the call centre services provided from India will be treated as export of service?

PJ/Case Laws/2010-11/1017

Case: M/s IBM India (P) Ltd v/s Commissioner of Central Excise, Bangalore

Citation: 2009-TIOL-2441-CESTAT-BANG

Issue:- Whether the call centre services provided from India will be treated as export of service?

Brief Facts:- Appellants are engaged in promotion of sales of computers and peripherals of M/s. IBM, World Trade Corporation, USA (IBM, USA). During the period from April 2007 to September 2007, they received commission from IBM, USA for such services rendered. The appellants were also engaged in provision of call centre services for its client. The appellants showed the consideration received as receipt against ‘export of service' in their ST-3 returns.

The Commissioner held that the impugned activity did not constitute export of services. It was held that the call centre service and sales promotion services were classifiable under Business Auxiliary Service (BAS). The Commissioner found that show cause notice to the proceedings was a periodical notice as demand for service tax on similar transactions had already been raised in an earlier show cause notice dated 22.4.2008. The present show cause notice dated 23.5.2008 was issued within time prescribed for raising demand for the normal period. He rejected the contention of the appellant that on the basis of show cause notice invoking proviso to Section 11A (1) of the Central Excise Act, demand could not be confirmed for normal period. He found that the judgment of Apex Court in the case of Collector of Central Excise, Jaipur v/s Alcobex Metals [2003 (153) ELT 241] cited by the appellant did not support their claim; the Apex Court had held that since the show cause notice had been issued by the Deputy Collector and the demand involved suppression, fraud or collusion, only Collector was competent to issue the show cause notice. He found that part of the amount for which the demand was proposed in the show cause notice was covered by an earlier show cause notice dated 22.4.2008 and confirmed demand of service tax along with applicable interest. Penalty was also imposed under Section 76 of the Finance Act, 1994.

Appellant challenged the impugned order. Present is the application for stay and waiver of pre-deposit.

Appellant’s Contentions:- Appellant contended that the show cause notice issued had proposed to levy service tax on marketing commission received by them and the same did not cover Business Transformation Outsourcing services (call centre service). The impugned order did not give any rational finding not to treat the impugned services as exports. The appellants were not heard on taxability of BTO services. The order was not sustainable to the extent it covered BTO services.

Appellants relied on various judicial authorities in support of the plea that an order containing a finding without appropriate proposals in the show cause notice was not sustainable. The demand of service tax on call centre service was therefore bad in law.

BTO services were classifiable under the category BAS under Section 65 (19) of the Act being customer are service/ provision of service on behalf of the client. As per the relevant rules governing export of service the following conditions were to be satisfied to treat the impugned services as export during the material period:

(i) Service should be provided in relation to business or commerce;

(ii) Service recipient to be situated outside India;

(iii) Consideration to be received in convertible foreign exchange; and

(iv) Service to be provided from India and used outside India.

The appellants satisfied first three. The appellants undertook to answer inbound and outbound calls relating to its customers wherein they would answer their queries. Additionally, the appellants maintained the Finance and Accounts related services and provided data processing services to companies outside India. The services were provided by the appellants for the benefit of the client's business outside India. Therefore they also satisfied the fourth one. They relied on CBEC Circular No.111/05/2009-ST dated 24.2.2009 which clarified that Rule 3 (1)(iii) of the Export of Services Rules 2005 Call centers engaged by foreign companies attended to calls from customers or prospective customers from all around the world including from India. The Circular clarified that for such services, the location of the service recipient was relevant and not the place of performance of services. The Circular went on to clarify that these services would qualify to be export of service because the benefit of such service was being accrued outside India, i.e. promotion of business was of a foreign company situated outside India. Relying on various case laws, it is highlighted that the Circular of the Board was binding on the Adjudicating Authority.

Respondent’s Contentions:- Revenue contended that the provision of service was the taxable event which had taken place in India. In the light of the ratio of the Apex Court's judgment in the case of All India Tax Practitioners of India v/s UOI [2007 (7) STR 625 (SC)] provision of services in the instant case was in India and service tax was correctly demanded. Revenue relied on a stay order of the Tribunal in the case of Microsoft Corporation (I) Pvt. Ltd. v/s Commissioner of Service Tax, New Delhi [2009-TIOL-1325-CESTAT-DEL] affirmed by the High Court of Delhi [2009-TIOL-601-HC-DEL-ST]. The Tribunal had found that the CBEC Circular No.111/05/2009 ST dated 24 February 2009 was not consistent with the provisions of the Act.

Reasoning of Judgment:- The Tribunal held that there was no dispute that the impugned services benefited the foreign client of the appellants by promoting sales of its products. The benefit of services accrued outside India to IBM, USA. In terms of the Board Circular dated 24.2.2009, the impugned services have to be treated as exports. The impugned services had been exported.

The Tribunal further held in the All India Tax Practitioners of India case, their Lordships had observed that applying the principle of equivalence, there was no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stood consumed by the service receiver. Their lordships were not concerned with the question whether services were exported when the marketing/sales promotion of products exported into India were undertaken by an Indian agent.

This was clarified by the CBEC in the Circular cited by the appellants. Indian entrepreneurs engaged foreign agents to canvass orders for their products which are exported against such orders. Such services are taxed when imported; the Indian recipient pays service tax under the reverse charge mechanism. When services are similarly provided to a foreign enterprise by Indian agents, it cannot be held that export of services is not involved. Therefore there is no logic in the view that in the instant case export of marketing services (BAS) was not involved. Benefit of service accrued to the manufacturer of computer systems and peripherals based abroad. In any case, Commissioner cannot validly hold a view contrary to that held by the CBEC and communicated for implementation by the officers in the field. The case laws cited also support the claim of the assessee on export of services. Therefore prima facie the appellants are not liable to pay service tax and interest thereon and penalty imposed on them.

Accordingly, Tribunal ordered waiver of pre-deposit and stay recovery of dues adjudged against IBM India (P) Ltd pending decision in the appeal.

Decision:- Stay application allowed.

Comments:- The services provided of the call centre are provided from India but are received outside India. Further when the all the four conditions are satisfied the said services will be treated as export of services only.

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PJ/Case Laws/2010-11/1017

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