Services of maintenance of equipment on behalf of foreign clients to Indian buyers and identifying prospective customers in India qualify as export of services
Samsung India Electronics Pvt. Ltd. (the Appellant) was rendering Customer care services to the customers of CDMA mobile phone in India on behalf of Samsung Electronics Company Ltd., Korea (Samsung Korea). The Appellant was also engaged in identifying new prospective customers and effectively communicating to them the features of CDMA products of Samsung Korea. In return, the Appellant was receiving a commission from Samsung Korea in foreign exchange during the period August 2003-December 2003, May 2005-December 2005 and April 2007-March 2012.
The Department demanded Service tax on the amount so received and the demand made against the Appellant was confirmed along with interest and penalties.
Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi. The Appellant relying upon the decisions in the case of Blue Star Ltd. Vs.
Commissioner of Service Tax [2014-TIOL-2257-Cestat-Mum](“Blue Star case”) and Simpra Agencies Ltd. Vs. C.C.E. [2014 TIOL-687-Cestat-Del] submitted that the activities undertaken by the Appellant on behalf of Samsung Korea are in the nature of export of services in terms of Rule 3(3) of the erstwhile Export of Services Rules, 2005 (“the Export Rules”) and hence not exigible to Service tax. As regards the period prior to introduction of the Export Rules, the Appellant submitted that they are covered under the Circular No. 56/5/2003/ST dated April 25, 2003.
The Hon’ble CESTAT, Delhi relying upon the decision in the Blue Star case and in the case of Paul Merchants Ltd. Vs. CCE Chandigarh [2012-TIOL-1877-CESTAT-DEL],held that the Appellant has provided the service of procuring purchase orders for their foreign clients and providing maintenance service to the Indian buyers during the warranty period on behalf of their foreign clients on the instructions of foreign clients, which are covered by Rule 3(3) of Export Rules. Therefore, the Appellant was not required to pay Service tax and accordingly are entitled for refund.
Our Comments: The Hon’ble CESTAT, Delhi in the case of Microsoft Corporation (I) (P) Ltd. Vs. Commissioner of Service, New Delhi [2014- TIOL-1964-CESTAT-DEL] set aside the demand of Rs. 256 Crores by holding that the services provided to foreign principals for marketing their products in India qualify as an export of service under the Export Rules and hence not exigible to Service tax.
However, it would not be out of place here to highlight the recent change in the definition of ‘intermediary’ given under Rule 2(f) of the Place of Provision of Services Rules, 2012 (the POP Rules) to include intermediary in respect of goods also in its scope w.e.f. October 1, 2014. Accordingly, an intermediary of goods, such as a commission agent or consignment agent shall be covered under Rule 9(c) of the POP Rules (Location of service provider) instead of Rule 3 of the POP Rules (Location of service recipient). We are reproducing here under the amended definition of ‘intermediary’ as effective from October 1, 2014 for the ease of your reference:
“(f) “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account;”
Hence, this change in the definition of ‘intermediary’ has brought intermediary for goods at par with intermediary for services effective from October 1, 2014 and chargeable to Service tax on the basis of Location of service provider.