Whether marketing services provided to foreign company for sale in India treated as export of service?

PJ/CASE LAW/2015-16/2849

Case:-COMMISSIONER OF S.T., MUMBAI-II VERSUS PULCRA CHEMICALS (INDIA) PVT. LTD.

Citation:- 2015 (39) S.T.R. 700 (Tri. - Mumbai)

Brief Facts:-The appeal is directed against Order-in-Appeal No. YDB/27/2012, dated 30-3-2012 passed by the Commissioner (Appeals)-IV Central Excise, Mumbai, wherein the ld. Commissioner set aside the order-in-original No. 2217/R/(KHA)/20-11, dated 22-11-2010 and allowed the appeal of the respondent. The fact of the case is that the respondent filed refund claim of service tax amounting to Rs. 21,57,796/- which was paid by the respondent on account of audit objection in respect of services payable on commission received from overseas person. The respondent provides marketing support services to their principal who is situated in the abroad and said overseas principal export their goods to independent customers in India. The respondent, for the said marketing support services, gets commission from the principal who is in abroad. The adjudicating authority rejected the refund claim on the ground that the services of marketing support is provided in India and consumed in India therefore, the services are used in India hence the condition of export of services are not fulfilled and therefore it cannot be treated as export of services. Aggrieved by the said order the respondent filed appeal before the Commissioner (Appeals), who allowed the appeal of the respondent. Aggrieved by the said order the Revenue is before Tribunal.

Appellants Contention:-Shri. B. Kumar Iyer, ld. Superintendent (AR) appearing on behalf of the Revenue submits that the services of market support against the commission falls under Business Auxiliary Services. He submits that the respondent provides services within India and said services are used for sale of goods in India. Therefore, it is his submission that the services against which the respondent get the commission is used in India and not used in abroad. Therefore, the services provided by the respondent cannot be treated as export services, consequently they are not entitled for the refund. The adjudicating authority has rightly rejected the claim. He submits that ld. Commissioner’s (Appeals) order is not legal and proper and same deserves to be set aside and Revenue’s appeals be allowed.

Respondents Contention:-None appeared on behalf of the respondent.
Reasoning Of Judgement:-The tribunal have carefully considered the submissions made by the ld. AR and perused the record. The fact of the case is that the respondent is providing market support services to their overseas principal, who exports the goods to India to their customer. The respondent gets the commission from their overseas principal in convertible foreign currency. The Commissioner (Appeals) while allowing the appeal of the respondent has given very elaborate findings not only interpreting the provisions but also based on C.B.E. & C. Circular No. 111/5/2009-S.T., dated 24-2-2009 and also relying on various judgments.
The extract of the findings is reproduced below :-
Undisputedly, the appellant has provided service to a foreign principal who is located outside India; in Netherlands, and the lower authority in the impugned order has clearly held that the service is provided for and on behalf of its foreign principal, such services appeared to have been provided in India and there was thus no export of service.
The C.B.E. & C. Circular No. 111/5/2009-S.T., dated 24-2-2009 has clarified as under :
“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”
“Indian agents who undertake marketing in India of goods of a foreign seller. In this case, the agent undertakes all activities within India and receives commission for his service from foreign seller in convertible foreign exchange”
It was further clarified in the above Circular that :
“for the services that fall under Category III [(Rule 3(I)(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 be accrued outside India. Thus, for Category III Service [Rule 3(I)(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 illustration 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(I)(iii)] services as well.”
I find that the above clarification of the C.B.E. & C. is squarely applicable in the fact and circumstances of the present case. I also find that in the Hon’ble Tribunal’s decision in the case of IBM India (P) Ltd. v. Commissioner of C. Ex. Bangalore - 2010 (2) S.T.R. 77 (Tri.-Bang.) relied upon by the appellant, the Tribunal has referred to the above Board Circular, dated 24-2-2009 and has categorically held that in such cases, it will amount to export of service in terms of the Export of Service Rules, 2005. The Hon'ble Tribunal in the case of Lenovo (India) Pvt. Ltd. reported at 2010 (20) S.T.R. 66 (Tri.-Bang.) held that :
“Rebate - Export of Service - Rebate of Service Tax on commission received under business Auxiliary Service - Impugned order rejecting rebate on the ground that promotion of sale of produces undertaken in India and exemption under Export of Services Rules, 2005 not applicable to services provided to person outside India on receipt of sales commission - Services of procurement of order and forwarding the same to principal in Singapore - Identical issue settled in favour of assessee in 2009 (13) S.T.R. (Tri.) by holding that recipient of service being overseas company, service not delivered in India - Impugned order set aside - Rule 5 ibid [paras 2.5.1., 5.2, 5.3]
I find that the Asst. Commissioner has relied upon the judgment in the case of Microsoft Corporation (I) Pvt. Ltd. 2009 (15) S.T.R. 680 (Tri.-Del.). However, I find that in this case, the decision was based on the Supreme Court decision in the case of All India Federation of Tax Practitioners, 2007 (7) S.T.R 625 (S.C.) wherein the issue involved was that of the taxability and not as to whether a particular provision of service amount to export.
In the case of IBM India (Pvt.) Ltd. - 2010 (20) S.T.R. 77 Hon’ble Tribunal considered both the decisions i.e. Hon’ble Supreme Court’s decision in the case of All India Federation of Tax Practitioners, 2007 (7) S.T.R 625 (S.C.) as well as and the decision in the case of Microsoft Corporation (I) Pvt. Ltd. - 2009 (15) S.T.R. 680 (Tri.- Del.)/2009 (16) S.T.R. 545 (High Court - Delhi) and then distinguished.
The lower authority has not disputed the facts that the appellant’s client was located outside India and that the commission was received in convertible foreign exchange. Therefore, the decision of the Tribunal in the case of IBM India (Pvt) Ltd. (supra) shall have to be respectfully followed.
I also agree with the appellant that in view of clear clarification in the C.B.E. & C. Circular dated 24-2-2009 referred to above, it is not open to the Revenue authorities to act contrary to such clarification as the law is already settled on this issue.
I find that the Asst. Commissioner has not dealt with the issue of unjust enrichments in his order, though this issue was raised in the notice issued to the appellant. The Hon’ble Tribunal in the case of S. Mohanlal Services 2010 (18) S.T.R. 173 (Tri.-Ahmd.) held that :
Refund - Unjust Enrichment - Export of services - Provisions relating to Unjust Enrichment not applicable in respect of export of service - Section 1IB of Central Excise Act, 1944 as applicable to service tax vide Section 83 of Finance Act, 1944 [para 5]
Refund - Unjust Enrichment - Refund has as admissible in impugned order based on documentary evidences ruling out unjust enrichment - Service tax not paid or not paid immediately at the time of receipt of service indicates appellant not aware of liability at the time of receipt of service-amount payable to claimant if related to rebate of duty in case of export of goods - Unjust enrichment not applicable to export of service - Impugned claim arising out of export of service - Refund admissible - Section 11AB of Central Excise Act, 1944 as applicable to service tax vide Section 83 of Finance Act, 1994 [paras 1, 4, 5]
In view of the above decision of the Hon’ble Tribunal, the doctrine of unjust enrichment is also not attracted in the present case. Respectfully following the C.B.E. & C. circular, dated 24-2-2009 and the Hon’ble Tribunal’s decisions in the cases referred to above, I hold that the order-in-original, dated 22-11-2010 is not sustainable and thus liable to be set aside.
From above findings of the ld. Commissioner (Appeals), they observe that he has correctly appreciated the settled legal position that in view of the Board Circular as well as the judgment relied upon, even though the services provided in India but on behalf of foreign entity and payment is made in convertible foreign exchange, it is clear that services are used by the person on whose behalf the services are provided. In the present case though the respondent has provided market support services in India but recipient of the services is not Indian customer of the foreign supplier but it is the foreign principal. Therefore the services is used by said foreign entity that is M/s. Cognis, Netherland, therefore the condition for treating services as export services i.e. service recipient should be located outside India and commission for such services should be received by the service provider in convertible foreign exchange, have been undisputedly fulfilled. Therefore in Tribunal’s considered view, the service provided by the respondent is qualified as export of service and consequently, service tax paid on such service is refundable. As regard the application of provision of unjust enrichment, the ld. Commissioner (Appeals) has given finding relying on judgment in the case of [2010 (18) S.T.R. 173 (Tri.-Ahmd.)] S. Mohanlal Services. In the present case, as held above that the service is export of service, therefore in case of export, refund of service tax does not attract provisions of unjust enrichment. In view of above observations, Tribunal did not find any error in the impugned order. Therefore the same is upheld. The appeal of the Revenue is dismissed.

Decision:- Appeal dismissed.

Comment:- The gist of the case is that even though the sale of products has been in India but as the marketing services have been provided to the foreign party, and payment is received in convertible foreign exchange, it is clear that services are used by foreign entity. Therefore, the said service is qualified as export of service and the service tax paid is refundable to the assessee.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2849

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