| My senior Mr. Rakesh Chitkara, Advocate argued the above matter under the guidance of Senior Supreme Court Advocate Mr. Joseph Vellapally. Reprodiced below are select excerpts of the 3rd Member's Orders which formed the basis of Final Order pronounced yesterday (21.11.12) by the Division Bench of CESTAT (Delhi). The earlier orders dated September 29, 2011, where there was a Difference of Opinion between Member (Judicial) & Member (T) can be accessed from following sites : 2011 (9) TMI 102 - CESTAT, DELHI of www.taxmanagementindia.com [2011] 33 STT 411 (New Delhi - CESTAT) of taxmann Yesterday, the Bench allowed the appeal of the main agent M/s. Paul Merchants Ltd. but stated that the cases of all others would be pronounced by respective benches in due course in January-February, 2013. Such cases of sub-agents would now be listed again for applying the principles enunciated in the majority order. Detailed order will soon be available at taxmanagementindia.com site by Monday. EXCERPTS : When the payment to the intended recipient of WU's customer abroad has been made by the sub-agent of a particular agent of WU, it is the Agent who receives the reimbursement money along with commission in convertable foreign currency and the Agent passes on the reimbursement money along with the sub-agent's commission to the sub-agent, but in Indian currency. 62.2 The main dispute in these appeals is about- (a) the classification of the services mentioned above provided by the Agents and sub-agents; and (b) whether these services are to be treated as export of services out of India and hence not liable to service tax as in terms of Rule 4 of the Export of Service Rules, 2005, no service tax is payable on the services exported out of India 64. Shri J. Velapally, Senior Advocate and Shri Rakesh Chitkara, Advocate, the learned Counsels Representing PML and Shri Bipin Garg, Advocate, the learned Counsel representing PML and M/s. Transcorp International Ltd., made the following submissions:-
(3) The persons in India to whom the money is delivered by the Agents and sub-agents of WU on behalf of WU are the recipients of money sent to them by persons aboard through WU, they are not the recipients of service provided by the Agents and sub-agents of WU. The recipient of the services provide by PML/Transcorp is WU, as it is WU who is obliged to make payment for the services provided by PML/Transcorp or their sub-agents. In this regard, reliance is placed on Tribunal's judgment in case of Sumangalam Suiting (P) Ltd. Vs. CCE, Jaipur-II reported in 2010 (19) STR 809. Since service recipient WU is located aboard without any office or establishment in India and service has been provided from India, the services provided by PML/Transcorp have to be treated as Export of service, as there is no dispute that the payment for the services provided by PML/Transcorp to WU either directly or through their sub-agents has been received from WU is convertable foreign currency. Since the service has been received by WU and it is WU who are the beneficiary of the services provide by PML/Transcorp, the services have to be treated as having been delivered to WU and used by them outside India, and hence, exported out of India. (5) Place of performance of service can not always be a factor for determining whether a particular service provided has been exported. This has to be decided strictly in accordance with the provisions of Export of Service Rules, 2005. In case of services in respect of immovable property, mentioned in Rule 3 (1)(i), the services will be treated as export if the same have provided in respect of an immovable property located abroad. In case of performance based services mentioned in Rule 3(1)(ii), the service is to be treated as export if it has been performed abroad. In case of other services mentioned in Rule 3(1)(iii) when performed in India in relation to business or commerce, the services shall be treated as export if the Business is located abroad. Though for period till 28.2.2007 there was a condition in this regard in rule 3(2) of Export of Service Rules, 2005 that "the service is delivered outside India and is used outside India" and from 1.3.2007 to 26.2.2010, the condition was that "the service has been used outside India", with effect from 26.2.2010 these conditions have been deleted, as according to Board's letter No.334/1/2010-TRU dated 26.2.2010 this change has been carried out keeping in view certain difficulties that were faced by the Trade while following this rule. This, amendment has to be treated as clarificatory in nature and hence retrospective in nature, as the Trade and the Board have always understood the Rule 3(2)(a) to mean that as long as the party aboard is deriving benefit from services in India, it is export of services. This is clear from the Board's Circular No.111/05/09-ST dated 24.2.2009. In any case, throughout the period of dispute, since it is WU who had received the services in question, was the beneficiary of the same and had used this service for their business of money transfer for arranging the delivery of money in India to the intended beneficiaries of their clients abroad, the services have to be treated as delivered abroad and used abroad. 65. Shri S. Malhotra, Advocate, Shri Rakesh Chitkara, Advocate, Shri Ankit Gulgulia C.A. also representing the sub-agents made the following submissions : (1) There is tripartite arrangement between every sub-agent, main-agent and WU under which while the services of delivery of money to the intended beneficiary of a client abroad of WU is provided by the sub-agent, the sub-agent gets the reimbursement of the money paid and his commission from the Agent, who, in turn, receives the reimbursement along with commission from WU in foreign currency. Thus a sub-agent of an agent of WU in India represents WU and provides services to WU. The main agent acts only as consolidator in this tripartite arrangement. (5) Even if the sub-agents are treated as on par with sub-contractor, they are not liable to pay any service tax in view of Board's Circular dated 11.06.1997. (6) Even if the service provided by sub-agents are not treated as service export and are held to be taxable, the sub-agents would be eligible for SSI exemption under notification No. 6/05-ST. For this purpose, the sub-agent can not be said to be providing the Business Auxiliary Service under the brand name of Western Union and providing service to WU, the brand owner, can not be held as the ground to deny the benefit of small scale service provider exemption. In this regard, reliance is placed on Tribunal's judgment in case of Mrs. Jaspreet Kaur & Mr. Gagandeep Singh Vs. CCE, Delhi reported in 2012 TIOL 142 CESTAT Delhi and also the Tribunal's judgment in the case of Peoples Automobiles Ltd. [Final Order No.ST/473-474/2011 dated 18.08.20111. HELD : 68. Coming to the question of classification of the activity of Agents and sub-agents, their activity essentially is providing of service of delivery of money on behalf of WU and also undertaking promotion and marketing of the money transfer service provided by WU. Agents by delivering money on behalf of WU to the intended beneficiary of the sender of money abroad are discharging the obligation of delivering money to the intending beneficiaries on behalf of WU and in the cases where the money is delivered by sub-agents, the sub-agents are performing the same job. This activity, in my view, is covered by clause (vi) of Section 65(19) as it stood w.e.f. 10.09.2004- "Provision of service on behalf of client" and during period prior to 10.09.2004, this activity would be covered by the "service rendered by a person as commission agent", who in terms of definition of this term is Notification No. 14/04-ST covered, among others, the person who acts on behalf of another person and causes sale or purchase of goods or provision or receipt of services for a consideration. 69. Next comes the main question whether- (a) the services provided by the Agents of WU, and (b) the services provided by the sub-agents appointed by Agents, amount to export of service out of India and, hence, (ii) who is the recipient of the service provided by Agents and the sub-agents whether the WU located abroad or the persons in India who received the money sent by their relatives, friends etc. abroad through WU; (iii) Whether the services, in question, have been used and consumed, abroad by the WU or used and consumed in India by the intended beneficiaries of the money sent by persons abroad through WU; In my view it is absolutely correct to treat- (a) performance based services (e.g. services of repair & maintenance of some machinery provided by an Indian company to its client in USA) as consumed at the place where the same have been performed; (b) Services in relation to immovable property of a person (e.g. service of insurance of immovable property located abroad, belonging to an Indian Resident A provided by an India Insurance Company B) as having been consumed at the place where the immovable property is located; and (c) Services in relation to business; (e.g. an Indian Company A providing the services of marketing & sales promotion in India to a company B located in Singapore in respect of the products manufactured by B) as having been consumed at the place where the business is located. In fact the European Union has similar rules for determining Place of Provision of Service where the Service is taxable. Thus, the Export of Service Rules, 2005 and Taxation of Services (provided from outside India as received in India) Rules, 2006, are basically the rules for determining the place of consumption of Services. These rules in the budget of 2012-13 have been replaced by Place of Provision of Service Rules, 2012, the Rule 3 of which states that the place of provision of a service shall be the location of the service recipient, (who is the service consumer). Therefore, in my view, there is nothing in the Export of Service Rules, 2005 which can be said to be contrary to the constitutional provisions of the Apex Court's judgment in the case of All India Federation of Tax Practitioner's Association (supra). 73. In view of my finding that the recipient of the services provided by sub-agents appointed by the Agents of WU is WU and the services provided by the sub-agents are being exported and hence are not liable to be taxed, the question regarding eligibility of the sub-agents for small scale exemption under Notification No. 6/2005-ST is irrelevant. Therefore, I am not going into the same. 76. In view of the above discussion, the points of difference, mentioned in para 60 are answered as under:- (i) The term "export" has not been defined either in Article 286 (1)(b) or in any of the article of the Constitution of India. Though the Apex Court's judgments in the case of the State of Kerala vs. The Cochin Coal Company Ltd. [(1961) 2 STC 1 SC] and Burmah Shell Oil Storage & Distribution Co. of India vs. Commercial Tax Officer & Others reported in (1960) 11 STC 764 (SC) explain the meaning of the term "export", the ratio of these judgments which are with regard to export of goods, is not relevant for determining what constitutes the export of services. There is no question of Export of Service Rules, 2005, being in conflict with Article 286 (1) (b) of the Constitution of India. collectors for each service, based on their deductive ability would result only in total confusion and chaos. (iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their Agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is "business auxiliary service", being provided to Western Union. It is 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. v) The consumer of the service provided by the Agents and sub-agents of WU in India is the Western Union, located abroad who use this service for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 2005, and has been provided in has been received and used abroad, relation to business of Western Union located abroad, and the payment for the service has been received in India in convertible foreign currency, the same has to be treated as export of service. It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/sub-agents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service. (x) When the services provided by the sub-agents have been held to be export of service and hence not liable for service tax, the question of their eligibility for exemption under Notification No. 6/2005-ST is irrelevant and has not been gone into. (xi) The services provided by the Agents and sub-agents throughout during the period of dispute are classifiable as "Business Auxiliary Service" under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994 and the same have been exported in terms of the provisions of Rule 3(1) (iii) read with Rule 3(2) of the Export of Service Rules 2005 and hence no service tax is payable With kind regards, Rebecca Andrews |
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