We are sharing with you an important judgment of the Hon’ble Mumbai Tribunal, in the case of Sun-Area Real Estate Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai-I[2015-TIOL-956-CESTAT-MUM]on following issue:
Whether theconditions of export of services under the erstwhile Export of Service Rules, 2005is satisfied when the payment was receivedin Indian Rupees through a Foreign Bank, who have issued Foreign Inward Remittance Certificate?
Sun-Area Real Estate Pvt. Ltd.(“the Appellant”) received payment against export of services in Indian Rupees through Deutsche Bank, who have issued Foreign Inward Remittance Certificate (“FIRC”) as statutorily provided under Exchange Control Manual of Reserve Bank of India (“RBI”).Further, it was also certified in the FIRC that the payment thereof has not been received in non-convertible rupees or under any special trade or payments agreements.Accordingly, the Appellant filed refund claim amounting to Rs. 10,89,279/- in respect of Service tax paid on export of services under the erstwhile Export of Service Rules, 2005 (“the Export of Service Rules”).
The Department denied refund to the Appellant on the ground that since in the present case, the payment was received in Indian Rupees,therefore, the condition of Rule 3(ii) of the Export of Service Rules is not complied with. Thereafter, the refund claim was rejected by the Ld. Commissioner (Appeals).
Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbairelying upon Notification No.FEMA 9/2000-RB and FEMA 14/2000-RB dated May 3, 2000 issued by RBI under Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 (“FEMA Notifications”) to provide that as per Foreign Exchange Management Act, 1999 (“FEMA”) provisions,when the payment against any export is received even in Indian Rupees, but through authorised dealer, the payment/remittance should be considered as foreign exchange.
The Hon’ble CESTAT, Mumbai held as under:
· As per Clause 3A.6(i) of the Exchange Control Manual, it is clear that FIRC is issued only in respect of foreign exchange;
· In the present case, FIRCs were issued and there is a specific certification that the payment has not been received in non-convertible rupees, which establishes that the payment received and mentioned in the FIRCs are payment in convertible foreign exchange;
· In terms of FEMA Notifications, it is very clear that, when a person receives payment in Indian Rupees from the account of a bank situated in any country outside India maintained with an authorised dealer, the payment in rupees shall be deemed to have repatriated the realized foreign exchange to India;
· In terms of Regulation 3 made under Section 47 of the FEMA, in the present case the foreign remittance in Indian Rupees through Deutsche Bank is the receipt of payment in convertible foreign exchange;
· In the case of J.B. Boda and Company Private Ltd.Vs. Central Board of Direct Taxes [AIR 1997 SC 1543] the payment towards insurance brokerage retained by the Indian agent from the total payment of premium to be paid to the foreign insurance company in foreign exchange, was held to be retained in foreign exchange;
Accordingly, it was held that even though the Appellant received the payment in Indian Rupees but the same is deemed to be convertible foreign exchange and accordingly the condition as provided under Rule 3(ii) of the Export of Service Rules stand complied with.
Point to Note:
Effective from July 1, 2012, the erstwhile Export of Service Rules, 2005 has been replaced with the conditions contained under Rule 6A of the Service Tax Rules, 1994(“the Service Tax Rules”) read with Rule 6(8) of the Cenvat Credit Rules, 2004. In terms of Rule 6A(1) of the Service Tax Rules, the six essential requisite conditions to be fulfilled for a service to be considered as export of service are mentioned here under:
(a) the provider of service is located in the taxable territory;
(b) the recipient of service is located outside India;
(c) the service is not a service specified in Section 66D of the Finance Act, 1994;
(d) the place of provision of the service is outside India (determined as per the Place of Provisions of Services Rules, 2012);
(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Finance Act, 1994.
Since, the condition of receiving payment under convertible foreign exchange still prevails even after July 1, 2012, the relevance of afore stated judgment still holds good.