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2016 (41) S.T.R. 87 (Tri. - Del.)

IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI
[COURT NO. III]
Ms. Sulekha Beevi C.S., Member (J)

COMMISSIONER OF SERVICE TAX, DELHI

Versus

ISHIDA INDIA PVT. LTD.

Final Order No. A/52063/2015-SM(BR), dated 1-7-2015 in Appeal No. ST/54993/2014-ST(SM)

Refund - Export of BAS service - Procurement of orders from Indian customers

for holding Company in Japan - Revenue alleging service provided from India and used
in India, therefore activity not fulfilling condition stipulated under Rule 3(2)(a) of
Export of Services Rules, 2005 - HELD : Products supplied to Indian customers as per
purchase orders - Assessee receiving commission in convertible foreign exchange for
procurement of purchase orders - Services definitely utilized/benefited by Company in
Japan - Impugned aspect sufficiently clarified in C.B.E. & C. Circular No. 111/5/2009S.T., dated 24-2-2009 - Merely because goods supplied ultimately used in India, not to
be reason to hold of no export of output service - Effective use and enjoyment of
service of procuring purchase order by Company in Japan - Services were exported
therefore, refund claim rightly allowed by Commissioner (Appeals) - Section 11B of
Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act,
1994 - Rule 3(2)(a) of Export of Services Rules, 2005. [paras 7, 8, 9]

Appeal dismissed
CASES CITED
ABS India Ltd. v. Commissioner 2009 (13) S.T.R. 65 (Tribunal) Followed............. [Paras 4, 8]
All India Federation of Tax Practitioners v. UOI 2007 (7) S.T.R. 625 (S.C.) Distinguished [Paras 3, 8]
Blue Star Ltd. v. Commissioner 2008 (11) S.T.R. 23 (Tribunal) Followed............... [Paras 4, 8]
KSH International Pvt. Ltd. v. Commissioner 2010 (18) S.T.R. 404 (Tribunal) Followed [Paras 4, 8]
DEPARTMENTAL CLARIFICATION CITED
C.B.E.&C. Circular No. 111/05/2009-S.T., dated 24-2-2009......................................... [Paras 4, 7]
REPRESENTED BY :

Shri R.K. Grover, DR, for the Appellant.

Shri Lalit Thorian, Finance Head, for the Respondent.

[Order]. - This appeal is filed by the Revenue challenging the order of the Commissioner (Appeals) which allowed
the refund claim filed by respondents.
Brief facts are as under :
2. The respondent is a private limited Company and is a wholly owned subsidiary of Ishida Co., Japan. The
respondents are registered under the category of Erection, Commission & Installation and Business Auxillery Services
with the service tax division. The activities of respondents are such that they procure purchase orders from Indian
Customers and place it before their client/company in Japan. Goods as per these purchase orders are supplied to
customers in India. For such service the respondents receive a pre-determined percentage of the trade value as indent
commission. According to respondents by providing such services to the Company in Japan, their services were exported
and thereby exempted from service tax.
2. The respondents filed a refund claim of Rs. 6,84,626/- for the excess service tax paid erroneously on export of
services during the period December, 2007 to February, 2008. The adjudicating authority rejected the refund claim on the
ground that the services provided by the respondents failed to satisfy the condition of export of services. Aggrieved the
respondents preferred appeal before the Commissioner (Appeals) who allowed the refund. Hence this appeal by Revenue.
3. On behalf of the appellant, the learned DR submitted that though the respondents provided services from India
to their client in Japan; the services being for procurement of orders from customers in India and also because the goods
supplied are used by customers in India, there was no export of services. That this whole process would show that the
service is provided from India and used in India, and that therefore the activity of the respondents did not fulfil the
conditions under Rule 3(2)(a) of Export of Services Rules, 2005. He relied on the judgment in All India Federation of Tax
Practitioners v. UOI - 2007 (7) ATR 675 (SC) = 2007 (7) S.T.R. 625 (S.C.).
4. Against this, the Authorized Representative of the respondent company submitted that the tax was erroneously
paid on the mistaken belief that the services were taxable. The amount was received from abroad in convertible foreign
exchange towards commission for the service of procuring orders. That the conditions under Rule 3(2)(a) of Export of
Services Rules, 2005 are fully satisfied. According to him the services for which commission was received are utilized
outside India though the products were utilized by customers in India. He relied upon the Circular No. 111/05/2009-S.T.,
dated 24-2-2009 and also the decisions rendered in Blue Star Ltd. reported in 2008 (11) S.T.R. 23 (Tri.-Bang.), KSH

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International Pvt. Ltd. reported in 2010 (18) S.T.R. 404 (Tri.-Mum.) and ABS India Ltd. reported in 2009 (13) S.T.R.
65 (Tri.-Bang.). He assailed the impugned order and pleaded that the appeal be dismissed.
5. Heard both sides and perused the records.
6. For proper appreciation of the rival contentions the relevant provision in Export Rules are as under :
In terms of Rule 3(2)(a) of the Export of Services Rules, 2005,
a taxable service can be treated as export of service if such service is provided from India and used outside India, and
payment for such service is received by the service provider in convertible foreign exchange.

7. On analyzation of the activity of the respondents it can be seen that the respondents procure orders from Indian
customers for their holding Company in Japan. The products are then supplied to Indian customers as per these purchase
orders. The arguments advanced by the appellants are that the products are finally used in India and therefore there is no
export of services as per Rule 3(2)(a) of the Export of Services Rules, 2005. I cannot agree with the submission of the
appellants. The respondents receive commission for procurement of purchase orders. Therefore the services of the
respondents in procuring purchase orders/marketing is definitely utilized/benefited by the Company in Japan. Further it is
not in dispute that the respondents received the commission in convertible foreign exchange. This aspect is sufficiently
clarified in the C.B.E. & C. Circular No. 111/5/2009-S.T., dated 24-2-2009 which is as under :
For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver
and not the place of performance. In this context, the phrase used outside India is to be interpreted to mean that the
benefit of the service should accrue outside India. Thus, for Category III services [Rule 3(1)(iii)], it is possible that export of
service may take place even when all the relevant activities take place in India so long as the benefits of these services
accrue outside India. In all the illustrations mentioned in the opening paragraph, what is accruing outside India is the benefit
in terms of promotion of business of a foreign company. Similar would be the treatment for other Category III [Rule 3(1)(iii)]
services as well.

8. The decision rendered in All India Tax Practitioners case, will not aid the appellants as the same was rendered
on a different service of which the facts stand on a different footing. The judgment rendered in Blue Star Ltd. case, ABS
India Ltd. and KSH International Pvt. Ltd. (supra) are squarely applicable to this case, the facts being identical. In all these
three cases the assessee procured purchase orders from India and send to the suppliers located outside India. On such
purchase orders the goods were supplied to the customers in India. Upon receiving the price of goods, the assessee was
paid commission in convertible foreign exchange.
9. If the respondents did not canvass the purchase orders and send it to their client Company in Japan, there
would be no supply of goods or use of goods in India at all. So merely because the goods supplied were ultimately used in
India, cannot be a reason to hold that there was no export of the output service. In the present case, the effective use and
enjoyment of the service of procuring purchase order is by the Company in Japan and therefore the only conclusion
possible is that the services were exported.
10. In view of the above discussions, I find that the Commissioner (Appeals) has rightly allowed the refund claim
of the respondents. The appeal of the Revenue is dismissed.
(Pronounced on 1-7-2015)

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