Whether commission received in foreign currency for promotion of foreign products is eligible for refund under Rule 5?

PJ/Case law/2013-14/1870

Case:-KOTHARI INFOTECH LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, SURAT

Citation:-2013(31) S.T.R. 170(Tri.-Ahmd.)

Brief Facts:-These two appeals are directed against orders in appeal No. OIA No. RKA/129/SRT- /2011, dated 16-3-2011 and OIA No. RKA/130 /SRTI/2011, dated 16-3-2011. Since these appeals raise a common question and in respect of the very same assessee they are being disposed of by a common order.
Background of the case, filtering out necessary details, is that appellants are marketing agent of various printing machines in India supplied by their foreign supplier viz. M/s. Toshin Kogyo Co. Ltd., of Japan. The assessee filed refund claim of Rs. 5,02,807/- on 3-11-2008 in respect of service tax paid between the period from 13-4-2006 to 9-2-2007 for the financial year 2005-06 & 2006-07 under the category of "Business Auxiliary Service" on the grounds that they are rendering their services as a commission agent to their foreign supplier viz. M/s. Toshin Kogyo Co. Ltd., of Japan for marketing their various printing machines in India and getting their payments in the form of commission in convertible foreign exchange. The assessee further claimed that they were never liable to service tax under the category of "Business Auxiliary Service".
Aggrieved by such an order, appellant preferred appeals before the first appellate authority. First appellate authority has rejected the appeals on the ground that the refund was filed on 3-11-2008 for the service tax paid by them during the period 13-4-06 to 9-2-2007.

Appellant Contention:- Ld. Counsel at the outset would submit that the first appellate authority has not addressed the issue of eligibility of the refund of the appellant under the provisions of Notification No. 11/2005 as amended by Notification No. 12/2005. It is his submission that the appellant has received commission for the sales affected by him for the manufacturers situated abroad which can be considered as export of services under the Export of Services Rules, 2005. It is also his submission that the coordinate Bench of this Tribunal in the case of EmJay Engineers - 2010 (20) S.T.R. $21 and KSH International Pvt. Ltd. - 2010 (18) S.T.R. 404 and Manubhai & Co. - 2011 (21) S.T.R. 65 has held that commission in foreign exchange received in procuring orders in India would gets covered under the Export of Service Rules, 2005 and also for the proposition that the procedures in Notification 12/2005 can be fulfilled and cannot be used to deny substantiate benefit.

Respondent Contentions:-Ld. D.R. on the other hand would submit that the appellant had discharged the service tax liability on his own volition. It is his submission that having discharged the service tax liability on his own, he should have filed the refund of the same if he felt that said service tax liability does not arise. For this proposition he would rely upon the Final Order Nos. A/ 1574-1575/WZB/ AHD/2012, dated 29-10-2012 in the case of CST, Ahmedabad v. Gujarat Road Transport Corporation.

Reasoning of Judgment:-We have considered the submissions made at length by both sides and perused the records, we find that the facts of the case are not disputed by the Revenue inasmuch as that the appellant had received commission in convertible foreign exchange and has discharged the service tax liability on his own volition. It is also not in dispute that the business auxiliary services are covered under the Export of Services Rules, 2005.

On such a factual matrix, it is found that the amount which has been paid by the appellant is an amount which is to be considered as a tax which has been paid on export of services for which rebate/refund is available under Notification No. 12/2005 read with Export of Services Rules, 2005.
Tribunal finds that in the case of Em Jay Engineers, the Coordinate Bench of the Tribunal in para 7 has held as under :

"7. These facts are not in dispute. The rejection of refund claim was only on the ground that the service provided to their foreign supplier has been delivered outside India but used in India. The period involved is April, 2005 to June, 2007. As this Tribunal has held in the case of KSH International Pvt. Ltd. that the above denial of refund of service tax to the appellant under Rule 5 ibid is contrary to the express provisions of law as clarified in CBEC Circular No. 11 /5/2009-S.T., dated 24-2-2009. The Board, in respect of business auxiliary services falling under Rule 3(1)(ii) of the Export Services Rules, 2005, clarified thus; "The phrase 'used outside India' is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, 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. What is accrued outside India is the benefit in terms of promotion of a business. of a foreign company"; This Circular is in conformity with the provisions. of Rules 3 and 5 of the Export of Services Rules, 2005. The service rendered by the appellant was admittedly one of the business auxiliary services classified under Section 65(105)(zzb) of the Act. The features of appellant canvassed purchase orders from prospective Indian buyers for the goods supplied by the foreign companies. These purchase orders were transmitted to the foreign companies either by courier or by electronic means. The foreign companies acted upon these purchase orders and accordingly supplied the goods directly to the Indian buyers, who made the payments directly to the foreign suppliers. Upon receipt of these payments, commission was paid to the appellant by the foreign companies, in convertible foreign exchange. It is not in dispute that the requirement of the commission having to be paid in convertible foreign exchange was fulfilled by the appellant. What is in dispute is whether the business auxiliary service was delivered outside India and used outside India. The rendering of the service was complete only when the purchase orders canvassed by the appellant in India were received by the foreign companies. These purchase orders were, admittedly, received abroad. They were also, admittedly, acted upon by the foreign companies abroad. In other words, the benefit of the service provided by the appellant accrued to the foreign companies outside India. The condition in question stood fulfilled by the appellant. Accordingly, I find that the facts of this case are identical to the case of KSH International Pvt. Ltd. The reliance placed by the learned DR is not applicable to this case as in those cases the services have been performed in India and they were consumed in India. In this case the service of procuring the purchase orders for the foreign supplier, who is outside India and those procurement of purchase orders of goods were used by the foreign supplier outside India and acted upon them supplied the goods from outside India. Hence, the reliance placed by the learned DR is not relevant to the facts of this case. The reliance in the case of Microsoft Corpn. (I) Pvt. Ltd. is also not relevant as there was a prima facie view of the Hon'ble High Court which is not the final view. The case of KSH International Pvt. (supra) is squarely applicable to the facts of this case. Following the ratio in the case of KSH International Pvt. Ltd., I set aside the impugned order and allow the appeal filed by the appellant with consequential relief.

Tribunal also find that in the case of KSH International Pvt. Ltd. the Bench has held as under:
"3. After hearing both sides, I find that the above denial of refund of Service tax to the appellant under Rule 5 ibid is contrary to the express provisions of law as clarified in CBEC Circular No. 111/5/2009-ST., dated 24-2- 2009. The Board, in respect of business auxiliary services falling under Rule 3(1)(iii) of the Export of Services Rules, 2005, clarified thus : "The phrase 'used outside India' is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, 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. What is accrued outside India is the benefit in terms of promotion of a business of a foreign company." This circular is in conformity with the provisions of Rules 3 and 5 of the Export of Services Rules, 2005. The service rendered by the appellant was admittedly one of the business auxiliary services classified under Section 65(105)(zzb) of the Act. The features of this service are also eloquently discernible from the records. As a commission agent, the appellant canvassed purchase orders from prospective Indian buyers for the goods supplied by the foreign companies. These purchase orders were transmitted to the foreign companies either by courier or by electronic means. The foreign companies acted upon these purchase orders and accordingly supplied the goods directly to the Indian buyers, who made the payments directly to the foreign suppliers. Upon receipt of these payments, commission was paid to the appellant by the foreign companies, in convertible foreign exchange. It is not in dispute that the requirement of the commission having to be paid in convertible foreign exchange was fulfilled by the appellant. What is in dispute is whether the business auxiliary service was delivered outside India and used outside India. The rendering of the service was complete only when the purchase orders canvassed by the appellant in India were received by the foreign companies. These purchase orders were, admittedly, received abroad. They were also, admittedly, acted upon by the foreign companies abroad. In other words, the benefit of the service provided by the appellant accrued to the foreign companies outside India. The condition in question stood fulfilled by the appellant. The contrary view taken by the lower authorities cannot be sustained. A line of decisions cited by the learned counsel squarely supports the case of the appellant. These are Blue Star Ltd. v. CCE, Bangalore - 2008 (11) S.T.R. 23 (Tri.-Bang.), ABS India Ltd. v. CST, Bangalore - 2009 (13) S.T.R. 65 (Tri.-Bang.) and CST, Ahmedabad 'v. B.A. Research India Ltd. - 2010 (18) S.T.R. 439 (Tri.-Ahmd.) = 2009- TIOL-1981-CESTAT-AHM. The facts of the case of Blue Star Ltd. are similar to those of the instant case. It was held in that case that the appellant was entitled to refund under Rule 5 on the Service tax paid by them in respect of export of business auxiliary service. In the case of ABS India Ltd. also, it was held that exemption was admissible to the assessee in respect of business auxiliary service exported by them. The Tribunal found that the benefit of such export was derived by the recipient located outside India and was utilised outside India. The decision of this Tribunal in the case of B.A. Research India Ltd. is also to the same effect."
Tribunal finds that the adjudicating authority in this case has rejected the refund claims only on the ground that the said refund would not fall under the category of Export of Services Rule, 2005 and hence Rule 5 will not be applicable, is incorrect conclusion as can seen from the decided case laws as herein above recorded. It is also to be seen that ld. Commissioner of (Appeal) has sought not to give any findings on this point raised by the appellant. It was also found that the adjudicating authority has held that the appellant herein has provided services in India by booking orders for the foreign supply for supply of goods in India as well as the services are not delivered outside India also is not in consonance of law hence as decided by the Em Jay Engineers and KSH International Pvt. Ltd. (supra).
Tribunal finds that the appellant in this case has made out a case, as the amount paid by him as service tax on the amount received as a commission in convertible foreign exchange. The question only that arises that which needs to satisfy is filing of the declaration under the provisions of Rule 5 read with Notification No. 12/2005. It is found that the judgment of this Bench in the case of Manulthai & CO: (supra) has clearly held that the requirement of filing of declaration is of procedural nature under notification and delay, if any, can be condoned.

From the foregoing, it was found that the appellant is eligible for the amount of refund of Service Tax paid on the commission received by him from the foreign suppliers. Holding so, Tribunal sets aside the impugned orders. At the same time, the procedural aspect of filing the declaration and granting the refund to the appellant need to be done. Accordingly, the Tribunal directs the appellant to file the declarations as required under Notification No. 12/2005 read with Export of Services Rules, 2005 before the adjudicating authority and the adjudicating authority on receipt of such declaration, will process refund claims.

Decision:-Appeal allowed.

Comment:-The essence of this case is that commission received from for promoting the product of foreign supplier is covered under the category of BAS that is further covered under the services mentioned for “Export of Services”. Consequently, the refund of service tax paid on such services is eligible for refund under Rule 5. Therefore, mere non filing of declaration under the provisions of Rule 5 is a procedural lapse and refund cannot be denied on this account when the substantial conditions for claiming refund have been fulfilled.

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