Service recipient is customer when a service is rendered to a third party at the behest of assessee’s customer.

Case:- M/s VODAFONE ESSAR CELLULAR LTD Vs CCE, PUNE-III

Citation:- 2013-TIOL-566-CESTAT-MUM

Brief Facts:- The appellant, M/s Vodafone Cellular Essar Ltd., Pune, provided telecom services in India to international in-bound roamers registered with foreign telecom network operators but located in India at the time of providing of the said services and claimed rebate on the ground that the payment was received in convertible foreign exchange from the foreign telecom network operators and the services rendered should be treated as export of service under the Export of Service Rules, 2005. Their claims were rejected by the adjudicating authority against which they filed appeals. The lower appellate authority in the impugned orders held that the service provided by the Indian telecom operator to a person located in India, who is a subscriber of the foreign telecom operator, known as inbound roamer for effective enjoyment in India is chargeable to service tax in India and hence the appellant is not eligible for any rebate. Accordingly, he rejected the appeals. Hence the appellant is before CESTAT.

Appellant’s contention:- The appellant submit that they have entered into ‘International Roaming Agreement' with various Foreign Telecom Service Providers to establish and operate International Roaming between their Public Mobile Networks. The services made available to individual roaming subscribers shall only be those for which the Roaming subscribers have valid subscriptions in their Home Public Mobile Network. A VPMN operator providing services to a HPMN operator shall, under the same technical terms and conditions, offer the same services to its other International roaming partners. Both parties agree that when a Roaming subscriber uses the services of the VPMN operator, the roaming subscriber's HPMN operator shall be responsible for payment of charges for the services so used in accordance with the tariff of the VPMN operator. HPMN operator is defined as the party who is providing mobile telecommunications services to its subscribers in a geographic area where it holds a licence or has a right to establish and operate a Public Mobile Network. VPMN operator shall mean a party who allows Roaming Subscribers of an HPMN operator to use its Public Mobile Network. Thus as per the agreement, the service is rendered to the foreign telecom service provider who is charged for the services and not to the subscriber of the foreign telecom service provider. The consideration is received in foreign convertible exchange and hence, the transaction is one of export as defined in Export of Service Rules, 2005.

The Appellant also submit that Export of Services Rules, 2005 classifies the taxable services into three categories and the telecommunication service provided by the appellant falls under category III. As per rule 3(1)(iii) of the said Rules, this category deals with such services when provided in relation to business or commerce, be provision of such services to a recipient outside India and when provided otherwise, be provision of such service to a recipient located outside India at the time of provision of such service. To constitute export, conditions prescribed in Rule 3(2) needs to be satisfied. Prior to 27.02.2010, the condition required to be satisfied were “such service is provided from India and used outside India; and payment for such service received by the service provider in convertible foreign exchange”. With effect from 27.02.2010, the conditions were modified and the only condition that needs to be satisfied is that payment for such service is received in foreign convertible exchange. The appellant has satisfied these conditions for both the periods and, therefore, the transaction undertaken by them is “export” as defined in the law and, therefore, they are rightly entitled for the export rebate.

The appellant further submit that vide Circular no. 111/5/2009-ST dated 24.02.2009, the CBEC has clarified the scope of the expression “such service is provided from India and used outside India” for various categories of services. 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, 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 terms of the above clarification, the services rendered by the appellant qualify as “exports”.

The appellant also submit that as per the UK VAT Circular vide VATPOS15100, the place of supply of telecommunication services is where they are used and enjoyed when supplied and when such services are provided by a non-EC provider to a U.K. Customer or a non-business customer in another Member State, to the extent that effective use and enjoyment takes place in the UK (such element being subject to UK VAT). Similarly, as per Tax Laws Amendment Bill 2010 of Australia, GST relief for telecommunication supplies for global roaming in Australia has been provided and telecommunication services for global roaming in Australia has been made GST free when such services are provided to subscribers of a non-resident telecommunication supplier while the subscribers are visiting Australia. Thus the receiver of service is the foreign telecom service provider and not their subscribers in all countries where GST is operational.

The appellant also relies on the decision of the Tribunal in the case of Paul Merchants Ltd.2012-TIOL-1877-CESTAT-DELwherein in the case of money transfer from abroad by Western Union through its agents in India who delivered the money to the Indian beneficiary, it was held that the agents in India has rendered service to the Western Union and the transaction is exports as defined in Export of Service Rules, 2005. The ratio of the said decision applies to the facts of the present case.

Respondent’s Contention:- The Respondent reiterates the findings of the lower appellate authority and submits that the service has been rendered in India and at the time of rendering the service, the subscriber of the foreign telecom service provider is situated in India and hence the consumption and enjoyment of the service is in India. CBEC vide Circular 141/10/2011-TRU dated 13.05.2011 while clarifying the circular dated 24.02.2009 issued by the Board has stated that the accrual of benefit should be judged based on where the effective use and enjoyment of service has been obtained. Accordingly, he pleads for upholding the order.

Reasoning of judgment:- The Tribunal heard both the parties and carefully considered the submissions made by both the sides. As the issue is of a recurring nature and involves interpretation of law, we are taking up the appeals for consideration and disposal after waiving the requirement of any pre-deposit.

The Tribunal has perused the agreement entered into between the appellant and the foreign telecom service providers. As per the said agreement, the appellant has agreed to provide telecom services to the customer of the foreign telecom service provider while he is in India using the appellant's telecom network. The consideration for the service rendered is paid by the foreign service provider. There is no contract/agreement between the appellant and the subscriber of the foreign telecom service provider to provide any service. Since the contract for supply of service is between the appellant the foreign service provider who pays for the service rendered, it is the foreign telecom service provider who is the recipient of the service. From the provisions of law relating to GST in UK and Australia, relied upon by the appellant, this position becomes very clear. Your customer's customer is not your customer. When a service is rendered to a third party at the behest of your customer, the service recipient is your customer and not the third party. For example, when a florist delivers a bouquet on your request to your friend for which you make the payment, as far as the florist is concerned you are the customer and not your friend.

The Tribunal also finds that Export of Service Rules, 2005 defines export in respect of taxable services. For this purpose, the services have been categorized into 3. Category I deals with specified services provided in relation to an immovable property situated in India. Category II deals with specified taxable services where such taxable service is partly performed outside India and states that when it is partly performed outside India, it shall be treated as performed outside India. Category III deals with services not covered under Category I and II. The telecom services falls under category III. As far as category III services are concerned, the transaction shall be construed as export when provided in relation to business or commerce to a recipient located outside India and when provided otherwise to a recipient located outside India at the time of provision of such service. The additional conditions required to be satisfied are such services as are provided from India and used outside India; and consideration for the service rendered is received in convertible foreign exchange. As observed earlier, the service is rendered to a foreign telecom service provider who is located outside India and, therefore, the transaction constitutes export and we hold accordingly.

The Board's clarification vide Circular no. 111/5/2009-ST dated 24.02.2009 makes this position very clear. Para 3 of the Circular which is relevant is reproduced verbatim below –

“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….”

The Tribunal further finds that thus what emerges from the above circular is that when the appellant rendered the telecom service in the context of international roaming, the benefit accrued to the foreign telecom service provider who is located outside India since the foreign telecom service provider could bill his subscriber for the services rendered. This is the practice followed in India also. When an Indian subscriber, to say, MTNL/BSNL goes abroad and uses the roaming facility, it is the MTNL/BSNL who charges the subscriber for the telecom services including service tax, even though the service is rendered abroad by the foreign telecom service provider as per the agreement with MTNL/BSNL.

The Tribunal finds that the Paul Merchant's case (supra) relied upon by the appellant dealt with an identical case. The question before the Tribunal in that case was when Agents/sub-agents in India of Western Union Financial Services, Panama, makes payments to an Indian beneficiary on behalf of the customer of Western Union in foreign country, whether the services rendered by the Indian agents/sub-agents should be treated as export or not under Export of Service Rules, 2005. By a majority decision, it was held that “the service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of Western Union abroad and this service is “business auxiliary service”, being provided to Western Union. It is the 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”. The ratio of the said decision applies squarely to the facts of the present case before Tribunal. Once the ratio is applied, it can be easily seen that the service recipient is the foreign telecom service provider and not the subscriber of the foreign telecom service provider who is roaming in India.

In sum, we allow the appeals with consequential relief, if any. The stay applications are also disposed of.

Decision:- Appeal allowed with consequential relief.

Comment:- It is clear from this case that customer's customer is cannot be your customer. Appellant agreeing to provide telecom services to customers of Foreign Service provider while he is in India using appellant's telecom network. Service recipient is the foreign telecom service provider and not the subscriber of the foreign telecom service provider who is roaming in India. Hence, such a service transaction constitutes export under the Export of Service Rules, 2005.

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PJ/Case Laws/2012-13/1544

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