By TIOL News Service

MUMBAI, SEPT 18, 2014: M/s Tech Mahindra Ltd. is engaged inter alia in the business of "Information Technology Software Services" as defined in Section 65 (105) (zzzze) of the Finance Act, 1994 and they are providing these services mainly to their overseas customers.

These services are exported by M/s. TML to their overseas customers in two ways, i.e. by entering into a direct contract with its overseas customers or by entering into a contract with the overseas customers through its subsidiaries/branches located outside India. There are two components, namely, Offshore Software Development services provided by it from India and onsite Software Development Services provided by the subsidiaries located outside India.

M/s. TML had filed refund claims in terms of Rule 5 of the CENVAT Credit Rules, 2004 read with the Notification No. 05/2006-CE(NT) dated 14/03/2006.

Refund claims relating to onsite services provided by M/s. TML's subsidiaries located outside India were rejected.

The matter reached the CESTAT.

The Bench referred to Rule 5 of CCR, 2004, Rule 3 of Export of Service Rules, 2005, & the amendments made to sub-rule (2) of Rule 3 by the amending Notification No.2/2007-ST dated 01/03/2007, Notification No. 06/2010-ST dated 27/02/2010and observed thus -

+ For the period post 27/02/2010 , the only condition required to be satisfied to constitute export of service is that payment for such services should be received by the service provider in convertible foreign exchange. There is no dispute in the present case that the appellant has received the consideration for the service rendered from the service recipient abroad in convertible foreign exchange both in respect of offshore services and onsite services rendered by them. There is no condition relating to place of provision of service post 27/02/2010. Even if the service is rendered from a place outside India, so long as the consideration is received in convertible foreign exchange, the transaction is treated as export. In other words, the rule does not differentiate between "on site services' and "off-site services". Therefore, there cannot be any denial of refund claims filed by the appellant for the period after 27/02/2010.

+ For the period prior to 27/2/2010 , for a transaction to be considered as 'export', two conditions were required to be satisfied, namely, (i) such service provided from India and used outside India and (ii) payment for such service provided outside India is received by the service provider in convertible foreign exchange. In the present case, there is no dispute about satisfaction of the second condition. The dispute is only with respect to the first condition, i.e., whether the service has been provided form India. It is clear that in respect of overseas customers, the subsidiaries performed the onsite services on behalf of the appellant at the customers' premises abroad. The appellant' subsidiaries located outside India are independent entities and they are not appellant's agents. This position is clear from the agreement entered into between the appellant and its subsidiary in America, namely, Tech Mahindra America dated 27/03/2008.Therefore, it cannot be said that the onsite services provided by the subsidiary have been rendered from India to the appellant's customers abroad. Thusthe first condition that the service should be provided from India to constitute export is not satisfied.

We reported this order as 2013-TIOL-543-CESTAT-MUM.

The appellant filed an appeal before the Bombay High Court.

The High Court has negated the varied submissions made by the appellants and while dismissing the appeals inter alia observed thus -

++ The case of the Appellants is for the period prior to and post omission of this clause (a) [sub-rule (2) of Rule 3 of Export of Services Rules, 2005] which read as "such service is provided from India and used outside India".

++ The categorization made by the Tribunal and the conclusion based thereon in paragraph 5.5 of its order cannot be faulted. Net effect is that the export of taxable service in relation to taxable services specified by Section 65(105) of the Finance Act, 1994 and in the context of performance of services as are specified in category (iii) of sub-rule (1) of Rule (3) of the Export of Service Rules, 2005, would come within the purview of the Rule as this stood at the relevant time only if the conditions are satisfied and these conditions are to be found in Rule 3(2). Therefore, the first condition was that the service is provided from India and used outside India and payment for such service is received by the service provider in convertible foreign exchange.

++ However, the scenario changed, namely, amendment made on 01.03.2007 and later amendments and the condition is that the payment for such service is received by the service provider in convertible foreign exchange. In the present case the first condition (clause (a)) with regard to provision of service from India and its use outside India has not been satisfied.

++ The services have been performed at overseas' customers' site by the subsidiaries of the Appellants, though they may be to the customers of the Appellants. However, these services have not been provided by the Appellants, but claimed to be provided by their subsidiaries.

++ The agreement has been referred to in great details by the Tribunal and it arrived at a conclusion that there may not be any privity of contract as between the subsidiaries of the Appellants and customers, but the situs of service and its provision is both abroad. With the provision of service and site at which the service is provided, the Appellants who are in India cannot be said to be involved. The service has been held to be not provided by the Appellants from India. The conclusion of the Tribunal is that the service has not been provided from India. If it is not provided from India, then, no export of taxable service insofar as the Appellants are concerned takes place. The conclusion in paragraphs 5.5 and 5.6 is based on the service provided and activities undertaken on site. The nature of services and activities undertaken reveal that they cannot be provided from India. It is in these circumstances that the Tribunal rejected the Appeal of the Appellants and to the extent noted above, namely refund claims concerning the period prior to 27.02.2010.

Reference made by the appellant to various decisions of the apex court/privy council judgment & decision of the House of Lords were also held to be inapplicable to the facts of the case.

The High Court also referred to the evolution of the Export of Service Rules, 2005 and the amendments to the same over the years and concluded –

"63. We are not with Mr. Sridharan in his submission that the amendments/ deletions made with effect from 27.02.2010 are clarificatory and would govern all pending claims as well. For the reasons that we have assigned and finding that the omission was made with effect from 27.02.2010 so also the reasons for the same that this contention of Mr. Sridharan cannot be accepted."

As regards the alternate claim of refund u/s 11B of the CEA, 1944, the High Court held –

"64. …what we find is that the Appellants had not invoked any specific provision and made an application under the same to claim refund. They could not have invoked Section 11B of the Central Excise Act, 1944 during the course of the proceedings…There is no application made in a prescribed format and time by the Appellants to claim the refund. The refund claim will have to be decided in accordance with the provisions and after the compliance is made with the procedural formalities set out therein. Today, we cannot entertain the argument alternatively made on the claim of refund without any such compliance leave alone any application. For all these reasons we do not find any basis for the alternate claim as well. In the event the Appellants wish to make any such claim it is open for them to invoke the provisions in that regard and as available in law."

Holding that there is no force in the contentions made by the appellant, the questions of law framed were answered against the Assessee and in favour of the Revenue.

The Appeals were dismissed.

(See 2014-TIOL-1608-HC-MUM-CX)