M/S Citi Bank vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

APPEAL No. ST/339, 340/11

(Arising out of Order-in-Appeal No. MI/AV/3 & 4/2011 dated 12.01.2011 passed by Commissioner of Central Excise, Customs & Service Tax, Mumbai I)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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M/s Citi Bank Appellant Vs. Commissioner of Central Excise, Respondent Mumbai

Appearance: Shri Vinod Awtani, C.A. for appellant Ms. P.V. Sekhar, Deputy Commissioner (AR), for respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 05.08.2015 Date of Decision: 05.08.2015 ORDER NO

Per : M.V. Ravindran

These two appeals are directed against Order-in-Appeal No. MI/AV/3 & 4/2011 dated 12.01.2011.

2. The issue involved in this case is denial of rebate claim of service tax paid under Notification No.11/2005-ST on the custodial services provided to Foreign Institutional Clients (FIIs) located outside India. Service tax liability has been paid under the category of Banking and Financial Services under Section 65(105)(zm) for the period May 2006 to March 2007. Both the lower authorities have held against the appellant on the ground that 

(a) Services rendered by the appellant cannot be treated as delivered outside India

(i) As the securities accounts are maintained on server in India.

(ii) Service of maintaining accounts as well as custody of share is done in India.

(b) Services of custody have been used in India as the same has been provided in relation to investments / securities of India companies.

(c) Services are not export of services as maintenance of custodial services are in terms of requirements of law in India.

3. Learned Counsel would draw our attention to the facts and take us through the records. It is his submission that provisions of Rule 3 of Export of Services Rules, 2005 during the relevant period till February 2007 did not require for complying with the condition that the services are delivered outside India and used outside India and the amount is received in convertible foreign exchange. It is his submission that during March 2007, the provisions have been changed and the requirement of complying with the condition of receipt of such services in convertible foreign exchange needs to be satisfied. He would submit that for the period in question in March 2007 the matter may be remanded back to the adjudicating authority as appellant are in a position to satisfy the adjudicating authority regarding the receipt of the payment in convertible foreign exchange. For the period May 2006 to February 2007, it is his submission that a similar issue came up before the Tribunal in the case of Nipuna Services Ltd. Vs. CCE Hyderabad - 2009 (14) STR 706 (Tri. Bang.) and it was held that the services rendered by the appellants are export of services.

4. Learned D.R. on the other hand, reiterated the findings of the lower authorities and submit that there is no compliance of the condition of Rule 3 (ii) of the Export of Service Rules, 2005 in as much the appellant has not adduced any evidence that the services are delivered outside India and are used outside India and the amount received in convertible foreign exchange.

5. On consideration of the submissions made by both the sides and perusal of the records, we find that the issue involved in this case is regarding the refund of the amounts claimed by the appellant on the ground that they had export of custodial services rendered by them to the clients situated outside India.

5.1 It is undisputed that the appellant had rendered the custodial services to their clients situated outside India during the relevant period and claimed the rebate under the Export of Service Rules, 2005. The lower authorities have rejected the refund claim only on the ground that the requirement of maintenance of accounts whch are in respect of Indian Companies and in India hence there was no export of service.

5.2 We do not agree with the findings recorded by both the lower authorities for more than one reason.

5.3 Firstly, the services rendered by the appellant are to Foreign Institutional Clients in respect of investments made by them in India.

5.4 Secondly, the services are for the companies situated abroad hence they are rendered or delivered outside India for the Companies situated abroad.

5.5 Thirdly, on plain reading of the provisions of Rule 3(1)(iii), we find that the sub rule reads as under:-

3. (1) the export of taxable service shall in relation to taxable services, -

..

..

(iii) Specified in clause (105) of Section 65 of the Act, but excluding, -

(a) sub-clauses (zzzo) and (zzzv);

(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and

(c) those specified in clause (ii) of this rule when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service.

Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.

5.6 It can be seen from the above reproduced Rule that rule talks about the services which are covered under this Rule are to be considered as Export of Service; and the category of services rendered by the appellant falls within the specified services as indicated herein above. Plain reading of the above said Rules clearly indicates that if the services are in relation to business or commerce to a recipient located outside India, it has to be considered as export of service. It is nobodys case that the services rendered by the appellant to the FIIs are not in relation to Business or Commerce of the said FII which are situated abroad.

5.6 We find strong force in the contentions raised by the learned Counsel that the issue is now covered by the judgement of the Tribunal in the case of Nipuna Services Ltd. (supra) (in which one of us was a Member). We reproduce the ratio of the said judgment from the relevant paragraphs:-

15.?Now we have to understand the effect of amendment by Notification No. 13/2006-S.T., dated 19-4-2006 for clarity we are reproducing the said amendment in toto.

In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Export of Services Rules, 2005, namely :-

1. (1)

These rules may be called the Export of Services (Amendment) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2.?In the Export of Services Rules, 2005 (hereinafter referred to as the said rules), in the preamble, for the words, brackets and figures sub-section (1) and sub-section (2) of section 94, the words and figures sections 93 and 94 shall be substituted :

3.?In the said rules, for rule 3, the following rule shall be substituted, namely :-

3.?Export of taxable service. - (1) Export of taxable services shall, in relation to taxable services, -

(i)?specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India;

(ii)?specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf) and (zzzp) of clause (105) of section 65 of the Act, be provision of such services as are performed outside India:

Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India;

(iii)?specified in clause (105) of section 65 of the Act, but excluding, -

(a) sub-clauses (zzzo) and (zzzv);

(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and

(c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service :

Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.

(2)?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.

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

15.1?The above amendment has brought about important changes. When the Export of Service Rules, 2005 were introduced the services were categorized under Rule 3(1), 3(2), 3(3). The amendment of 13/06 has changed this position. After the amendment, sub-rules 3(1)(i) and 3(1)(ii) enumerates a large number of taxable service within its scope. Rule 3(1)(iii) excludes certain services from its scope. Rule 3(2) states that the provision of any taxable service shall be treated as Export of Service when the following conditions are satisfied, namely (i) (ii)

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

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

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

16.?We find that the condition of payment in foreign exchange is not mentioned in Rule 3(1). When that condition is not mentioned, there is no requirement for services enumerated in 3(1) for receipt of payment in foreign exchange rate so as to quality as export of Foreign Service. In other words, 3(1) and 3(2) appear to be independent. As far as the appellant is concerned, their services would squarely fall within the category of 3(1) and therefore, the conditions given in 3(2) would not be applicable to them. In fine, Notification dated 19-4-2006 has also not changed the position as far as the appellant is concerned.

17.?Now let us examine the last amendment vide Notification 2/2007-S.T., dated 1-3-2007. For clarity the said amendment is reproduced below :

In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Export of Services Rules, 2005, namely :-

1. (1) These rules may be called the Export of Services (Amendment) Rules, 2007.

(2) They shall come into force on the date of their publication in the Official Gazette.

2.?In the Export of Services Rules, 2005, in rule 3, for sub- rule (2), the following sub-rule shall be substituted, namely:-

(2)?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.

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

17.1?A scrutiny of the above amendment reveals that the condition enumerated in sub-rule (2) are applicable to the services mentioned in sub-rule (1). This notification is effective from 1-3-2007. In other words, all the services which are mentioned in sub-rule (1) including the services rendered by the appellant would be deemed to be treated as export of service only when the payment is received by the service provider in convertible foreign exchange. Alternatively, the appellant has to fulfill the conditions of receipt of payment in convertible foreign exchange only with effect from 1-3-2007. As the period involved in the present case is prior to 1-3-2007, the appellant is not hit by the said condition. Legally they are entitled for the refund in terms of the existing rule.

18.?When we examine the factual situation, it is seen that the appellant has directly rendered the services to the recipients abroad. This is an undisputed fact. The payment for the services rendered has also been made in foreign currency. Revenue is denying the refund for the simple reason that the appellant themselves had not directly received the payment in foreign currency. In our view, the stand of the Revenue is not sustainable. If Revenues contention is accepted it would amount to levying service tax on services exported. It is axiomatic that goods and services exported would not be subjected to local taxes. Denying the refund would violate this fundamental principle of taxation. Further, the fact of the matter is Satyam (India) acts as an agent of the appellant. They procure business for the appellants by virtue of their brand image and reputation. It is the appellants who render the services directly to the recipients situated abroad. The payment is also rendered only in foreign exchange though by their agent, viz. Satyam (India). This is evident from the plethora of record submitted by the appellant. Hence, even if it is assumed that right from the beginning, there was a requirement for getting the payment in foreign exchange, we would hold that the appellant would be satisfying such a condition also by a liberal interpretation of the notification. Alternatively, what is received by the agent Satyam in foreign exchange would be deemed to have been received by the appellant for the purposes of EOSR.

5.7 The above said ratio will cover the issue in respect of rebate claim of the appellant for the period May 2006 to February 2007. Accordingly we hold that the impugned orders to that extent are incorrect and liable to be set aside and we do so. Impugned order is set aside to that extent and the appeals are allowed with consequential relief.

5.8 As regards the rebate claim for the month of March 2007 we do find that there is a change in the provisions of Rule 3(ii) of the Export of Service with effect from 01.03.2007, which mandates the requirement of payment of the services provided, in convertible foreign exchange. This particular provisions needs to be considered by the adjudicating authority and the evidences that may be produced by the appellant in support of their contentions that the services were exported to FII who are situated abroad.

5.9 For deciding a limited question of the rebate claim for the month March 2007 we remand the matter back to the adjudicating authority to reconsider the issue afresh after following the principles of natural justice.

6. The appeals are disposed of as indicated herein above.

(Dictated in Court)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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Appeal No. ST/33, 340/11