Facts:
Paul Merchants Ltd (PML) entered into an agreement with Western Money Union Network Ltd., Ireland (Western Union or WU) to enable the receipt of money transferred from persons from outside India to persons in India. PML had also appointed sub-agents to provide transfer of money services to Western Union. Western Union also reimbursed PML the advertisement and promotional expenses in India. The question arose whether the service of PML is categorised under Banking & Financial Services or Business Auxiliary Services and whether such services were to be considered as deemed to be export under Export of Services Rules, 2005 for the period 1st July 2003 till 30th June 2007. Similarly, the services of sub-agents were to be considered export or not as sub-agents were appointed by PML in India. Thirdly, whether the reimbursement of advertisement and promotion expenses were also to be treated as export and hence, no tax was chargeable. Lastly, whether a longer period was invokable. The two members of the Delhi Tribunal had a difference of opinion as to whether the services were in the nature of export as the said services were performed in India. The case was referred to the third member due to difference of opinion.
Held:
• The services provided by PML or the sub-agents were classified as “Business Auxiliary Services” which both the members agreed on and hence, no discussion was required on this subject. The major question was whether the service was to be considered as export as the services were provided in India. The term ‘export’ has not been defined either in Article 280(l)(b) or in any of the articles 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 applicable for determining what constitutes the export of services. There was no question of Export of Service Rules, 2005, being in conflict with Article 286(1)(b) of the Constitution of India. The principle of equivalence between the taxation of goods and taxation of service had been laid down by the Apex Court in the case of Association of Leasing & Financial Service Companies vs. Union of India (2010-TIOL-87-SCST- LB) and All India Federation of Tax Practitioners vs. Union of India (2007-TIOL-149-SC-ST) in the context of constitutional validity of levy of service tax on certain services. This principle does not imply that service tax should be levied and collected in exactly the same manner as the levy and collection of tax on goods or that export of service should be understood in an exact manner in which the export of goods is understood. The question as to what constitutes export or import of service was neither raised nor discussed in the judgments of the Apex Court. There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not to be taxed in India. What constitutes export of service is to be determined strictly with reference to Export of Service Rules, 2005. The service is classified as “Business Auxiliary Service” and provided to WU and it is WU who is the recipient and consumer of this service provided by PML and their sub-agents, not the persons receiving money in India. Thus, when the person under whose instructions the services in question had been provided by the agents/sub-agents in India and who is liable to make payment for these services, 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.
• Reimbursement of advertisement and sales promotion received from WU is not taxable as the same are for the services provided to WU, which are exports of services. • The question of time bar is not relevant when the main question has been answered in favour of the agent and sub-agents.
• The services provided by the agent and subagents throughout during the period of dispute are classifiable as “Business Auxiliary Service” and the same have been exported. Hence no service tax is leviable. The following judgements were relied on for this matter:
• Muthoot Finance Corpn. Ltd. vs. CCE reported in 2010 (17) STR 303 (Tribunal-Bang)
• Nipune Service Ltd. vs. CCE, Bangalore reported in 2009 (14) STR 706 (Tribunal-Bang)
• Kerala State Financial Enterprises vs. CCE, reported in 2011 (24) STR 585 (Tribunal-Bang)
[Readers may note that contrary to the above, recently the Mumbai Tribunal did not grant complete stay in Life Care Medical System relying on Microsoft Corporation (I) Pvt. Ltd. vs. CST. New Delhi 2009 (15) STR 680 (Tri.-Del) reported at 2013 (29) STR 129 (Tri.-Mum), digest of which was provided in January 2013 of BCAJ under this feature].
