C.S.T.-Service Tax-Delhi vs Ishida India Pvt. Ltd

(Arising out of OIA No. 265/SVS/GGN/2014 dated 16.5.2014 passed by Commissioner (Appeals), Delhi-III, Gurgaon)

Date of Hearing: 24/06/2015

Date of Pronouncement: 01/07/2015

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

C.S.T.-Service Tax-Delhi Appellant

Vs.

Ishida India Pvt. Ltd. Respondent

Appearance:

Present for the Appellant: Shri R.K. Grover, DR

Present for the Respondent: Mr. Lalit Thorian, Finance Head

Coram: Honble Ms. Sulekha Beevi C.S., Member (Judicial)

Final Order No.52063/2015

Per: Sulekha Beevi C.S.

This appeal is filed by the Revenue challenging the order of the Commissioner (Appeals) which allowed the refund claim filed by Respondents.

Brief facts are as under:

2. The respondent is a private limited Company and is a wholly owned subsidiary of Ishida Co., Japan. The Respondents are registered under the category of 'Erection, Commission & Installation' and Business Auxillery Services with the service tax division. The activities of respondents are such that they procure purchase orders from Indian Customers and place it before their client/company in Japan. Goods as per these purchase orders are supplied to customers in India. For such service the respondents receive a pre determined percentage of the trade value as indent commission. Accordingly to respondents by providing such services to the Company in Japan, their services were exported and thereby exempted from service tax.

2. The respondents filed a refund claim of Rs.6,84,626/- for the excess service tax paid erroneously on export services during the period December 2007 to February 2008. The adjudicating authority rejected the refund claim on the ground that the services provided by the respondents failed to satisfy the condition of export of services. Aggrieved the respondents preferred appeal before the Commissioner (Appeals) who allowed the refund. Hence this appeal by Revenue.

3. On behalf of the appellant, the Learned DR submitted that though the respondents provided services from India to their client in Japan; the services being for procurement of orders from customers in India and also because the goods supplied are used by customers in India, there was no export of services. That this whole process would show that the service is provided from India and used in India, and that therefore the activity of the respondents did not fulfill the conditions under rule 3(2)(a) of Export Service Rules,2005. He relied on the judgment in All India Federation of Tax Practitioners Vs UOI 2007(7) ATR 675 (SC)

4. Against this, the Authorized Representative of the respondent company submitted that the tax was erroneously paid on the mistaken belief that the services were taxable. The amount was received from abroad in convertible foreign exchange towards commission for the service of procuring orders. That the conditions under Rule 3(2)(a) of Export Service Rules, 2005 are fully satisfied. According to him the services for which commission was received are utilized outside India though the products were utilized by customers in India. He relied upon the Circular No.111/05/2009-ST dated 24.02.2009 and also the decisions rendered in Blue Star Ltd. reported in 2008 (11) S.T.R. 23 (Tri.-Bang.), KSH International Pvt. Ltd. reported in 2010 (18) S.T.R. 404 (Tri.-Mumbai.) and ABS India Ltd. reported in 2009 (13) S.T.R. 65 (Tri.-Bang.). He assailed the impugned order and pleaded that the appeal be dismissed.

5. Heard both sides and perused the records.

6. For proper appreciation of the rival contentions the relevant provision in Export Rules is noticed as under:

In terms of Rule 3(2) (a)of the Export Service Rules,2005,

"a taxable service can be treated as export of service if such service is provided from India and used outside India, and

payment for such service is received by the service provider in convertible foreign exchange."

7. On analyzation of the activity of the respondents it can be seen that the respondents procure orders from Indian customers for their holding Company in Japan. The products are then supplied to Indian customers as per these purchase orders. The arguments advanced by the appellants are that the products are finally used in India and therefore there is no export of services as per Rule 3(2)(a) of the Export Service Rules, 2005. I cannot agree with the submission of the appellants. The respondents receive commission for procurement of purchase orders. Therefore the services of the respondents in procuring purchase orders/marketing is definitely utilized/benefited by the Company in Japan. Further it is not in dispute that the respondents received the commission in convertible foreign exchange.

This aspect is sufficiently clarified in the CBCE Circular No.111/5/2009-ST dated 24.02.2009 which is as under:

For the services that fall under Category III [Rule 3(1) (iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase used outside India is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India. 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

8. The decision rendered in All India Tax practitioners case, will not aid the appellants as the same was rendered on a different service of which the facts stand on a different footing. The judgment rendered in Blue Star Ltd. case, ABS India Ltd. and KSH International Pvt. Ltd. (supra) are squarely applicable to this case, the facts being identical. In all these three cases the assessee procured purchase orders from India and send to the suppliers located outside India. On such purchase orders the goods were supplied to the customers in India. Upon receiving the price of goods, the assessee was paid commission in convertible foreign exchange.

9. If the respondents did not canvass the purchase orders and send it to their client Company in Japan, there would be no supply of goods or use of goods in India at all. So merely because the goods supplied were ultimately used in India, cannot be a reason to hold that there was no export of the out put service. In the present case, the effective use and enjoyment of the service of procuring purchase order is by the Company in Japan and therefore the only conclusion possible is that the services were exported.

10. In view of the above discussions, I find that the Commissioner (Appeals) has rightly allowed the refund claim of the respondents. The appeal of the revenue is dismissed.

(Pronounced on 01/07/2015)

(Sulekha Beevi C.S.)

Member (Judicial)

K. Gupta

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