CESTAT-Mumbai : Where assessee provided investment advisory services to customer located outside India and claimed for refund of input service tax lying unutilized, since assessee had filed sufficient documents in support of its claim of refund, it was entitled to refund

CESTAT, Mumbai Bench

BCP Advisors (P.) Ltd. Vs. Commissioner of Service Tax, Mumbai-I

Section 54

Period : July, 2007 to March, 2008 and July, 2011 to December, 2012

Anil Choudhary, Judicial Member

Final Order Nos. A/88440-88445/17/Smb

Appeal Nos. ST/771-773/2012 & 89777-89779/2014/Mum

July  7, 2017

Circular No. 141/10/2011-TRU, dated 13-5-2011

ORDER

1. These 6 Appeals have been preferred by the appellants-assessee against rejection of their claim for refund of input service tax which remained unutilized as the appellant were exporting their output services’. The details of which are as follows:—

Sl. No. Appeal No. Period Impugned order Amount claimed Remarks
1. ST/771/2012 Oct 07 to Dec 07 No. BR/19-21/2012 dated 17/08/2012 Rs. 17,85,682/-
2. ST/772/2012 Jan 08 to March 08 No. BR/19-21/2012 dated 17/08/2012 Rs. 19,65,022/-
3. ST/773/2012 Jul 07 to Sep 07 No. BR/19-21/2012 dated 17/08/2012 Rs. 3,41,216/-
4. ST/89777/2014 July 11 to March 12 No. PD/618-620/2014 dated 23/06/2014 Rs. 11,32,572/-
5. ST/89778/2014 Apr 12 to June 12 No. PD/618-620/2014 dated 23/06/2014 Rs. 18,48,921/-
6. ST/89779/2014 Apr 12 to Dec 12 No. PD/618-620/2014 dated 23/06/2014 Rs. 13,43,033/-

2. The grounds of rejection (most of which are common) of the refund claims filed under Rule-5 of Cenvat Credit Rules, 2004 read with notifications are as follows: –

– Output services provided do not qualify as export of taxable services as per Export of Service Rules, 2005

– Documentary evidence not provided for export of banking and other financial services as per Rule-3 of Export of Service Rules.

– BCP appellant has received consideration only for out of pocket expenses and has) not received consideration for services rendered.

– The investment manager located abroad and the appellant are related parties, having mutual interest in each others business operations.

– Refund claim is hit by unjust enrichment as the services are not exports.

– ST-3 return does not disclose the services exported, but discloses the expenses recovered which are more than the actual expenses. Balance sheet does not disclose the refund claim to be receivable.

– Full consideration not received in convertible foreign exchange.

– Appellant have not produced evidence stating that remittances received is towards consideration for export of services and not only towards reimbursement of out of pocket expenses.

– Value of Cenvat credit as per Cenvat register does not tally with the value shown in ST-3 return.

3. In Appeal No.ST/89778/2014 relating to rebate claim for the period April 2012 to June 2012 the ground of rejection is –

(a) As Cenvat credit on input services pertains to April, 2008 to March 2009, Export Rules are applicable during April 2008 to March 2009 and not during the rebate claim period. Accordingly, service provided from India and used outside India is not relevant.

(b) Services provided do not qualify as export of taxable services, as per Export of Service Rules, 2005 and

(c) Value of Cenvat credit as per Cenvat Register do not tally with the value shown in the ST-3 return.

4. The learned Counsel for the appellant Shri Abhishek Rastogi urges, among others, that the appellant M/s BCP Advisors is rendering ‘Investment Advisory Services’ to recipients who are admittedly located outside India. Investment Advisory Services have been provided to the recipient of service, located outside India and such service is provided from India, have been used outside India and further payment for such services is received by the appellant in convertible foreign exchange. Thus, the appellant satisfies all the condition under the Export of Service Rules, 2005; Being-service recipient is located outside India, services is provided from India and used outside India and payment for services is received in convertible foreign exchange. So far the allegation of revenue is that the Foreign Service receiver has utilized the advices provided by the appellant, for making investments in India, does not change the nature and character of the transaction, being one of export. He further relies on the rulings of this Tribunal in the case of CST v. Bain Capital Advisors [Order Nos. A/1665-1669/14/CSTB/C-1, dated 16-10-2014], wherein it was held under similar circumstances that the advisory services provided outside India for the period July 2008 to March 2011, would qualify as exports. Further, in the case of CST v. Grater Pacific Capital India (P.) Ltd. [Order No. A/834-838/14/SMB/C-IV, dated 25-4-2014], it has been held that the CBEC Circular NO. 141/10/2011-TRU dated 13 May, 2011, is only applicable prospectively and cannot be applied for a past period. Further, in the said ruling, this Tribunal held that investment advisory services shall be considered as exports, if the client is located outside India. Accordingly, refund was held grantable. Further, in the case of Paul Merchants Ltd. v. CCE [2013] 30 taxmann.com 23/38 STT 702 (New Delhi-CESTAT) Chandigarh, this Tribunal have held that services provided by the agents and sub agents to customers located outside India qualified as Business Auxiliary Services and amounted to exports.

4.1 So far the issue of non-receipt of consideration or receipt of part of the Consideration in foreign exchange, the learned counsel explains that the consideration is received in the following 2 modes:-

Mode 1) The appellant received the remittance in convertible foreign exchange, which is credited to their account by their banker and the banker issues the remittance certificate or FIRC.

Mode 2) The appellant receives consideration or part of the consideration in INR, in such case, The service recipient deposits fee in Nostro Account of appellant’s local bank, then the appellants local bank issues FIRC to the appellant.

Both the methods of remittances are duly recognized under the Foreign Exchange Management Act, read with Notification No. FEMA 14/2000-RB dated 3rd May, 2000. Regulation 3 of the said notification clarifies that payment in Rupees from the account of a bank, submitted in any Country other than specified Countries shall be considered as receipt in foreign exchange.

4.2 So far documentary evidence for export of banking and other financial services is concerned the appellant have submitted that, the documentary evidences in support of the claim was filed along with the refund claim, being-Copy of Cenvat Register, output invoices in respect of services exported, Foreign Inward Remittance Certificate (FIRC)and ST-3 returns.

4.3 So far the allegation of revenue-that the appellant have not received consideration for export of service but only reimbursement of out of pocket expenses, the learned Counsel further urges that as per Section 67 of the Finance Act, the value of taxable services is the gross amount charged by the service provider to the service recipient. Expenses incurred during the course of remittance of services are related to the services being provided and hence have been included in the value of taxable service as per Agreement- It is further clarified that the appellant raises two separate invoices on the service recipient located abroad. One invoice for advisory fee and the other for expenses incurred in the course of providing advisory services. The invoice for expenses is also deemed to be consideration towards fee for advisory services, and also considered for export turnover, as payment is received for the same in convertible foreign exchange which is in tune with Section 67 of the Finance Act, 1994.

4.4 So far the issue of related party is concern the learned Counsel urges that the appellant and the service recipient are two distinct entities and have no mutual interest in the business of each other. The revenue have made only bald allegation and have not brought any legal evidence on record in support of such allegation. It is further urged that notwithstanding the allegation, there is no condition in Notification No. 27/2012 dated 18.01.2012 and Rule 5 of CCR, 2004, that the refund shall not be eligible if the transaction is between related parties.

4.5 So far the issue of unjust enrichment is concerned, the provisions of unjust enrichment do not apply when refund is claimed of unutilised Cenvat credit in relation to export of goods/services.

4.6 The learned Counsel further urges that the appellant have made proper disclosures in detail, of export turnover, as regards fees and expenses incurred during the course of providing investment advisory services, in the returns. Further, the details of collection have also been disclosed in the service tax returns. Further, there was no such allegation of inadequate disclosure or nondisclosure in the show-cause notice and the same is bad and beyond the scope of show-cause notice. Further, the appellants are 100% exporter of output services. Thus, the entire balance of Cenvat credit represents unutilized input credit, which is refundable. Further, disclosure of refund claim filed, in the balance-sheet, is not the precedent condition for claiming of refund. The appellant have properly accounted for the service tax and education-cess paid on the input services used in or in relation to providing of investment advisory services, exported out of India.

4.7 Further, he urges that so far the issue of rebate claim is concerned, relating to the period April 12 to June 12, investment advisory services have been provided during the period April 12 to June, 12. The service tax liability is paid by utilising the Cenvat credit pertaining to the credit period from April 2008 to January 2009. As the export services have been provided during the period April 12 to June 12, the Export Rules as in existence during April 12 to June 12, would be applicable to analyse whether the investment advisory services qualify as export of services. The Export Rules pertaining to the credit period would not apply. Further, in any case, the investment advisory services provided, will qualify as export of services.

4.8 Further, it is urged that the order of Learned Commissioner (Appeals) is a non-speaking order, as the learned Commissioner (Appeals) have agreed with the findings of the lower authorities, without disclosing any basis for agreeing with the same.

4.9 It is further urged that so far the impugned order for the period July 11 to March 12, April 12 to December 12, and regarding rebate claim for the period April 12 to June 12, are bad and fit to be set aside, as no show cause notices were issued for these periods for rejection of refund and only deficiency memos were issued. Thus, these orders are wholly without jurisdiction and as such the impugned orders for these periods, are fit to be set aside.

4.10 It is also urged that the output invoices were raised for the services provided during the period of refund claim and accordingly output services fall within the refund claim period.

5. Learned A.R. for revenue Mr. R.K. Das, Deputy Commissioner have relied on the findings of the impugned orders.

6. Having considered the rival contentions, I find that the appellant-service provider and the recipient of service are separately registered under the company law provisions in separate countries and hence are not related persons.

6.1 I further find that there is proper agreement between the parties, for rendering of services by the appellant and receiving of services by the recipient of service, who is located outside India.

6.2 Further, I find that the appellant had received convertible foreign exchange for such services remitted by the service receiver from outside India, in convertible foreign exchange, as clarified by the Reserve Bank of India (by the Exchange Control Department) vide Notification No. FEMA 14/2000-RB dated 03rd May, 2000, under the powers conferred vide the Foreign Exchange Management Act, 1999 and thus have made Rules for remittance, in respect of manner of receipt and payment in foreign exchange, wherein Clause 3 of the Notification provides that the manner for receipt of foreign exchange by payment in Rupees from the Account of a bank situated in any country other than member Countries of Asian Clearing Union or Nepal or Bhutan. Thus, I hold that all conditions for export of service, under Export of Service Rules, 2005 have been fulfilled and impugned order is bad for holding that there is no export of service.

6.3 I also hold that under the terms of agreement, the appellant as a service provider is entitled to receive both fees and reimbursement of expenses incurred, for rendering the service. As such, the two together form gross amount of service charges, as defined under Section 67 of the Finance Act, 1994.

6.4 I also hold that the appellant has filed sufficient documents in support of their claim of refund under the classification ‘Banking and Other Financial Services’. Such documents include, copy of Cenvat register, copy of investment advisory agreement, output invoices in respect of services exported, Foreign Inward Remittance Certificates and copy of ST-3 returns. I further hold that there is no question of unjust enrichment, in the facts and circumstances of the present case where claim of refund of Cenvat credit lying unutilized has been made, under the provisions of Rule 5 of Cenvat Credit Rules, 2004. The findings of the learned Commissioner is that, “Though the appellant has provided service to a foreign client from India for which payment were received from abroad, but services have been provided in relation to investment made in India”, is misconceived. The service has been used and received by the recipient of service located outside India. It is of no consequence, whether such advisory service received by the recipient located outside of India, is used recipient for making investment decision, for making investment in India. The said proposition has been made held in favour of assessee by this Tribunal, in the case of M/s. Paul Merchants Ltd. (supra).

6.5 I also hold that in the facts and circumstances, neither there is any question of unjust-enrichment, nor the refunds of Cenvat credit under Rule 5 of CCR, 2004, are hit by time bar, as no time limit has been provided for utilization of Cenvat credit, once it has been taken. The appellant in the facts and circumstances has admittedly proved that due to its business being export of service, have been unable to utilize the Cenvat credit taken. Accordingly, they are entitled to refund of Cenvat credit without any time bar. So far rebate claim for the period April, 2012 to June, 2012 is concerned, I hold that the appellant is entitled to the same, as they have utilized the credit earlier taken for discharge of service tax liability during the said period. The export of service provided during the said period as per the Export Rules of India and as such the appellant is entitled to rebate, as they have both exported the service and discharged the tax liability on the same.

6.6 I also hold that the some of the issue not raised and/or decided in the impugned orders are wholly without jurisdiction being- (i) service provided do not classify as export of taxable service, as per Export of Service Rules, as no such allegation is made in show-cause notice for the period July, 2007 to September, 2007. Similarly, there is no allegation in the show-cause notice that the investor/receiver located abroad and the appellants are related party in the business for the period July, 2007 to September, 2007 and similarly, there is no such allegation that ST-3 return do not disclose export of service recovered but export the services recovered by Export of Service Rules, which are more than actual expenses. Similarly, such allegation has not been made in the show cause for the period October, 2007 to December, 2007.

6.7 Further, I find that the show cause notice for the period April, 2012 to December, 2012 there is no allegations to show cause that services provided do not qualify as export, under Export of Service Rules.

6.8 I also hold that the adjudication orders for the period July 11 to March 12, being refund claim dated 29th June, 2012 for Rs. 11,32,572/-, Rs. 13,43,033/- filed on 28th March, 2013 for the period April 12 to December 12 and claim for Rs. 18,48,921/- dated 29th June, 2012 for the period, April 12 to June 12 are bad as no show cause notice was issued for these matters and as such, I hold that the adjudication orders are wholly without jurisdiction. According to the rules, service of a proper show cause notice is essential, for assuming jurisdiction to pass an order.

7. Accordingly, I set aside all the impugned orders and allow these appeals with consequential benefits to the appellants. I further direct the adjudicating authority to grant the refunds with interest, as per rules, within a period of 45 days from the receipt or service of a copy of this order.

[Citation : 2017-Taxcaselaw-58-CESTAT-Mumbai-GST]