By TIOL News Service

NEW DELHI, AUG 11, 2017: DURING the course of audit of the accounts of the appellant in November, 2010, the officers noted that the appellants have provided services relating to marketing or procurement of goods from India and such services were provided to M/s. Mitsubishi Heavy Industries India Ltd., Japan.

The Revenue entertained a view that such services rendered by the appellant will fall under the taxable category of "Business Auxiliary Services" and do not qualify as "Export of Service" in view of non-fulfilments of one of the essential conditions viz. receipt of payment in convertible foreign exchange.

For the period April, 2005 to March, 2009, the Commissioner confirmed a service tax liability of Rs.2,69,44,983/- and imposed equal amount of penalty.

The appellants are contesting this order and submit that there are two essential conditions for "Business Auxiliary Services" to qualify as export of service -

(a) The consumption of such service should be outside India and

(b) payment for such services is to be received by the appellant in India, in convertible foreign exchange.

It is further emphasised that the payment for the services have been made in conformity with the statutory provisions of Foreign Exchange Management Act, 1999 and Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 namely Regulations 3 and 4 (2) inasmuch as the payment has been made in foreign exchange but credited to the appellant's account in India in the form of rupees and FIRC has been issued by the Bank, which maintained the account of the appellant, in New Delhi.

The AR, while reiterating the findings of the lower authorities, submitted that receipt of consideration in Indian currency will not satisfy the condition for export of service.

The Bench inter alia observed -

++ A reference to Regulation 4(2) of Foreign Exchange Regulation 2000 will show that a person shall be deemed to have repatriated the realized foreign exchange to India when he receives in India payment in rupees from the account of a bank situated in any country outside India.

++ Admittedly, inward or outward remittance of any money into or out of India is regulated by the Reserve Bank of India. There is a specific enactment and the Regulation in this regard. Notification No.9/2005-ST dated 3.3.2005 under which Export of Services Rules, 2005 was issued mentions the condition as payment for such service is to be received by a service provider in convertible foreign exchange. The manner of such payment to be received and how convertible foreign exchange is dealt with for cross border transactions, is wholly regulated by the RBI.

++ It is relevant to note that when a service is provided to a person located abroad and the conditions is payment of consideration in convertible foreign exchange, the same shall stands satisfied, if the recipient of service transfers the money from his account which is in convertible foreign currency and remitted to Indian provider of service. The credit to account of Indian recipient of money at the bank of Indian recipient, will necessarily be in Indian rupees. It is apparent that no foreign exchange amount can be credited in bank located in India. The transactions are in Indian rupees.

After extracting the findings of the Tribunal in cases of Balaji Tele Films Ltd. -  2016-TIOL-685-CESTAT-MUM and Sun-Area Real Estate Pvt. Ltd. - 2015-TIOL-956-CESTAT-MUM, the Bench concluded that there was no merit in the impugned order.

The same was, therefore, set aside and the appeal was allowed.

(See 2017-TIOL-2893-CESTAT-DEL)