market for the service to within and from India. Representative will use its best efforts to obtain sub- representatives with days and hours of operation that are convenient for actual and potential customers for the service including extended business hours, seven day a week service and 24 hour service wherever possible and at strategic locations to provide convenient service to customers in highly populated areas of India, tourist areas and other areas to which transfers of funds are most likely to occur. Representative shall be responsible for bearing all fees, commissions, charges, expenses and remuneration of any kind whatsoever relating to Representative’s sub-representatives. Representative will enter into an agreement with each sub-representative in a form approved in writing by Western Union in advance. Representative agrees that upon the request of Western Union, Representative will terminate any sub-representative at is willing to meet the service requirements or is otherwise acting contrary to the best interests of Western Union. Representative agrees throughout the term of this Agreement to meet or exceed the minimum outlet coverage goals set forth in Exhibit A attached hereto.”

59.7 The appellant also being governed by subsequent agreement dated 26.1.07 that was examined by Investigation as well as Adjudicating Authority. In this agreement as well as prior agreement, i.e., 26.4.98, the appellant was agent (Representative) of Western Union in India and object of parties was to provide and effect money transfer service in India delivering money to the receiver nominee of foreign sender (Ref: page 145 of appeal folder). Market promotion activities were undertaken by the Appellant to make the service of money transfer available to the intended persons in India as well as potential consumers. The object of money delivery in India was also sought to be achieved appointing sub-representatives. The scope of money transfer business was defined in clause-2 of the agreement dt. 26.1.07. There was no material difference to the agreement dated 26.4.98 except reference to certain definitions and expressions used in the subsequent agreement. The appellant representative was authorized to appoint sub-representatives to promote market for Western Union and provide service to the said concern. The agreement further provided that obligations arose under prior agreement shall also have effect even during currency of subsequent Agreement.

59.8 Remuneration was payable to the appellant by Western Union in terms of clause 7 of the agreement dated 26.4.98 to provide money transfer service in India and also conduct market promotion activities in terms of clause 4 thereof and clause 3 and 6 of the subsequent agreement dated 26.1.2007. Both the agreements spell obligation of each other narrating responsibility of Indian Representative and sub- representative to provide money transfer service in India on behalf of foreign principal and also to do necessary sales promotion campaign in India to explore market, making advertisements to popularize money transfer by Western Union to India. This is clear from para 4 of the agreement dated 26.4.98 and para 3 of the agreement dated 26.1.07. Reading of these clauses enables to understand that Paul Merchants Ltd. was agent (representative) of Western Union to provide service to the latter effecting and completing money transfer in India reaching to the consumer herein, on behalf of the foreign principal and sub-representatives appointed by Paul Merchants Ltd. were equally responsible to carry out such activity.

Statement Recorded During Investigaion (As In Original – Editor) U/S 14 of Central Excise Act, 1944 was Valuable Piece of Evidence

59.9 Statement dated 26.1.07 (available at page 168 of the appeal folder) recorded from Deputy Manager (Accounts) of appellant M/s Paul Merchants Ltd. revealed that this appellant was acting as representative of Principal Agent of Western Union abroad. In reply to question no. 1, she (Deputy Manager-Accounts) stated as under :

(A) Q.1 As regards money transfer, please write in detail the function of your company?

Ans. The company is transferring money on the basis of contract with Western Union. A customer abroad approaches WU to send money for personal purposes to a person/relative in India. He pays the amount and charges to WU and in turn WU provides a Money Transfer Control Number. The customer abroad provides this information to his relative in India for the purpose of collecting money in India. The customer in India is free to go to any location as per his convenience in India and of the verification of his identify and MTCN no. the amount is transferred to him without charging any fee from him. Therefor, only the last leg of transaction is completed in India in lieu of contract with WU.”

(B) In reply to question No. 3, she stated that Paul Merchants Ltd. is providing service to Western Union abroad in their business of money transfer by handing over the money to the person nominated by sender abroad after verification of his identity and Money Transfer Code Number (MTCN).

(C) In answer to question No.4 and 5, she stated that Paul Merchants Ltd. is providing services to Western Union in India for which the appellant company is being paid when the transaction is completed handing over the money to a person in India and service A tax was not paid on the consideration received from Western Union.

59.10 Statement recorded u/s 14 of Central Excise Act, 1944 on 23.1.2007 (Ref: RUD -2 to the SCN) from Mrs. Aarti Makan, Deputy Manager (Accounts) of M/s Paul Merchants Ltd was cogent evidence. That established nature of activity carried out by M/s Paul Merchants Ltd. The said assessee was acting on behalf of the foreign principal as Representative thereof in India. It also provided money transfer service appointing sub representatives with the prior approval of the said principal. Endeavour of the assessee through advertisement and promotion of money transfer service widened scope of service in India. The act of representatives and sub-representatives was “Business Auxiliary” service provided in terms of section 65(105)(zzb) of Finance Act, 1994 and outcome of contract resulted in proving money transfer service in India meeting need of consumers in India. Incidence of service tax arose under the taxable entry of “Business Auxiliary” service for the impugned period for the above reasons discharging contractual obligation as has been held by learned Adjudicating Authority in the impugned order.

59.11 Material facts of the recorded statement received attention of investigation in para 5 of Show-Cause Notice and such piece of evidence being recorded u/s 14 of Central Excise Act, 1944 became significant under law, for which that became relevant and admissible in evidence for adjudication.

Impugned Period And Receipts Did Not Enjoy Immunity From Taxation Not Being Export As Opined By Investigation

59.12 The Show Cause Notice in terms of para 13 thereof clearly stated that the service provided by the appellant M/s Paul Merchants Ltd. were covered under sub-clause (ii) and (vi) of clause (19) of section 65 of Finance Act, 1994 with a conscious approach in para 15 of SCN reading as under :-

“15. The taxable service provided to any person in respect of which payment is received in India in convertible foreign exchange was exempted from the whole of the Service Tax leviable thereon vide Notification No. 21/2003-ST dated 20.11.03. The said Notification was rescinded w.e.f. 15.03.05 vide Notification No. 10/2005-ST dated 03.03.05. Therefore although in the instant case the service provided by M/s Paul Merchants Ltd has been proposed to categorize under Business Auxiliary Service effective from 01.07.03 for the purpose of service in relation to promotion or marketing of service provided by the client and from 10.09.04 for the purpose of provision of service on behalf of client, yet the consideration received by M/s PML became taxable since 15.03.05 except for the promotion and marketing ingredients of the service which was also taxable for the period 01.07.03 to 19.03.05.”

59.13 The Show-Cause Notice also clearly stated to impose service tax on market promotion activities receipts made by the Appellant in Para 12 of the Show-Cause Notice categorically stating that M/s Paul Merchants Ltd. was promoting and marketing of services provided by Western Union and also providing service on its behalf.

59.14 Investigation found that there was suppression of fact of rendering of taxable service by the appellant and no disclosure being made filing returns under law penalty was proposed in SCN, invoking extended period while proposing levy of service tax under provisions of the Finance Act, 1994.

59.15 The vital and material facts aforesaid invited incidence of service tax in India. Finance Act, 1994 being value added destination based consumption tax and extended to the destined territory in India, the nature of the services provided by appellant, i.e., M/s Paul Merchants Ltd. were held in adjudication to be Business Auxiliary Service and service tax was imposed with consequences to follow. So also market promotion activity taxed.

Adjudication Decision in and Reasoning Thereof

59.16 Adjudication was done in terms of order dated 3.2.09 taking into consideration the allegation in SCN, outcome of the investigation, documents relied upon while issuing SCN as well as statement recorded in the course of investigation. Reply to the SCN was also considered and various submissions made therein during course of hearing received considering of the Adjudicating Authority. Granting fair opportunity of hearing to the appellant, learned Adjudicating Authority beginning from para 4 of his order dealt various issues and imposed service tax of Rs. 3,28,58,021/-, education cess of Rs. 6,84,071/-, penalty u/s 76 & 77 as well as penalty to the equal amount of service tax u/s 78 of the Finance Act, 1994 followed by interest.

Issue Framed In Adjudication

59.17 The Adjudication Authority was of the view that there were two basic issues arose out of the allegation made in the SCN. The first was whether the service rendered by the appellant on behalf of the Western Union Overseas Network was a service liable to tax and second issue was that if the answer to first issue is affirmative whether rendering of service could be considered as export of service as claimed by appellant.

59.18 The ld. Adjudicating Authority dealt the first issue in para 4.1 to 4.4 of his order and came to the conclusion that the appellant provided Business Auxiliary Service u/s 65(19) of Finance Act, 1994 discarding no liability plea of the appellant. While reaching to the conclusion, opinion given by Hon’ble Mr. Justice P. N. Bhagwati (formerly Chief Justice of India) and Senior Advocate Sri. S. Ganesh to the appellant opining that service rendered by the appellant was classifiable under the category Business Auxiliary Service received attention of Adjudicating Authority as is revealed from Para 4.4 of Adjudication order.

59.19 The adjudicating authority dealt the plea of export of service made by the appellant in para 4.5 to 4.7 of his order and held that money transferred to India was paid by the service provider appellant in India to the intended person in India. The plea of informing of result of delivery of money in India was considered to be immaterial when incidence of tax arose in India for service of money transfer terminated in India provided on behalf of the foreign principal. It was, therefore, held that there was no export of service. The authority in para 4.8 of the impugned order also dealt the Notification No. 21/2003-ST dated 20.11.2003 which was rescinded from 15.3.05 and discarded plea of export of service.

59.20 So far as the payments received by the appellant towards advertising and market promotion service provided to Western Union was concerned, the authority in para 4.8 of his order dealt the same examining the agreements in question and came to the conclusion that the appellant had provided taxable service u/s 65(19)(ii) of Finance Act, 1994. All the money that was received for business promotion activities entered into taxation.

59.21 The authority dealt the plea of limitation in para 4.9 of his order and came to the conclusion that when the appellant failed to get registered and did not disclose the receipts and relevant facts filing returns but was detected by investigation in terms of RUD -3 to the SCN, the appellant was held to be liable to service tax invoking extended period of limitation due to suppression of the fact and questionable modus operandi followed which came to light when the investigation detected escapement of the receipts from taxation. Accordingly, Adjudication was held not time-barred.

59.22 The plea of cum tax value was denied by the adjudicating authority when the appellant failed to discharge its burden of proof to show that its receipts included service tax element and for such decision, he relied on the judgment of Hon’ble Supreme Court in the case of Amrit Agros (supra).

59.23 Further plea of the appellant that amount paid to sub- representatives was to be excluded from the value of taxable services was denied by the learned Adjudicating Authority. He found that service not being rendered to Western Union by the sub- representative basing on the expert legal opinion as stated by him in para 4.12 of his order, the appellant was made liable to pay service tax on the entire amount received from Western Union. While holding so, he was also of the opinion that sub-representative being providing some service to the appellant they would be liable to pay service tax but that was not the subject matter of SCN . He further opined that the appellant was eligible to take credit of tax paid by sub- representatives, if otherwise eligible.

59.24 On the aforesaid backdrop of law and facts stated above, adjudication finding and conclusion of Adjudicating Authority is upheld. The appellant is liable to service tax and penalty imposed in adjudication. Interest as per law on service tax demand shall follow. Appeal being devoid of merit is dismissed.

60. All other appeals are disposed by way of remand to original authority for the reasons aforesaid. Condoning delay made in filing some of the appeals.

DIFFERENCE OF OPINIOIN (as in original-editor)

We have differed in our opinion in deciding the above appeals, in the manner aforesaid on the set of facts borne by record. Therefore, the following points are to be determined to resolve the difference:

Points to be determined.

(i) Are the provisions of Export of Service Rules, 2005 and Circulars issued by CBEC clarifying the scope of the said Rules in conflict with the meaning of the term “export” given by Article 286 (1) (b) of the Constitution of India and the following decisions of the Apex Court, namely,-

(a)  State of Kerala v. Cochin Coal Comp. Ltd. [1961] 2 STC 1 (SC)

(b)  Burmah Shell Oil Storage & Distribution Co. of India Ltd. (supra)

(ii) Are the provisions of Export of Service Rules, 2005 and Circulars issued by CBEC clarifying the scope of the said Rules in conflict with the theory of equivalence in respect of laws as applicable to taxes on goods and taxes on services as decided in the following cases, namely,

(a)  Association of Leasing & Financial Services Companies (supra)

(bAll India Federation of Tax Practitioners (supra)

(iii) Whether the issue as to what constitutes export of services is to be determined with reference to provisions in Export of service Rules, 2005 only?

(iv) Whether the money transfer service provided by an intermediary in India acting on behalf of its principal for consideration paid by him, is export of service to the principal? Which is the service to be considered for deciding the factum of export-whether that provided to the principal abroad or that provided to the person receiving money in India who does not pay any consideration for the services rendered by him?

(v) Whether the destination of the impugned service to be determined on the basis of location of the consumer of the service in India or the location of the person abroad who requested for the service to be provided in India and paid for it and other criteria laid down in Export of Service Rules, 2005?

(vi) Whether reimbursements of advertisements and charges towards sales promotion activities are to be taxed?

(vii) Are the demands time-barred?

(viii) Whether the amounts paid to sub-representatives is excludible from the value of taxable service

(ix) Whether cum-tax benefit is to be extended in this case

(x) Whether the appellants can claim benefit under Notification No. 6/2005-ST dated 01-03-2005 for small service providers

(xi) Whether money transfer shall be taxable as banking and Financial service” w.e.f. 01-06-2005 u/s 65 (105) (zm) read with section 65 (12) of Finance Act 1994 or taxable as support of Business or Commerce u/s 65 (105) (zzzq) read with section 65 (104c) of Finance Act, 1994 And Whether such services are export of service in the case of Appellants under the provisions of Export of Service Rules, 2005 and immune from service tax under the provisions of Finance Act, 1994.

(xii) Whether appeals other than Appeal of Paul Merchants ltd need to be remanded or is to be decided on the basis of majority opinion?

In View of the above, Registry is required to place the matter before Hon’ble President for appropriate orders.

THIRD MEMBER ORDER


Rakesh Kumar, Technical Member (As a Third Member) – In pursuance of the orders dated 16.05.2012 of Hon’ble President, CESTAT under section 35D of the Central Excise Act, 1944, and section 86(7) of the Finance Act, 1994 read with Section 129C (5) of the Customs Act, 1962, the undersigned heard this matter on 18.05.2012, 28.6.2012 & 6.7.2012 in respect of the points of difference between the Member (Judicial) and Member (Technical), as mentioned in para 60 above.

62. Western Union Financial Services, INC (hereinafter referred to as WU); with principal place of business at Panama, New Jersey, provide services of money transfer from one country to another through their worldwide network of Agents and sub-agents. WU have no office or business establishment in India. They have ten Agents (Principal Agents), one of whom is M/s. Paul Merchants Ltd. (hereinafter referred to as PML), who are the appellant in Appeal No. ST/311/2009. Other agents of WU in India are India Post Office, HDFC Bank, State Bank of India, Andhra Bank, Karnataka Bank, Weizman, Reliance Finance, Transcorp International Ltd. (appellant in Appeal No.ST/206/10) and Wall Street Finance. Each Agent can appoint sub-agents with the prior approval of WU, with whom the Agent enter into an agreement in a format prescribed by WU. If services of a sub-agent are not found to be satisfactory by the WU, on the instructions of WU, the concerned Agent is under obligation to terminate the sub-agency agreement with that sub-agent. The Appellant in Appeal No. ST/652, 833-837/08, ST/285/09, ST/423/09, ST/224/10, ST/230/10, ST/520/10, and the Respondents in Appeal No. ST/274-278/10, ST/298, 300, 314-317, 321-323/10, ST/359/10, ST/296-297/10, ST/380-381/10, ST/388/10, ST/1085/10, ST/802/10, ST/810/10, ST/1019/10, ST/240-241/08 and ST/107/10 are sub-agents.

62.1 The mechanism of the money transfer from a person in foreign country to a person in India is as under :-

(a) The customer in foreign country intending to transfer some money to some person in India approaches the WU’s office abroad and pays the money to be transferred along with the service fee.

(b) The customer’s request is logged onto the WU network and a unique code number is generated as an acknowledgment.

(c)  the customer of WU, abroad passes the code number to the intended recipient in India.

(d) The intended recipient in India approaches any of the WU’s agents or sub-agents of WU with the code number and his identity proof,

(e) The agent/sub-agent of WU verifies the code numbers, identity of the intended recipient on the basis of the prescribed identity proof and makes the payment

(f) The Agent/sub-agent informs the WU through its intranet network about the payment having been made to the intended beneficiary of a particular code number.

(g) WU reimburses the money paid out to the Agent in convertible foreign currency along with Agents’/sub-agents’ commission.

(h) When the payment to the intended recipient of WU’s customer abroad has been made by the sub-agent of a particular agent of WU, it is the Agent who receives the reimbursement money along with commission in convertable foreign currency and the Agent passes on the reimbursement money along with the sub-agent’s commission to the sub-agent, but in Indian currency.

62.2 The main dispute in these appeals is about-

(a) the classification of the services mentioned above provided by the Agents and sub-agents; and

(b) whether these services are to be treated as export of services out of India and hence not liable to service tax as in terms of Rule 4 of the Export of Service Rules, 2005, no service tax is payable on the services exported out of India.

62.3 Though in terms of an Agent’s agreement with WU and a sub-agent’s agreement with Agents, both the Agent and sub-agent can provide the service of money transfer from a person in India to his intended recipient abroad, this service is not being provided, as there is no permission from RBI for this service. Thus in this group of appeals, the dispute is only in respect of the part of the money transfer service provided by WU, which is performed in India, i.e. delivery of money to the intended person on behalf of WU. Besides this, the Agents and sub- agents also arrange the advertisement and publicity of the WU’s services in India.

63. Heard both the sides in respect of points of difference.

64. Shri J. Vallaypally, Senior Advocate and Shri Rakesh Chitkara, Advocate, the learned Counsels Representing PML and Shri Bipin Garg, Advocate, the learned Counsel representing PML and M/s. Transcorp International Ltd., made the following submissions:-

(1) PML/Transcorp, as agents of WU in India, in terms of their agreement with WU, provide on behalf of WU, the service of delivery of money to the intended beneficiaries of the clients of WU abroad who want to remit money to some person in India through WU. PML/Transcorp either deliver the money directly or through their sub-agents. This activity of PML/Transcorp is classifiable as “Business Auxiliary Service” w.e.f . 1.7.2003 and as “Banking or other Financial Services” w.e.f . 1.6.2005. In either cases, since the services have been provided in respect of a business located aboard, the same, in terms of Rule 3(l)(iii) of Export of Service Rules, 2005, would constitute export of service.

(2) What constitutes export of service has to be decided strictly in terms of the provisions of Export of Service Rules, 2005, not on the basis of definition of export in Section 2(18) of the Customs Act, 1962. There is no definition of Export in Art, 286 (l)(b) of the Constitution of India which prohibits levy of sales tax by State Government on export of goods out of India, or on interstate sales,

(3) The persons in India to whom the money is delivered by the Agents and sub-agents of WU on behalf of WU are the recipients of money sent to them by persons aboard through WU, they are not the recipients of service provided by the Agents and sub-agents of WU . The recipient of the services provide by PML/Transcorp is WU, as it is WU who is obliged to make payment for the services provided by PML/Transcorp or their sub-agents. In this regard, reliance is placed on Tribunal’s judgment in case of Sumangalam Suiting (P) Ltd. v. CCE [2010] 29 STT 290 (New Delhi – CESTAT). Since service recipient WU is located aboard without any office or establishment in India and service has been provided from India, the services provided by PML/Transcorp have to be treated as Export of service, as there is no dispute that the payment for the services provided by PML/Transcorp to WU either directly or through their sub-agents has been received from WU is convertable foreign currency. Since the service has been received by WU and it is WU who are the beneficiary of the services provide by PML/Transcorp, the services have to be treated as having been delivered to WU and used by them outside India, and hence, exported out of India.

(4) The services being the intangible, the concept of export in case of goods can not be applied to the export of services. Therefore, the judgment of the Apex Court in case of Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. CTO AIR 1957 Cal 395 is not applicable Theory of equivalence between the Taxation of goods and Taxation of services mentioned in Apex court’s judgment in case of Association of Leasing & Financial Service Companies does not mean that in case of taxation of services, the terms ‘export’ or ‘import’ must be understood in the same manner in which these terms are understood in the context of levy of sales tax or levy of import or export duties.

(5) Place of performance of service can not always be a factor for determining whether a particular service provided has been exported. This has to be decided strictly in accordance with the provisions of Export of Service Rules, 2005. In case of services in respect of immovable property, mentioned in Rule 3 (l)(i), the services will be treated as export if the same have provided in respect of an immovable property located abroad. In case of performance based services mentioned in Rule 3(l)(ii), the service is to be treated as export if it has been performed abroad. In case of other services mentioned in Rule 3(l)(iii) when performed in India in relation to business or commerce, the services shall be treated as export if the Business is located abroad. Though for period till 28.2.2007 there was a condition in this regard in rule 3(2) of Export of Service Rules, 2005 that “the service is delivered outside India and is used outside India” and from 1.3.2007 to 26.2.2010, the condition was that “the service has been used outside India”, with effect from 26.2.2010 these conditions have been deleted, as according to Board’s letter No. 334 /1/2010-TRU dated 26.2.2010 this change has been carried out keeping in view certain difficulties that were faced by the Trade while following this rule. This, amendment has to be treated as clarificatory in nature and hence retrospective in nature, as the Trade and the Board have always understood the Rule 3(2)(a) to mean that as long as the party aboard is deriving benefit from services in India, it is export of services. This is clear from the Board’s Circular No. 111/05/09-ST dated 24.2.2009. In any case, throughout the period of dispute, since it is WU who had received the services in question, was the beneficiary of the same and had used this service for their business of money transfer for arranging the delivery of money in India to the intended beneficiaries of their clients abroad, the services have to be treated as delivered abroad and used abroad.

(6) PML/Transcorp have not provided any advertisement or marketing service to WU. These services were provided by advertising agencies who paid service tax on the same and the Appellants have paid for these services to the advertising agencies and received reimbursement for the same from WU. Even if the advertisement services are treated as having been provided by the Appellants, since the recipient and the beneficiary of the same is WU and since entire reimbursement for these services has been received is foreign currency, the same will have to be treated as export of service and hence, there is no question of charging service tax on the same.

(7) Extended limitation period of five years under proviso to section 73(1) of Finance Act, 1994 is not applicable, as there was no wilful misstatement or suppression of facts or contravention of any provisions of Finance Act, 1994 or of the rules made thereunder with intent to evade the tax.

65. Shri S. Malhotra, Advocate, representing the sub-agents M/s. Bhatia Money Changers, M/s. Shadira Jagannath, M/s. Akal Money Changer, M/s. Vijay Money Changers, M/s. Srikrishana Money Changers, M/s. Sonu Forex, M/s. Paradise Radio, M/s. Sharma Enterprises, M/s. Hiralal Jewellers, M/s. Anmul Money Changers, M/s. Mandeep Electronic and M/s. Bhagwati Forex, M/s. Rana Money Changer, M/s. Anmol Forex Dealer, and M/s. Diamond Enterprises; Shri Rakesh Chitkara, Advocate, representing the sub-agents, M/s. Jolly Enterprises, M/s. Ramble Consumer Services, Shri Jitender Mohan, Advocate, representing M/s. Novelty Finance Ltd., a sub-agent and Shri Ankit Gulgulia C.A. also representing M/s. Ramble Consumer Services white adopting the arguments of Shri J. Vallaypally and Sh. Bipin Garg on the question as to what constitutes the export of services made the following submissions.

(1) There is tripartite arrangement between every sub-agent, main agent and WU under which while the services of delivery of money to the intended beneficiary of a client abroad of WU is provided by the sub-agent, the sub-agent gets the reimbursement of the money paid and his commission from the Agent, who, in turn, receives the reimbursement along with commission from WU in foreign currency. Thus a sub-agent of an agent of WU in India represents WU and provides services to WU. The main agent acts only as consolidator in this tripartite arrangement.

(2) In terms of an Agent’s agreement with WU, the agent cannot appoint a sub-agent without approval of WU and if the services of a sub-agent are not found satisfactory by WU, his sub-agency has to be terminated by the Agent if the WU issues instructions in this regard to the Agent. This suggests that the main agent and his sub-agent are treated as co-parallel by WU. In terms of sub-agency agreement, WU is the third party beneficiary.

(3) As per tripartite arrangement between a sub-agent, his agent and WU, the WU reserves exclusive right of revocation of sub-agents’ agreement with Agent or place him under any other main agent. This shows that sub-agents represent WU not their main Agent and they are rendering service to WU, not to their agent and hence the same has to be treated as service export, as the commission for the services rendered is received from WU by the Agent is convertible foreign currency.

(4) The issue as to whether the service provided by sub-agents of the agents of WU are export of service and hence not chargeable to service tax is no longer res integra in view of the following judgments of the Tribunal.

(1)  Muthoot Fincorp. Ltd. (supra)

(2)  Nipuna Services Ltd. (supra)

(3)  Kerala State Financial Enterprises Ltd. v. CCE [2011] 11 taxmann.com 245 (Bang. – CESTAT)

(5) Even if the sub-agents are treated as on par with sub-contractor, they are not liable to pay any service tax in view of Board’s Circular dated 11.06.1997.

(6) Even if the service provided by sub-agents are not treated as service export and are held to be taxable, the sub-agents would be eligible for SSI exemption under Notification No. 6/05-ST. For this purpose, the sub-agent can not be said to be providing the Business Auxiliary Service under the brand name of Western Union and providing service to WU, the brand owner, can not be held as the ground to deny the benefit of small scale service provider exemption. In this regard, reliance is placed on Tribunal’s judgment in case of Mrs. Jaspreet Kaur & Gagandeep Singh v. CCE Delhi reported in – 2012-TIOL-142-CESTAT-DEL and also the Tribunal’s judgment in the case of Peoples Automobiles Ltd. [Final Order No. ST/473-474/2011 dated 18.08.2011.

66. Shri Sumit Kumar, the learned DR made the following submissions :-

The question as to what constitutes export of service must be decided in accordance with the concept of “export” in Art 286 (l)(b) of the Constitution of India read with section 2 (18) of the Customs Act, 1962.

(2) The ratio of Apex courts’ judgment Burmah Shell Oil Storage & Distribution Co. of India Ltd. (supra) that export of goods involves taking the goods out of India to a foreign destination and for this merely placing the goods on board a foreign going vessel/aircraft is not enough, there must be an intention to take the same to a foreign destination, is equally applicable for determining as to what constitutes export of service.

(3) Applying the principle of equivalence between the taxation of goods and taxation of services as to laid down by the Apex court in the cases of-

(i)  Association of Leasing & Financial Service Companies (supra)

(ii) All India Federation of Tax Practitioners (supra)

the question as to what constitutes export of services must be decided on the basis of criteria for export of goods, not on the basis of Export of Service Rules, 2005. Just like the test that goods must have a foreign destination where the same can be said to be exported, taxable services provided in India should also satisfy this basic test to say that such service was exported from India and imported into another country.

(4) The definition of Export of service in Export of Service Rules, 2005 is at variance with the definition of export in the constitution and various Apex Court’s decisions cited supra. This will make the Export of Service Rules ultra vires the Constitutions of India. The Export of Service Rules, 2005, being ultra vires, are a nullity and not binding on the Tribunal. In this regard, reliance is placed on Apex Court’s judgment in the case of L. Chandra Kumar v. Union of India 1997 (92) ELT 318 (SC).

(5)  In the contracts of the Agents (PML and Transcorp) with WU and the contracts of the sub-agents with Agents, the term _export_ does not appear even once. These contracts are for performance of a service delivery of money to the intended beneficiaries of the clients of WU abroad who wanted to send money to some persons in India. This service performed in India, has been consumed in India and hence the same would attract service tax. The services performed in India and consumed in India cannot be treated as Export of service by applying Export of Service Rules, 2005.

(6) For export of service the crucial fact is sending of the service to a foreign destination where same would be received as import. But no such fact is seen in the contracts of the Agents with WU and of the sub-agents with the agents. The ultimate consumers of the service are in India and India is the ultimate destination of the services provided by the Agents and sub-agents. No service goes from India to a foreign destination. Hence, this can not be termed as Export of Service.

(7) The Agents and sub-agents of WU are intermediary to provide service travelling from abroad to the end-user thereof in India on behalf of the principal. It may be reiterated that the destination based consumption of service ended with the performance thereof in India and that satisfies the performance based service tax concept, as has been held by Apex Court in All India Federation of Tax Practitioners (supra).

(8) The services provided by the Agents and sub-agents are not money transfer but are Business auxiliary service taxable under section 65(105)(zzb) read with section 65(19) of the Finance Act, 1994. Since these services have been rendered in India and used in India, the service can not be treated as export, more so, when there is no intention in this regards. For the purpose of determining as to who is the recipient of the services provided by the Agents and sub-agents of WU, the fact as to who paid or is liable to make payment for the services rendered in India, is not relevant.

(9) Since the services provided by Agents as not export of service, the same are taxable. For payment of service tax, the amount paid by Agents to sub-agents is includible in the value of the taxable service.

(10)  As regards the service rendered by sub-agents, since the same is rendered to Agents, there cannot be any doubt that it is not export of service and hence it is taxable. In this regard, the judgments of the Tribunal in the case of Muthoot Fincorp Ltd. (supra) and Kerala State Financial Enterprise Ltd. (supra) are not correct. Since the sub-agents are providing taxable service under brand name/logo of WU they are not eligible for exemption under Notification No. 6/2005-ST.

67. I have considered the rival submissions and perused the records. Before coming to the main point of dispute in this group of cases, it would be worthwhile having a relook at the activity of the Agents of WU and sub-agents of Agents and, on that basis, the classification of the service provided by them, which would be a relevant factor, if the question as to whether the service provided by the Agents of WU and sub-agents appointed by Agents is export of service, is to be decided in terms of the provisions of Export of Service Rules, 2005. Though in terms of agreement of WU with Agents and agreement of Agents with sub-agents, the agents and sub-agents are required to perform both the type of transactions- “consumer receive transactions” which are that part of money transfer service whereby a recipient receives funds from Agent/Sub-agent remitted by a customer abroad, and “Consumer send transactions” which are that part of money transfer service whereby a customer of WU pays a fee and provides money to the sub-agent/Agent for transmission to a recipient abroad, in this group of cases, we are concerned only with the former type i.e., “Consumer receive transactions”, as “consumer send transaction” are not performed for the want of permission from RBI. Thus, the activity of the Agents and sub-agents of WU in India is only in respect of inward remittance by the person abroad.

67.1 As mentioned in para 62.1 above, the activity of remittance of money by a person abroad to his intended beneficiary in India starts at the office of WU or by an agent/sub-agent abroad when he hands over the money to be remitted along with commission and the details of the intended beneficiary in India and after payment of money to be remitted along with commission, he is given a unique code number by the WU/their agents/sub-agent. WU do not have any office or business establishment in India and they operate in India through a network of Agents and sub-agents appointed by agents with the approval of WU. The role of Agents and sub-agents is that when the intended beneficiary approaches them with the code number and provides the prescribed proof of identify, they handover the money remitted by the sender immediately. This service they are required to provide 24 hours in a day and all the seven days in a week for which they get a commission. There is no dispute that the money paid out to the intended beneficiary along with commission, whether by the Agent or by some sub-agent appointed by Agent, is reimbursed by WU in convertible foreign currency to the Agent and in the cases where the money is paid out by sub-agent, the sub-agent gets his commission along with the reimbursement of money paid from the agent in Indian currency. Both the agents and sub-agents, in term of their agreement are also required to spend a prescribed percentage of their earnings from commission for advertisement and market promotion of WU. The various points of differences before Hon’ble Member (Technical) and Member (Judicial) as mentioned in para 60 of the order are to be decided only in respect of the above mentioned activity of agents and sub-agents i.e. delivery of money to the intended beneficiary on behalf of WU and undertaking marketing and advertisement of the WUs services in India.

68. Coming to the question of classification of the activity of Agents and sub-agents, their activity essentially is providing of service of delivery of money on behalf of WU and also undertaking promotion and marketing of the money transfer service provided by WU. Agents by delivering money on behalf of WU to the intended beneficiary of the sender of money abroad are discharging the obligation of delivering money to the intending beneficiaries on behalf of WU and in the cases where the money is delivered by sub-agents, the sub-agents are performing the same job. This activity, in my view, is covered by clause (vi) of section 65(19) as it stood w.e.f. 10.09.2004- “Provision of service on behalf of client” and during period prior to 10.09.2004, this activity would be covered by the “service rendered by a person as commission agent”, who in terms of definition of this term is Notification No. 14/04-ST covered, among others, the person who acts on behalf of another person and causes sale or purchase of goods or provision or receipt of services for a consideration. Though w.e.f. 1.6.2005, services in relation to “transfer of money including telegraphic transfer” provided by a banking company or a financial institution including NBFC or any other body corporate or any other person/commercial concern, become taxable under section 65(105)(zm) read with section 65 (12), in my view even during period w.e.f . 1.6.2005, the service provided by the Agents of WU and sub-agents appointed by sub-agents would be correctly classifiable as “Business Auxiliary Service” under section 65(105)(zzb) read with section 65(19) as the function of Agents/Sub-agents is essentially an agency function i.e. _providing services on behalf of WU in India for commission_ and besides this the marketing & promotion of money transfer service of WU_, in India, both of which are covered by the definition of _Business Auxiliary Service_ as given in section 65(19).

69. Next comes the main question whether-

(a)  the services provided by the Agents of WU, and

(b) the services provided by the sub-agents appointed by Agents, amount to export of service out of India and, hence, not taxable in India. Linked with this question are the questions-

 (i)  what criteria should be adopted for determining whether a service provided by a person in India has been exported out of India-whether this question, as held by learned Member (Judicial), should be determined on the basis of provisions of Act 286(l)(b) of the Constitution of India, read with Section 2(18) of the Customs Act, 1962 and various judgments of the Apex Court in respect of the Article 286(l)(b) of the constitution, or as held by learned Member (Technical), this question should be determined strictly in accordance with the provisions of Export of Service Rules, 2005 framed by the Central Government under section 94(l)(f) of the Finance Act, 1994 which empowers the Central Government to frame rules for determining the export of taxable services;

(ii)  who is the recipient of the service provided by Agents and the sub-agents whether the WU located abroad or the persons in India who received the money sent by their relatives, friends etc. abroad through WU;

(iii) Whether the services, in question, have been used and consumed, abroad by the WU or used and consumed in India by the intended beneficiaries of the money sent by persons abroad through WU ;

(iv) Whether the “principle of equivalence between the taxation of goods and taxation of services” implies that for determining as to what constitutes the export of service, the criteria regarding export of goods i.e. the definition of export in section 2(18) of Customs Act, 1962 etc. must be adopted; and

(v)  Whether the Export of Service Rules, 2005, laying down the criteria for export of various services based on factors like location of immovable property (in case of service in relation to immovable property), place of performance (in case of performance based services) and location of business (in case of services performed in relation to business or commerce) ultra vires the provisions of Indian Constitution.

70. Article 286(1) of the Constitution of India provides that-

“No law of a State shall impose, or authorize the imposition of a tax on the sale or purchase of goods when said sale or purchase taken place-

(a)  outside the state;

(b)  in course of the import of the goods into or the export of the goods out of the territory of India.”

70.1 Neither the Article 286 nor the article 366 of the constitution containing the definition of various terns, defines the terms “export” or “import”, whether of goods or of services. Article 286 simply puts certain restrictions on imposition of sales tax by the State Governments on the sale or purchase of the goods and provides that a State Govt., can not impose sales tax on sales taking plus outside the state or on the goods imported into India or exporting out of India. Thus, this article has nothing to do with what constitutes the export of service Apex court’s judgment in case of Burmah Shell Oil Storage & Distribution Co. of India Ltd. (supra) cited by the learned DR holding that sale of aviation turbine fuel to a foreign bound aircraft is not export and that test of export is that the goods must have a foreign destination when they can be said to have been exported out of India, is in respect of export of goods, not in respect of export of Services. There is a world of difference between the goods and services. The goods are tangible and their export or import in traditional sense would involve crossing of international border. The services are intangible and can be provided by several modes. For example one mode of cross border service transaction would be where the service provided by a person in India is received by a person located abroad. Second mode of service export can be when service is supplied by a service provider located in India, from India to a service consumer of some other country in India and that service is meant for use abroad. Third mode of service export would be where service is supplied from India through commercial or physical presence in territory of any other country, like a software company providing the services of software development to its client in USA by sending its employees to USA. In 2nd and 3rd type of service transaction, the criteria of crossing the international border would be impossible to apply.

70.2 Section 2(18) of the Customs Act, 1962 defines the term ‘export’ for the purposes of the provisions of this Act as taking some goods to a place outside India. Thus, in respect of goods, for export to take place, the goods must cross the international border and must reach a destination outside India, it is not necessary that this must happen in the course of sale where the goods are consumed abroad. In my view, the above criteria as to what constitutes the export of goods, or import of goods which is for the purpose of the Customs Act, 1962, where the objective, besides the collection of duties on import of goods into India and export of goods from India, is also regulation of the movement of the goods across the border, cannot be applied for determining what constitutes the export of service, as unlike the movement of the goods across the international border, whether on sale basis or otherwise, where the event of export or import of goods can be easily detected, determining whether a service provided by a person in India is export or a service provided by a person abroad is service import into India, is a much complex question as, as mentioned above the services are intangible and can be provided by various modes and for this purpose one uniform criteria for all the services cannot be adopted. In this regard, all that can be said is that in general, the tax on services, like tax on sale of goods is a destination based tax on consumption and thus taxable service provided by a service provider in a particular taxable area (in this case the whole of India excluding state of Jammu & Kashmir) would attract service tax only when the service has been consumed in that taxable area and if the consumption of service is outside the taxable area, the service tax would not be attracted and it would be treated as export of service. The Apex Court in the cases of All India Federation of Tax Practitioners Association (supra) and Association of Leasing & Financial Service Companies (supra) has held that service tax is a value added tax, which in turn is a destination based tax on consumption in the sense that it is levied on commercial activities and it is not a charge on business but on the consumer. This is evident from the following feature of taxation of Service Tax.

(a) When both service provider and service recipient/consumer are in India, the service provided is taxed irrespective of the nationality of service provider and of the service recipient/consumer and the service tax is collected from the service provider under section 66 of the Finance Act, 1994.

(b) When a person in India receives a taxable service provided by a service provider abroad, it is taxed in India and collected from service recipient by treating him as deemed service provider under section 66A of Finance Act, 1994.

(c) In terms of Rule 4 of Export of Service Rules, 2005, services exported out of India are not to be taxed.

Thus for taxing a service, it is not the place of performance but the place of consumption which is relevant and Export would take place when the service is provided in India by some person but is received and consumed abroad. In the reverse situation, there will be service import.

70.3 But determining the place of consumption is a complex task on account of intangible nature of services and the different modes by which a service can be provided and can be consumed i.e. used by the recipient to satisfy his needs. The place of consumption and the location i.e. permanent address of the service recipient may be different . A uniform criteria for determining the place of consumption/receipt for different categories of services like, services in relation to immovable property, services in relation to business, performance based services, transport services etc. can not be adopted. In case of performance based services, there can be cases where part of the service has been performed in India and part has been performed abroad and therefore for such cases there has to be a uniform criteria for determining as to which place should be treated as the place of performance. In case of multilocational service providers; there must be a uniform criteria for determining as to at which place the multi locational service provider is to be treated as located for the purpose of taxation. Therefore, what constitutes the export of service can not be left to the deductive capability of individual taxpayers or individual tax collectors, as doing so will cause a total chaos. For this reason only, the Export of Service Rules, 2005 have been framed by the Central Government under section 94(1)(f) of the Finance Act, 1994. A little analysis of these rules will show that the same follow the general principle that a taxable service provided by a person in India will be subject to tax only when it has been consumed in India and not when it has not be consumed in India, which is in accordance with the ruling of the Apex Court in case of All India Federation of Tax Practitioners (supra). In my view it is absolutely correct to treat-

(a)  performance based services (e.g. services of repair & maintenance of some machinery provided by an Indian company to its client in USA) as consumed at the place where the same have been performed;

(b) Services in relation to immovable property of a person (e.g. service of insurance of immovable property located abroad, belonging to an Indian Resident A provided by an India Insurance Company B) as having been consumed at the place where the immovable property is located; and

(c)  Services in relation to business; (e.g. an Indian Company A providing the services of marketing & sales promotion in India to a company B located in Singapore in respect of the products manufactured by B) as having been consumed at the place where the business is located.

In fact the European Union has similar rules for determining Place of Provision of Service where the Service is taxable.

Thus, the Export of Service Rules, 2005 and Taxation of Services (provided from outside India as received in India) Rules, 2006, are basically the rules for determining the place of consumption of Services. These rules in the budget of 2012-13 have been replaced by Place of Provision of Service Rules, 2012, the Rule 3 of which states that the place of provision of a service shall be the location of the service recipient, (who is the service consumer). Therefore, in my view, there is nothing in the Export of Service Rules, 2005 which can be said to be contrary to the constitutional provisions of the Apex Court’s judgment in the case of All India Federation of Tax Practitioner’s Association (supra).

70.4 The principle of equivalence mentioned in the Apex Court’s judgment in case of Association of Leasing & Financial Service Companies (supra) is that-

(a) there is no difference between the production or manufacture of saleable good and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which stands consumed by the service receiver;

(b)  consumption of goods and consumption of services are similar, as they both satisfy human needs; and

(c)  service tax is a value added tax on an activity the value of addition being on account of an activity.

This judgment also emphasizes that service tax is a tax on consumption and is a charge on the consumer of service. The implication of this would be that when service provider is in India and service recipient/consumer is located abroad, this would be treated as an export of service and service provider in India would not be liable to pay service tax . Both, the Export of Service Rules, 2005 and Taxation of Services (Provided from outside Indian and Received in India) Rules, 2006 follow the principle that Service Tax must be levied in that taxable area when the service has been consumed. These rules simply lay down the criteria as to what would constitute export or import in respect of different categories of services. Thus, there is nothing in the Export of Service Rules, 2005, or the Taxation of Service (Provided from outside India and received in India) Rules, 2006 which is contrary to the judgment of Apex Court in case of Association of Leasing & Financial Service Companies (supra).

70.5 The Central Government, for smooth service tax administration can always frame rules for prescribing criteria as to what would constitute export or import for different categories of services, so long as the rules follow the general principle that the service is taxed in that taxable area where it has been consumed/received In my view, there is nothing in the Export of Service Rules, 2005 which violates this principle.

70.6 In view of the above discussion, the question as to what constitutes export of a service has to be decided strictly in accordance with the provisions of Export of Service Rules 2005 . In fact, I am surprised as to how the Commissioners working under the Central Board of Excise & Customs and the Departmental Representative who represents the Board before the Tribunal can take a stand that the Export of Service Rules, 2005, framed by the Central Government under Section 94(1)(f) of the Finance Act, 1994 are ultra vires the Constitution of India. This is more surprising when the recently framed Place of Provision of Services Rules, 2012, replacing to Export of Service Rules, 2005 and Taxation of Services (provided from outside India and received in India) Rules, though differently worded and introducing further refinements in laying down the criteria for determining the place of provision of service (which in terms of Rule 3 is the place of recipient i.e. the place of consumption) follow the same principles as those behind the Export of Service Rules, 2005 and Service Import Rules and the learned DR’s stand would imply that the recently framed Place of Provision of Service Rules, 2012 are also ultra vires the Constitution of India.

71. In this case, the service provided by the Agents to WU, as discussed in para 68 above, is “Business Auxiliary Service” covered by section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994. Since this service is in relation to the money transfer business of WU having their business establishment abroad and since this service has been received by WU and used by them in their business and payment for this service has been received in convertible foreign currency, in terms of the provisions of Rule 3(1)(iii) read with Rule 3 (2) of the Export of Service Rules, 2005, the service provided by the Agents has to be treated as export of service.

71.1 It has been pleaded that the recipient of the services provided by the Agents of WU is not WU but the but the persons in India receiving the money sent by their friends and relatives abroad through WU and their Agents and this is not the export of service. This plea is totally incorrect. The service recipient is the person on whose instructions/orders the service is provided who is obliged to make the payment from the same and whose need is satisfied by the provision of the service. WU having accepted money alongwith commission from their customers abroad for delivery to their intended beneficiaries in India are under obligation to get the money delivered in India and for this purpose, they have engaged the Agents as WU do not have any business establishment or offices in India to discharge this obligation directly. The obligation of WU to deliver the money received by them from their customers abroad to their intended beneficiaries in India is discharged by the Agents either directly or through sub-agents and for this the Agents get a commission from WU. Thus it is WU who have received the services provided by Agents and have used this in relation to their business of money transfer and therefore have to be treated as recipient and consumer of service not the person receiving money in India through WU. There is one more reason why the persons to whom the money was delivered by Agents/ Sub-agents of WU can not be treated as recipient of services provided by WU. Service Tax is akin to tax on sale of goods. Service tax can be said to be a tax on sale of service. Just as sale of goods which attracts sales tax is transfer of property in goods by a person (seller) to another person (buyer) for some consideration, a service is an activity carried out by a person for another for some consideration. Just as in case of sale of goods it is buyer who is obliged to pay for the goods purchased, in case of provision of service, it is recipient of the service who is obliged to pay for the service to the service provider. Thus the service recipient is the one who is obliged to pay for the services to the service provider and whose need is satisfied by the service or in other words, is the buyer of service. To illustrate, if a manufacturer A is under obligation to provide free repair service during a specified warranty period to his customers in respect of some goods sold to them and he engages B to provides the services of free repairs during warranty period to his customers C1 , C2 , C3………, and for this he pays to B, the recipients of the service provided by B would be A, not the customers C1 , C2 , C3 …………, In general in case of services provided by an Agent to some person on behalf of his Principal for some commission, it is the Principal who is the service recipient/beneficiary, not the person affected by the services performed by the Agent, who may be affected pleasantly or unpleasantly (e.g. when the service performed by the Agent is the service of money recovery or some other unpleasant service performed on behalf of the Principal) depending upon the nature of the services performed in respect of him. He can not be called beneficiary or recipient of the service provided by the Agent. Since the service provided by the Agents has been used by WU in their money transfer business abroad, the same has to be treated as received and consumed abroad, not received and consumed in India.

72. Next comes the question as to whether the services provided by sub-agents appointed by the Agents of WU are export of service and hence not taxable. As held in para 68 above, the services provided by the sub-agents appointed by the Agents is “Business Auxiliary Service” covered by Section 65(105)(zzb) read with Section 65(19) irrespective of whether it is treated as provided to Agents or to WU. The plea of the sub-agents is that they have tripartite arrangement with Agents of WU and WU, that they also represent WU, that recipient of their services is WU, not the Agents and that, therefore, the services provided by them have to be treated as export of service. The contention of the Revenue on the other hand, is that the sub-agents have provided taxable service to Agents not to WU and therefore, in any case, the commission received by the sub-agents for the services provided by them to Agents is chargeable to service tax.

72.1 On going through the agreement of WU with Agents and the agreement of an Agent with his sub-agent, it is seen that-

(a)  in terms of WU’s agency agreement with Agents, while the Agents can appoint sub-agents, the appointment of each sub-agents has to be with prior approval of WU and the sub-agent’s agreement with agent would have to be terminated by the Agents if WU, not being satisfied with the services of the sub-agent, instruct the Agent to do so;

(b)  the commission payable to sub-agent is determined by WU, not by the appointing agent and the terms and conditions of the sub-agency agreement and the format of the Sub-agency agreement has been prescribed by WU;

(c)  the necessary hardware and software for providing money delivery service is provided by WU to the sub-agent through the Agent and the sub-agent is required to provide the services as per the standards prescribed by WU;

(d) Sub-agents are required to maintain certain records prescribed by WU which can be inspected at any time by the appointing agent as well as by WU to ascertain as to whether the sub-agent is providing the service strictly in terms of the agreement;

(e)  WU is a third party beneficiary of the sub-agency agreement and WU can take any action that is necessary or appropriate to protect or enforce its rights without objection based on lack of privity or similar claims;

(f)  the reimbursement of the amount paid to the intended beneficiary of WU’s customer abroad transferring the money, along with commission is received from WU by the Agent in convertible foreign currency who pays the same is the Indian currency to the sub-agent; and

(g)  the sub-agency agreements are in the context of the fact that the Agent and WU are parties to an agency agreement (representative agreement) whereby the Agent offers to the general public in India WU’s money transfers service.

72.2 Reading the agreement of WU with Agents and together with the agreement of an Agent with his sub-agent, I find that these agreements represent a tripartite arrangement between WU, Agents and sub-agents under which while a sub-agent provides the service directly to WU, he gets his commission and the reimbursement through the Agent-while the agent receives the reimbursement and sub-agent’s commission is convertible foreign currency, the sub-agent receives it in Indian currency. The sub-agency agreements clearly mention that WU is the third party beneficiary of the agreement. Taking into account the above facts, I am of the view that the sub-agents are providing services to WU and it is WU who is the beneficiary of the service provided by the sub-agents and since the payment for these services is received in convertible foreign currency by the Agent, the services provided by the sub -agent have to be treated as export of service, not the services received and consumed in India. Same view has been taken by the Tribunal in the cases of-

(a)  Muthoot Fincorp Ltd. (supra); and

(b)  Kerala State Financial Enterprises (supra), involving same facts and identical issues. Therefore, the services provided by the Sub-agents have to be treated as export of services and hence not taxable in India.

73. In view of my finding that the recipient of the services provided by sub-agents appointed by the Agents of WU is WU and the services provided by the sub-agents are being exported and hence are not liable to be taxed, the question regarding eligibility of the sub-agents for small scale exemption under Notification No. 6/2005-ST is irrelevant. Therefore, I am not going into the same.

74. As regards the question as to whether reimbursement of advertisement and charges towards sales promotion activities are to be taxed, since these services have been provided to WU, and the same are in relation to the business of WU, the same have to be treated as export of service, whether provided by Agents or by sub-agents and hence, the same would not attract service tax.

75. As regards the question as to whether the amount paid by the Agents to sub-agents are excludible from the value of taxable service provide by the Agents, this question becomes irrelevant once it is decided that the services provided by the agents are export of service not taxable in India. For the same reason, there is no need to go into the question as to whether the demands are time-barred and whether cum tax benefit is to be extended.

76. In view of the above discussion, the points of difference, mentioned in para 60 are answered as under :-

(i)  The term “export” has not been defined either in Article 286 (1)(b) or in any of the article of the Constitution of India. Though the Apex Court’s judgments in the case of the The Cochin Coal Company Ltd. (supra) and Burmah Shell Oil Storage & Distribution Co. of India Ltd. (supra) explain the meaning of the term “export”, the ratio of these judgments which are with regard to export of goods, is not relevant for determining what constitutes the export of services. There is no question of Export of Service Rules, 2005, being in conflict with Article 286 (1) (b) of the Constitution of India.

(ii) The principle of equivalence between the taxation of goods and taxation of service had been laid down by the Apex Court in the case of Association of Leasing & Financial Service Companies (supra) and All India Federation of Tax Practitioners (supra) in the context of constitutional validity of levy of service tax on certain services. This principle does not imply that service tax should be levied and collected exactly in the same manner as the levy and collection of tax on goods or that export of service should be understood in exactly the same manner in which the export of goods is understood. In fact the question as to what constitutes the export or import of service was neither raised nor discussed in the abovementioned judgments of the Apex Court. As discussed in this order, the Export of Service Rules, 2005 are in accordance with the Apex Court’s ruling in the abovementioned judgments that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India.

(iii)  What constitutes export of service is to be determined strictly with reference to the provisions of Export of Service Rules, 2005. Not doing so and leaving this question to be determined by individual taxpayers or tax collectors for each service, based on their deductive ability would result only in total confusion and chaos.

(iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their Agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is “business auxiliary service”, being provided to Western Union. It is Western Union who is the recipient and consumer of this service provided by their Agents and sub-agents, not the persons, receiving money in India.

(v) The consumer of the service provided by the Agents and sub-agents of WU in India is the Western Union, located abroad who use this service for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under section 65(105)(zzb) read with section 65(19) of the Finance Act, 2005, and has been provided it has been received and used abroad, in relation to business of Western Union located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service.

(vi) Reimbursement of advertisement and sales promotion activities received from WU is not taxable as the same are for the services provided to WU, which are export of service.

(vii) The question of time-bar is not relevant when the main question has been answered in favour of the Agents & sub-agent.

(viii) & (ix) These questions are no longer relevant when the main question has been answered in favour of the Agents and sub-agents.

(x) When the services provided by the sub-agents have been held to be export of service and hence not liable for service tax, the question of their eligibility for exemption under Notification No. 6/2005-ST is irrelevant and has not been gone into.

(xi) The services provided by the Agents and sub-agents throughout during the period of dispute are classifiable as “Business Auxiliary Service” under section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994 and the same have been exported in terms of the provisions of Rule 3(1) (iii) read with Rule 3(2) of the Export of Service Rules 2005 and hence no service tax is payable

(xii)  There is no need to remand the cases of sub-agents. The same must be decided on the basis of the majority opinion.

Majority Order

77. The point of difference as mentioned in Para 60 of the referral order has been answered by third Member as under :-

“In view of the above discussion, the points of difference, mentioned in para 60 are answered as under :-

 (i)  The term “export” has not been defined either in Article 280 (1)(b) or in any of the article of the Constitution of India. “Though the Apex Court’s judgments in the case of the State of Kerala v. The Cochin Coal Company Ltd. [1961] 2 STC 1 SC] and Burmah Shell Oil Storage & Distribution Co. of India v. Commercial Tax Officer & Others reported in [1960] 11 STC 764 (SC) explain the meaning of the term “export”, the ratio of these judgments which are with regard to export of goods, is not applicable for determining what constitutes the export of services. There is no question of Export of Service Rules, 2005, being in conflict with Article 286 (1) (b) of the Constitution of India.

(ii)  The principle of equivalence between the taxation of goods and taxation of service had been laid down by the Apex Court in the case of Association of Leasing & Financial Service Companies v. Union of India (supra) and All India Federation of Tax Practitioners v. Union of India (supra) in the context of constitutional validity of levy of service tax on certain services. This principle does not imply that service tax should be levied and collected exactly in the same manner as the levy and collection of tax on goods or that export of service should be understood exactly in the same manner in which the export of goods is understood. In fact the question as to what constitutes the export or import of service was neither raised nor discussed in the abovementioned judgments of the Apex Court. As discussed in this order, the Export of Service Rules, 2005 are in accordance with the Apex Court’s ruling in the abovementioned judgments that service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India.

(iii) What constitutes export of service is to be determined strictly with reference to the provisions of Export of Service Rules, 2005 . Not doing so and leaving this question to be determined by individuals taxpayers or tax collectors for each service, based on their deductive ability would result only in utter confusion and chaos.

(iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their Agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is “business auxiliary service”, being provided to Western Union. It is Western Union who is the recipient and consumer of this service provided by their Agents and sub-agents, not the persons receiving money in India.

(v)  The consumer of the service provided by the Agents and sub-agents of WU in India is the Western Union, located abroad who use their services for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under section 65(105)(zzb) read with section 65(19) of the Finance Act, 2005, and has been provided in relation to business of Western Union located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the person who requested for the service and is liable to make payment for the same who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/ sub-agents in India and who is liable to make payment for these services, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of service.

(vi) Reimbursement of advertisement and sales promotion activities received from WU is not taxable as the same are for the services provided to WU, which are export of service.

(vii)  The question of time-bar is not relevant when the main question has been answered in favour of the Agents & sub-agent.

(viii) & (ix) These questions are no longer relevant when the main question has been answered in favour of the Agents and sub-agents.

(x)  When the services provided by the sub-agents have been held to be export of service and hence not liable for service tax, the question of their eligibility for exemption under Notification No. 6/2005-ST is irrelevant and has not been gone into.

(xi) The services provided by the Agents and sub-agents throughout during the period of dispute are classifiable as “Business Auxiliary Service” under section 65(105) (zzb) read with section 65(19) of the Finance Act, 1994 and the same have been exported in terms of the provisions of Rule 3(1) (Hi) read with Rule 3(2) of the Export of Service Rules 2005 and hence no service tax is leviable.

(xii)  There is no need to remand the cases of sub-agents. The same must be decided on the basis of the majority opinion.

78. In view of the answer in Para 76(xi):

 (i)  No service tax becomes payable by M/s. Paul Merchants Limited in appeal case No. ST/311/2009 and appeal is allowed.

(ii)  All other cases appearing in cause title shall be heard individually in each case for which Registry to issue notice of hearing on any day in the month of January & February, 2013, in batches so that cause list does not become burdened.

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