Whether testing services provided in India but used outside India considered as export?

PJ/CASE LAW/2015-16/2771

Case:-COMMR.OF SERVICE TAX, MUMBAI VERSUS EXXON MOBILE CO. INDIA PVT.LTD.

Citation:-2015(37) S.T.R. 591 (TRI.-MUMBAI)

Brief facts:-The respondent, M/s. EXXON MOBILE CO. INDIA PVT.LTD. provided services under the category of” Scientific and technical services” and “business auxiliary services” (BAS) for their holding companies and affiliated companies situated outside India they undertook testing of the products manufactured by the foreign entities and gave advice with regard to improving the quality of the product. Similarly, they also undertook identification of potential customers in India, market potential for products in India by the foreign affiliates thereafter, they filed the refund claim towards refund of input service credit taken by them. The revenue was of view that since the activity is undertaken in India, there is no export of service and therefore, the question of sanction of any refund would not arise. The revenue also took objection to refund of input service credit on the ground that in respect of some input invoices, the respondent is not the party mentioned there in or there is no co-relation between the input service on which credit is taken and the output service rendered. Accordingly, a show cause notice was issued for denial of refund and the adjudicating authority on these two grounds rejected the refund claim. In appeal, the lower appellate authority held the view that since recipient located outside India and the payments were received in convertible foreign exchange, the transaction amounted to export and therefore, the respondent is rightly eligible for the for the refund of input service credit and it is against this order passed by the lower appellate authority, the revenue is before Tribunal.

Appellant’s contention:-The activity of testing of samples received from abroad and the activity of promoting the foreign entity’s products is with respect to the Indian market. And therefore, the service provided by the respondent taken place in India. In para 2 of the Circular No.141/10/2011, it has been clarified that in a situation where the consultancy though paid by a client located outside India is actually used in respect of a product for the activity in India, the service cannot be said to be outside India. In the present case also testing done India and the market survey/works have been carried out in India. It is further contention that in respect of input service in respect of which the refund has been claimed, the documents were examined by the adjudicating authority and it was found that invoice were not in the name of respondent. No nexus could be established between the input services taken and the output services rendered. This aspect has been overlooked by the lower authority.

Respondent’s contention:-To qualify as exports two condition are required to be satisfied for the period involved in the present appeal.
The condition are…….
1.            Such services should be provided in India and used outside India and
2.            Payments for such services outside India is received by the service provider in convertible foreign exchange
With respect to second condition, there is no dispute at all in as much as the appellant has received the consideration for the service rendered in convertible foreign exchange, which is the evidenced from the foreign remittance certificate issued by the bank. As regards the first issue the service provider in India and service have been undertaken in India therefore first condition that service is provided in India is clearly satisfied. As regards the second condition of used outside India, it is his submission that service recipient is outside India and who has utilised the service provided. For e.g. when market research is done in India and the result are communicated outside India and it is used outside India. So as per the case of GAP International Sourcing (India) Pvt. Ltd. v. CST- 2014 TIOL-465-CESTAT-Del., when the service rendered by a person in India is consumed and used by a person abroad treated as export. Similarly in the case of Simpra Agencies Pvt. Ltd. v. CCE, Delhi-2-2014-TIOL-687-CESTAT-Del. =2014 (36) S.T.R. 430 (Tri-Del.), a question arose whether the activity of an agent for several foreign companies in procuring supply order which commission was passed in foreign exchange would amount to export of service or not. This tribunal held that these service are covered by the defination of “business auxiliary service “and since the recipient of service is situated abroad, the services rendered has to be construed the as a export of service and service provider in India would be entitled for rebate under rule 5 of the Cenvat Credit Rules2004.

Reasoning of judgment:-” Scientific and technical service” and “business auxiliary services” (BAS) come under rule 3(i)(iii) of the export service Rules. To qualify as a exports two condition are required to be satisfied
1.            Such services should be provided in India and used outside India and
2.            Payments for such services outside India is received by the service provider in convertible foreign exchange
As regards payment of convertible foreign exchange there is no dispute. As the regards first condition, when the service provider located in India and the service recipient located abroad, and the use of service rendered abroad therefore service can be said used outside India. This is view taken by this tribunal in the case of GAP International Sourcing (India) Pvt. Ltd., Simpara Agencies and by the hon’ble Bombay high court also in the case of SGS India Pvt. Ltd. the transaction clearly amount to export of service which is not liable to tax in India. We also note that the respondent herein undertakes only exports of services and is not rendering any services in India. Therefore, all the input services on which he has taken the credit in relation to the export made by him. Consequently the appellant would be eligible for refund of the input service tax paid under Rule 5 of the Cenvat Credit Rules, 2004. The only objection raised by the revenue is that in respect of some services, the invoices are not in the name of the respondent but in the name of parent company. It is not the contention of the revenue; the appellant is not entitled for credit. The objection is only in respect of claiming of refund or rebate. This tribunal in the case of CST, Delhi v. Convergys India Pvt. Ltd.-2009(16) S.T.R198 (Tri-Del) observed that there cannot be two different yardsticks, one for permitting the credit and other for eligibility for granting rebate. Whatever credit has been permitted to be taken, the same is not possible, and there is provision for grant of refund or rebate. Without questioning the credit taken, the eligibility to rebate cannot be questioned. In view of the above position, we do not find any merit in the contention of the revenue that the appellant is not entitled for the rebate. Thus we do not find any merit in the appeal filed by the revenue; accordingly we dismiss the same.

Decision:-Appeal dismissed.

Comment:-The essence of this case is that to qualify as a exports two conditions are required to be satisfied:-
1.            Such services should be provided in India and used outside India and
2.            Payments for such services outside India is received by the service provider in convertible foreign exchange
As far as the above conditions have been satisfied, the provision of service will be treated as export and consequently, the input services used in its provision will be entitled to refund under Rule 5 of the Cenvat Credit Rules, 2004.

Prepared by: Anas Kachaliya

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PJ/CASE LAW/2015-16/2771

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