Case Law Details
Arcelor Mittal Projects India Pvt Ltd Vs Commissioner of Service Tax (CESTAT Mumbai)
The recent decision by the Central Excise and Service Tax Appellate Tribunal (CESTAT) Mumbai in the case of Arcelor Mittal Projects India Pvt. Ltd. vs. Commissioner of Service Tax has significant implications in the realm of service taxation. At the heart of the matter was whether procuring sales orders for products manufactured by steel mills outside India for customers within India constituted an export of service. CESTAT Mumbai ultimately quashed the service tax demand, and this article delves into the details of the case and its implications.
1. Background and Key Facts:
Arcelor Mittal Projects India Pvt. Ltd. is a wholly-owned subsidiary of Arcelor Mittal Stainless International, Paris (AMSI). AMSI appointed the appellant as a sub-agent, with the primary role of seeking and procuring sales orders for products manufactured by steel mills located outside India but intended for customers within India. The process involved negotiations between foreign mills and Indian customers, culminating in customers placing purchase orders directly with foreign mills. AMSI received a commission for facilitating these transactions, a part of which was shared with the appellant in convertible foreign exchange.
2. Service Tax Demand and Appellant’s Belief:
The dispute arose concerning the service tax on the commission received by the appellant between April 2005 and January 2009. The Revenue claimed that the appellant was liable to pay service tax on this commission. However, the appellant argued that since they received the commission in convertible foreign exchange and their activities constituted an export of service, they were not liable to pay service tax.
3. Service Tax Payment and Claim for Refund:
In response to the department’s objections, the appellant paid the service tax along with interest under protest during the investigation. Subsequently, they filed a claim for a refund of the service tax along with interest. However, the original authority rejected the refund claim, asserting that the services were not utilized outside India. Dissatisfied with this decision, the appellant appealed before the Commissioner (Appeals), who upheld the original authority’s order. Consequently, the appellant approached CESTAT Mumbai.
4. CESTAT Mumbai’s Referral to Larger Bench:
During the proceedings at CESTAT Mumbai, a Division Bench referred certain issues to a Larger Bench for consideration. These issues included the interpretation of phrases like “services provided from India and used outside India” and “such service is delivered outside India and used outside India” as per the Export of Services Rules, 2005. Additionally, the Larger Bench was tasked with determining whether services rendered to a foreign entity located outside India for the development of its business in India qualified as an export of service.
5. Larger Bench’s Decision:
The Larger Bench was convened and delivered its decision, stating that the services provided by Arcelor Mittal Projects India Pvt. Ltd. constituted an export of service as per the Export of Services Rules, 2005. It clarified that since the appellant’s services were provided from India and used outside India, they met the requirements for export of service, both before and after March 1, 2007.
6. Conclusion and Implications:
In light of the Larger Bench’s ruling, CESTAT Mumbai set aside the impugned order and allowed the appellant’s appeal. This decision has significant implications for cases involving the export of service, particularly when services provided from India are used outside the country. It reinforces the principle that such activities may qualify as an export of service, depending on the specific circumstances and applicable rules.
The CESTAT Mumbai’s decision in the Arcelor Mittal case underscores the importance of understanding service tax regulations and their application in complex scenarios. It establishes that services provided from India but used outside the country can indeed be categorized as an export of service, provided they meet the stipulated requirements. This ruling is not only pertinent for this case but also sets a precedent for similar cases involving the export of services from India.
FULL TEXT OF THE CESTAT MUMBAI ORDER
1. Brief facts of the case are that the appellant is a wholly owned subsidiary of Arcelor Mittal Stainless International, Paris (hereinafter referred to as AMSI). Appellant was appointed as subj-agent by AMSI and the appellant performed like a commission agent and the appellant’s job was to seek or procure sales orders for products manufactured by steel mills outside India for customers in India. Once the foreign mills and the Indian customers come to an understanding on the terms and conditions of supply, the purchase orders used to be placed on the foreign mills by the customers themselves and the goods were directly supplied by foreign mills to Indian customers and AMSI used to get commission on such transaction. A part of the commission received by AMSI was shared with the appellant in convertible foreign exchange. It appeared to Revenue that in respect of commission received by the appellant from April 2005 to January 2009, the appellant was required to pay service tax. Appellant believed that the appellant was receiving commission in convertible foreign exchange and the activity was export of service and, therefore, service tax was not payable by the appellant. Therefore, the appellant did not pay any service tax. When the department raised objection, appellant paid service tax along with interest under protest during investigation and subsequently filed a claim for refund of already paid service tax along with interest. The original authority rejected the claim of refund stating that services were not used outside India. Aggrieved by the said order, appellant preferred appeal before Commissioner (Appeals). Learned Commissioner (Appeals) through impugned order upheld the order passed by the original authority. Therefore, the appellant preferred appeal before this Tribunal.
2. Hearing took place before this Tribunal on 08.04.2019 and through Interim Order No. 48/2019 dated 04.07.2019, the Division Bench of this Tribunal referred the following issues to the Larger Bench, which are reproduced below.
“6.1 In view of above divergence of opinion we refer the matter to Hon’ble President to constitute a larger bench to determine the following questions of law:
i. What is extant and scope of phrase “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” used in Rule 3(3)(i) of Export of Services Rules, 2005 upto 18.04.2006.
ii. What is extant and scope of phrase “such service is delivered outside India and used outside India” used in Rule 3(2)(a) of Export of Services Rules, 2005 from 19.04.2006 to 28.02.2007.
iii. What is extant and scope of phrase “services provided from India and used outside India” used in Rule 3(2) (a) of Export of Services Rules, 2005 from 01.03.2007 onwards.
iv. Whether the services rendered to foreign entity located outside India for development of its business in India will qualify as Export of Service in terms of the above phrases used in the Export of Services Rules, 2005 from time to time and the decision of Apex Court in case of GVK Industries?”
3. Larger Bench was constituted and hearing took place on 17.04.2023. The Larger Bench decided the issue referred to it through Interim Order No. 26/2023 dated 09.06.2023. The decision of the Larger Bench is reproduced below:-
“54. The four issues raised in the reference order have been dealt with extensively and as they are intermingled, the reference is answered in the following manner:
(i) Arcelor India, a service provider, is providing BAS service to Arcelor France, which is a service recipient. Arcelor India is, therefore, providing service to Arcelor France which is situated outside India and Arcelor India receives consideration in convertible foreign exchange. The service provided by Arcelor India is, therefore, delivered outside India and used outside India as is the requirement under the 2005 Export Rules prior to 01.03.2007 and Arcelor India provides services from India which are used outside India as is the requirement after 01.03.2007. It cannot, therefore, be doubted that Arcelor India provides ‘export of service’ as contemplated under rule 3 of the 2005 Export Rules; and
(ii) Arcelor France is an agent of the foreign steel mills and Arcelor India is its sub-agent. Arcelor India provides the necessary details of the customers in India to the foreign steel mills and, thereafter, the foreign steel mills and the Indian customers execute a contract for supply of the goods. The goods are directly supplied by the foreign steel mills to the Indian customers. Arcelor India also satisfies condition (b) of rule 3(2) as payments for such service have been received in convertible foreign exchange.”
Subsequently, the appeal was listed for hearing before this Bench.
4. Heard the learned counsel for the appellant. Learned counsel for the appellant has submitted that since the customers were from India, Revenue had a belief that the services were provided in India. However, the Larger Bench has held that the services provided by the appellant in the present proceedings are export of service under the requirements of sub-rule (2) of Rule 3 of Export of Service Rules, 2005. He has further submitted that in view of the finding of the Larger Bench, the impugned order is not sustainable.
5. Heard the learned AR for Revenue. Learned AR has submitted that the issue may be decided in accordance with the decision of the Larger Bench.
6. We have carefully gone through the record of the case, Interim Order No. 48/2019 and Interim Order No. 26/2023 through which reference to the Larger Bench was answered. The decision of the Larger Bench is reproduced in the foregoing paragraph. The Larger Bench in very clear terms has held that in the present proceedings, the activity of the appellant is export of service.
7. We, therefore, set aside the impugned order and allow the appeal. Appellant shall be entitled for consequential relief at the earlist.
(Order pronounced in the open court on 14.09.2023)
