VATLaws (Readable Version) - Friday, September 30, 2016 [2015] 79 VST 461 (CESTAT) [CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL] (NEW DELHI BENCH)

GECAS Services India Private Limited V.

Commissioner of Service Tax, Service Tax, New Delhi RAGHURAM G. J. (PRESIDENT AND RAKESH KUMAR (TECHNICAL MEMBER) May 15,2014 HF ♦ Assessee, including dealer (Registered or Unregistered) SERVICE TAX — EXPORT OF SERVICE — BUSINESS SUPPORT SERVICES — APPELLANT RENDERING BUSINESS SUPPORT SERVICES TO G IN IRELAND FOR REMUNERATION IN CONVERTIBLE FOREIGN EXCHANGE — SERVICES MEANT FOR USE IN BUSINESS OF G, IRELAND, WHO PAID FOR SERVICES — G, IRELAND, TO BE TREATED AS RECIPIENT OF SERVICES — EXPORT OF SERVICES — NOT LIABLE TO TAX IN INDIA — FINANCE ACT (32 OF 1994), S. 65(104C), (105)(ZZZQ) — EXPORT OF SERVICES RULES, 2005. SERVICE TAX — TRANSACTION OF TAXABLE SERVICE WITH ASSOCIATED ENTERPRISE — PAYMENT OF TAX — INTEREST — EXPLANATION TO RULE 6(1), INTRODUCED WITH EFFECT FROM MAY 10, 2008 CANNOT BE TREATED AS CLARIFICATORY EXPLANATION HAVING RETROSPECTIVE EFFECT — DEBIT ENTRIES, MADE BY APPELLANT DURING PERIOD PRIOR TO MAY 10, 2008 — APPELLANT TO BE TREATED AS HAVING MADE PAYMENTS ONLY IN AUGUST, 2009 WHEN PAYMENTS ACTUALLY MADE — DEMAND OF INTEREST FOR ALLEGED DELAY IN DISCHARGING TAX LIABILITY BY DUE DATE — NOT SUSTAINABLE — FINANCE ACT (32 OF 1994), S. 67 — SERVICE TAX RULES, 1994, R. 6(1). The appellant, an Indian subsidiary of G, Ireland was providing services to G, Ireland comprising of evaluation of prospective customers by way of surveying the prospective customers, collecting information about their profile to enable G to design its products and pricing as per the aspiration of the target customer base, customer relationship management, customer care services, etc., and was receiving remuneration in convertible foreign currency therefor. The Department took the view that the services provided by the appellant to G, Ireland, during the period from 2006-07 to 2009-10 were business support services taxable under section 65(105)(zzzq) read with section 65(104c) of the Finance Act. During the period from June, 2005 to March 31, 2008 the appellant received manpower recruitment or supply agency service taxable under section 65(105)(k) of the Finance Act, 1994 from G, Ireland. The amounts becoming due to G, Ireland, in respect of such services were accrued by the appellant in their books of account and duly reflected in the financial statements for the relevant years. The payment against the above accruals were made by the appellant-company to G, Ireland, in August, 2009 and accordingly the service tax payable on these payments was paid to the Department on September 2, 2009 on reverse charge basis. In view of the amendment of Explanation (c) to section 67 of the Finance Act, 1994, and an Explanation (which according to the Department was retrospective) added to rule 6(1) of the Service Tax Rules, 1994 with effect from May 10, 2008 the Department took the view that the service tax on the payment made to G, Ireland, should have been paid by 6th of the month immediately after the month in which the amounts due to G, were shown as accrued by the appellant in their books of account and were accordingly debited and that interest under section 75 of the Finance Act, 1994 on the service tax payable would be chargeable for the period of delay in payment of tax, that is, from the date on which the service tax was payable and the date of payment of tax. Accordingly show-cause notices were issued for recovery of service tax for the relevant period along with interest, interest for the period of delay and imposition of penalties. The show-cause notices were confirmed by the Commissioner. On an appeal:

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VATLaws (Readable Version) - Friday, September 30, 2016 Held, (i) that there was no dispute that the services rendered by the appellant to G, Ireland, were business support services covered by section 65(105) (zzzq) of the Finance Act, 1994 read with section 65(104c) and payment for these services had been received by the appellant from G, Ireland, in convertible foreign exchange. From the nature of services, it was absolutely clear that the services provided by the appellant were meant for use by its holding company G, Ireland in its business and it is G, Ireland, who had paid for these services. Though the Department’s stand was that these services had been received in India, it was not stated as to who were the recipients of these services. It was G, Ireland, who had to be treated as recipient of these services and hence the services provided by the appellant had to be treated as export of services. Therefore the services would not be liable to service tax in India. The order confirming the service tax demand along with interest thereon and also imposing penalty for not paying the service tax was therefore not sustainable. GAP International Sourcing (India) Pvt. Ltd. v. Commissioner of S. T. [2009] 15 STR 270 (Trib.-Delhi) and Paul Merchants Limited v. Commissioner of Central Excise and Service Tax [2013] 62 VST 501 (CESTATNew Delhi) followed. (ii) That it was not disputed that both the appellant and its subsidiary company G in Ireland were associated enterprises. However on account of use of the words “for the removal of doubts” in the Explanation to rule 6(1), this Explanation could not be treated as a clarificatory explanation having retrospective effect, i.e., for the period prior to May 10, 2008. Since in this case, the debit entries, in question, had been made during period prior to May 10, 2008, the same by applying the Explanation to rule 6(1) could not be treated as payments made by the appellant to G, Ireland, and the appellant would be treated as having made payments to G, Ireland, only in August, 2009 when the payments had actually been made. Accordingly, the demand for the interest for alleged delay in discharging service tax liability by the due date was not sustainable. Sify Technologies Ltd. v. Commissioner of Central Excise and Service Tax [2011] 46 VST 68 (CESTATChennai) followed. Union of India v. Martin Lottery Agencies Ltd. [2009] 24 VST 1 (SC) relied on.

Final Order No. ST/A/52306/2014-CU(DB), Service Tax Appeal No. 781 of 2012 decided on May 15,2014 Tarun Gulati, Kishore Kunal, Shashi Mathew, Raghu Ram Srinivasan and Sparsh Bhargava, Advocates, for the appellant. Govind Dixit, Authorised Representative (Departmental Representative), for the respondent. Cases referred to :

GAP International Sourcing (India) Pvt. Ltd. v. Commissioner of S. T. [2009] 15 STR 270 (Trib.Delhi) followed Paul Merchants Limited v. Commissioner of Central Excise and Service Tax [2013] 62 VST 501 followed Sify Technologies Ltd. v. Commissioner of Central Excise and Service Tax [2011] 46 VST 68 followed Union of India v. Martin Lottery Agencies Ltd. [2009] 24 VST 1 relied on GAP International Sourcing (India) Pvt. Ltd. v. Commissioner of S. T. [2009] 15 STR 270 (Trib.Delhi) Referred to Paul Merchants Limited v. Commissioner of Central Excise and Service Tax [2013] 62 VST 501 Referred to Sify Technologies Ltd. v. Commissioner of Central Excise and Service Tax [2011] 46 VST 68 Referred to Union of India v. Martin Lottery Agencies Ltd. [2009] 24 VST 1 Referred to --------------------------------------------------

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VATLaws (Readable Version) - Friday, September 30, 2016 ORDER RAKESH KUMAR (Technical Member).—The facts leading to filing of this appeal are, in brief, as under: 1.1 The appellant are Indian subsidiary of M/s. GECAS Services Limited, Ireland (hereinafter referred to as GECAS, Ireland). In terms of the appellant's agreement with GECAS, Ireland, they were providing the following services to them from India: (1) Identification and evaluation of prospective customers by way of surveying the prospective customers and collecting the information about their profile so that GECAS, Ireland can design its products and pricing as per the aspirations of the target customer base; (2) Advice on the structuring of various transactions by analysing the existing database of customers, identify the economic benefit of the transactions for GECAS, Ireland; (3) Information and tracking of delivery schedules for supply of leased aircrafts; (4) Customer relationship management like circulation of draft commercial documents to the prospective customers; (5) Customer care services like assistance in development of transaction proposals in discussion with the prospective customers and GECAS, Ireland by acting as a liaison between them; (6) Operational assistance and administrative support services in obtaining signatures and completion of other formalities in relation to aircraft delivery, etc. 1.2 For the above services, the appellant were receiving remuneration in convertible foreign currency from GECAS, Ireland. The Department was of the view that the services provided by the appellant to GECAS, Ireland are business support services taxable under section 65(105)(zzzq) read with Page No: 464 section 65 (104c) of the Finance Act, 1994 and accordingly the appellant would be liable to pay service tax on the amount being received by them from M/s. GECAS, Ireland, as according to the Department the services provided by the appellant to GECAS, Ireland do not constitute export services in terms of Export of Services Rules, 2005. Demand of service tax amounting to Rs. 1,56,98,617 including education cess for the period from 2006-2007 to 2008-2009 is on this basis. 1.3 The appellant-company during the period from June, 2005 to March 31, 2008 had received manpower recruitment or supply agency service taxable under section 65(105)(k) of the Finance Act, 1994 from GECAS, Ireland vide secondment agreement in effect since 1st November, 2005. The amounts becoming due to GECAS, Ireland in respect of such services were accrued by the appellant in their books of account and duly reflected in the financial statements for the relevant years. The payment against the above accruals during period from 2005-2006 to March 31, 2008 were made by the appellant-company to GECAS, Ireland in August, 2009 and accord-

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VATLaws (Readable Version) - Friday, September 30, 2016 ingly the service tax payable on these payments made to GECAS, Ireland, was paid to the Department on 2nd September, 2009 on reverse charge basis. With effect from May 10, 2008, Explanation (c) to section 67 of the Finance Act, 1994 was amended so as to include within the purview of the term "gross amount charged", the "book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "suspense account" or by any other name in the books of account of a person liable to pay service tax, where the transaction of service is with any associated enterprise. The term "associated enterprise" as per its definition given in section 65(7b) has the meaning assigned to it in section 92A of the Income-tax Act, 1961. Along with amendment to Explanation (c) to section 67 of the Finance Act, 1994, an Explanation was added to rule 6(1) of the Service Tax Rules, 1994 with effect from May 10, 2008 providing that "for the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the books of account of the person liable to pay service tax. There is no dispute that the appellantcompany and their holding company M/s. GECAS, Ireland are associated enterprises. The Department was of the view that the service tax on the payment made to GECAS, Ireland should have been paid by 6th of the month immediately after the month in which the amounts due to GECAS, Ireland were shown as accrued by the appellant-company in their books of Page No: 465 account and were accordingly debited and accordingly the Department was of the view the interest under section 75 of the Finance Act, 1994 on the service tax payable would be chargeable for the period of delay in payment of tax, that is, from the date on which, the service tax was payable and the date of payment of tax, i.e., September 2, 2009. The interest demand of Rs. 12,16,050 is on this basis. 1.4 In view of the above, a show-cause notice dated October 22, 2010 was issued to the appellant-company for— (a) recovery of service tax along with education cess amounting to Rs. 1,56,98,617 along with interest thereon under section 75 of the Finance Act, 1994; (b) recovery of interest amounting to Rs. 12,16,050 for the period of delay in payment of service tax in respect of the service of manpower supply received from their associated company M/s. GECAS, Ireland; and (c) imposition of penalty on the appellant-company under sections 76, 77 and 78 of the Finance Act, 1994. 1.4.1 Subsequently, another show-cause notice dated 30th December, 2010 was issued for recovery of service tax along with education cess amounting to Rs. 50,78,179 along with interest thereon under section 75 for 2009-2010 period and also for imposition of penalty under sections 76, 77 and 78 of the Finance Act, 1994. This service tax demanded was in respect of business support service provided by the appellant during 20092010 period to their holding company-GECAS, Ireland on the basis that the service provided by the appellant-company to their holding company

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VATLaws (Readable Version) - Friday, September 30, 2016 in Ireland does not constitute the export of service. 1.5 Both the show-cause notices were adjudicated by the Commissioner vide a common order-in-original Nos. 65-66/GB/2012, dated March 15, 2012 by which the Commissioner— (a) confirmed the total service tax demand of Rs. 2,02,76,796 along with interest thereon under section 75; (b) confirmed interest demand of Rs. 12,16,050 under section 75 of the Finance Act, 1994; and (c) imposed penalties on the appellant under sections 76, 77 as well as 78 of the Finance Act, 1994. 1.6 Against the above order of the Commissioner, this appeal has been filed. Heard both the sides. Page No: 466 Shri Tarun Gulati, advocate, pleaded that there is no dispute that the appellant-company who are holding company of GECAS, Ireland, in terms of their agreement with M/s. GECAS, Ireland have provided business support services to their holding company, that the business support services being provided by the appellant-company in India to their holding company in Ireland, comprised of identifying the prospective customers and collecting information about their profile, tendering advice to GECAS, Ireland on structuring various transactions by analysing the existing data base of the customers, tracking of delivery schedules for supply of leased aircrafts, customer relationship and customer care management, operational assistance and administrative support services, etc., that the beneficiary and recipient of these services covered by section 65(105)(zzzq) is GECAS, Ireland, not any person in India, that in terms of rule 3(1)(iii) read with rule 3(2) of the Export of Services Rules, 2005, since the services, in question, provided by the appellant are the services in relation to business and the recipient is located outside India and since payment for the same has been received in convertible foreign exchange, the services provided by the appellant to GECAS, Ireland have to be treated as export of service, that in this regard it is the GECAS, Ireland who have to be treated as the recipient of the service, not any person in India, as the services provided by the appellant are meant for their holding company M/s. GECAS, Ireland for use in their business and not for any person in India, that in this regard he relies upon the judgment of the Tribunal in the cases of Paul Merchants Limited v. Commissioner of Central Excise and Service Tax, Chandigarh reported in [2013] 62 VST 501 (CESTAT-New Delhi) ; [2013] 29 STR 257 (Trib.-Delhi) and GAP International Sourcing (India) Pvt. Ltd. v. Commissioner of S. T, Delhi reported in [2009] 15 STR 270 (Trib.-Delhi), that in view of this, service tax demand of Rs. 2,02,76,796 along with education cess and interest thereon under section 75 of the Finance Act, 1994 is not sustainable, that as regards the demand of interest amounting to Rs. 12,16,050 for delay in payment of service tax in respect of the service of manpower supply received by the appellant from GECAS, Ireland during the period from 2005-06 to 2007-08, the same is being demanded by treating the amendment to the Explanation (c) of section 67 of the Finance Act, 1994 and amendment to rule 6(1) of the Service Tax Rules, 1994 by adding an

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VATLaws (Readable Version) - Friday, September 30, 2016 Explanation to it, with effect from May 10, 2008 as retrospective amendment, that the appellant during 2005-06 to March 31, 2008 period were showing in their books of account the amounts payable to M/s. GECAS, Ireland for the manpower supply services on accrual basis and were debiting their accounts, that since during that period, the service tax was not payable on accrual basis, but was payable only when the payments against Page No: 467 the services provided were received by the service provider, the appellant paid service tax in respect of these services received from GECAS, Ireland, on September 2, 2009 on reverse charge basis, as the amounts accrued to GECAS, Ireland during 2005-06 to March 31, 2008 period for the services received from them were paid to them in August, 2009, that the Explanation added to rule 6(1) of the Service Tax Rules, 1994 with effect from May 10, 2008 cannot be given retrospective effect, that since all the debits in respect of the amounts payable to M/s. GECAS, Ireland, had been made by the appellant in their books of account during the period prior to May 10, 2008, there was no delay in discharge of service tax liability, that in this regard he relies upon the judgment of the Tribunal in the case of Sify Technologies Ltd. v. Commissioner of Central Excise and Service Tax, LTU, Chennai reported in [2011] 46 VST 68 (CESTAT-Chennai); [2011] 21 STR 252 (Trib.-Chennai), wherein it was held that amendment to rule 6(1) of the Service Tax Rules, 1994 by adding an Explanation to it is not retrospective even though the Explanation starts with the words "removal of doubts" and that in view of the above, the interest demand of Rs. 12,16,050 is not sustainable. Shri Govind Dixit, the learned Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner. With regard to the business support service provided by the appellant to their holding company in Ireland, he pleaded that the recipient of these services are in India and are not M/s. GECAS, Ireland and, hence, the same cannot be treated as service export in terms of the Export of Services Rules, 2005. With regard to the demand of interest of Rs. 12,16,050 for the period of delay in payment of service tax on the services of manpower supply received by the appellant from their holding company during the period from June, 2005 to March 31, 2008, he pleaded that in view of amendment to Explanation (c) to section 67 with effect from May 10, 2008 the service tax on these services had become payable by 6th day of the month succeeding the month on which the amount payable to GECAS, Ireland had been debited in the books of account of the appellant-company and that in this regard the amendment to Explanation (c) to section 67 and to rule 6(2) of the Service Tax Rules, 1994 has to be treated as retrospective amendment, as from the language of the Explanation added to rule 6(1) it is clear that the same was for removal of doubts. He specifically pointed out to the Explanation added to rule 6(1) of the Service Tax Rules, 1994 according to which for the removal of doubts, it is hereby declare that where the transaction of taxable service with any associated enterprises, any payment received towards the value of taxable service in such case shall include any Page No: 468 amount credited or debited, as the case may be, to any account, whether called suspense account or by any other name in the books of accounts of the person liable to pay the service tax. He, therefore, pleaded that the interest for the period of delay has been correctly demanded in the impugned order. He also pleaded that the appellant have suppressed the

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VATLaws (Readable Version) - Friday, September 30, 2016 relevant facts from the Department and hence for confirmation of service tax demand, longer limitation period under proviso to section 73(1) has been correctly invoked and penalty under section 78 has been correctly imposed. We have considered the submissions from both the sides and perused the records. The main demand made under two show-cause notices is Rs. 2,02,76,796 for the period from 2006-07 to 2009-10 in respect of business support service provided by the appellant-company to their holding company M/s. GECAS, Ireland. There is no dispute that the services provided by the appellant comprise of evaluation of prospective customers by the way of surveying the prospective customers, collecting information about their profile to enable GECAS, Ireland, to design its products and pricing as per the aspiration of the target customer base, advising their holding company about the structuring of various transactions by analysing data base of the customers, tracking of delivery schedules for supply of leased aircrafts, customer relationship management, customer care services, etc. There is no dispute that these services are business support services covered by section 65(105)(zzzq) of the Finance Act, 1994 read with section 65(104c) and payment for these services had been received by the appellant from M/s. GECAS, Ireland inconvertible foreign exchange. The dispute is as to whether these services are to be treated as export of service in terms of the Export of Services Rules, 2005 and, hence, not liable to service tax in India or whether the same are to be treated as services provided by the appellant to the service recipient in India and hence taxable in India. From the nature of services, it is absolutely clear that the services provided by the appellant are meant for use by their holding company M/s. GECAS, Ireland, in its business and it is M/s. GECAS, Ireland, who have paid for these services. Though the Department's stand is that these services have been received in India, it is not stated as to who are the recipients of these services. Therefore, following the judgment of the Tribunal in the cases of GAP International Sourcing (India) Pvt. Ltd. v. Commissioner of S. T., Delhi [2009] 15 STR 270 (Trib.-Delhi) and Paul Merchants Limited v. Commissioner of Central Excise and Service Tax, Chandigarh [2013] 62 VST 501 (CESTATNew Delhi); [2013] 29 STR 257 (Trib.-Delhi) it is GECAS, Ireland who Page No: 469 have to be treated as recipient of these services and hence the services provided by the appellant have to be treated as export of services and, accordingly, the same would not be liable to service tax in India. The impugned order are confirming the service tax demand of Rs. 2,02,76,796 along with education cess and interest thereon and also imposing of penalty on the appellant for not paying the service tax is therefore not sustainable. As regards the demand of interest amounting to Rs. 12,16,050 for the period of delay in payment of service tax on the manpower supply service received by the appellant from GECAS, Ireland during 2005-06 to March 31, 2008 period, the appellant-company during the above-mentioned period was receiving the manpower supply service from GECAS, Ireland in terms of their secondment agreement with effect from 1st November, 2005. The amounts due to GECAS, Ireland, in respect of such services were accrued by the appellant in their books of account and duly reflected in the financial statements for the relevant financial years. In other words, the appellant in their books of account debited the amounts payable to GECAS, Ireland, for these services. However, payment against these accruals was

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VATLaws (Readable Version) - Friday, September 30, 2016 made by the appellant-company to GECAS, Ireland, in August, 2009 and accordingly the appellant paid service tax on this amount on 2nd September, 2009 on reverse charge basis. The Department's contention is that in view of amendment to Explanation (c) of section 67 of the Finance Act, 1994 with effect from May 10, 2008 and amendment to rule 6(1) of the Service Tax Rules, 1994 with effect from May 10, 2008 by adding an Explanation, the service tax would become payable from 6th day of the month succeeding the month in which the amount payable by the appellant to GECAS, Ireland was debited in their books of account, as M/s. GECAS, Ireland are associated enterprises of the appellant. Accordingly for the period of delay in payment of service tax, interest on the service tax paid has been demanded under section 75 of the Finance Act, 1994. Under section 67(1) of the Finance Act, 1994 where the service tax is chargeable on any taxable service with reference to its value, then such value shall be, in a case where the provision of the service is for the consideration in money, the gross amount charged by the service provider for such service provided or to be provided. Explanation (c) to this section defines the term "gross amount charged" and during period prior to May 10, 2008, the gross amount charged included payment by cheque, credit notes or debit notes. By amendment to this Explanation with effect from May 10, 2008, the book adjustments and any amount credited or debited, as the case may be, to any amount whether called "suspense account" or any other name in the books of account of a person liable to pay service tax Page No: 470 where the transaction of taxable service is with an associated enterprise was also brought within the purview of the term "gross amount charged". According to section 65(7b), the term "associated enterprises" would have the same meaning as assigned to it in section 92A of the Income-tax Act, 1961. Along with this amendment to Explanation (c) to section 67, rule 6(1) of the Service Tax Rules, 1994 was also amended and the following Explanation was added to the third proviso to rule 6(1) of the Service Tax Rules, 1994. "Explanation.—For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the books of account of a person liable to pay the service tax". The Department's contention is that in view of the words "for the removal of doubts" in this Explanation, this Explanation has to be applied retrospectively, that is, even for the period prior to May 10, 2008 and, hence, the debit entries made by the appellant in their books of account regarding amounts payable to M/s. GECAS, Ireland would have to be treated as the payments made to GECAS, Ireland towards the value of services received from them and accordingly the service tax on such payments would be payable by the appellant by the 6th day of the month succeeding the month in which such debit entries have been made. We find that identical issue has been dealt with by the Tribunal in the case of Sify Technologies Ltd. v. Commissioner of Central Excise and Service Tax, LTU, Chennai [2011] 46 VST 68 (CESTAT-Chennai); [2011] 21 STR 252 (Tri.-Chennai), wherein the Tribunal has held that the Explanation added to rule 6(1) of the Service Tax Rules, 1994 cannot be given retrospective effect. The ratio of the above judgment of the Tribunal is squarely applicable to the facts of this case and just on account of use of the words "for the removal of doubts" in the Explanation to rule 6(1), this Explanation cannot

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VATLaws (Readable Version) - Friday, September 30, 2016 be treated as a clarificatory Explanation having retrospective effect. The apex court in case of Union of India v. Martin Lottery Agencies Ltd. reported in [2009] 24 VST 1 (SC); [2009] 14 STR 593 (SC) has held that the Explanation, though beginning with the words "for removal of doubts", is not to be treated as retrospective, when the effect of the Explanation was widening the tax net. Since in this case, the debit entries, in question, had been made during period prior to May 10, 2008, the same by applying the above Explanation, cannot be treated as payments made by the appellant to M/s. GECAS, Ireland and the appellant would be treated as having made payments to M/s. GECAS, Ireland, only in August, 2009 when the payments had Page No: 471 actually been made. Accordingly, the demand for the interest for alleged delay in discharging service tax liability by the due date is not sustainable. In view of the above discussion, the impugned order is not sustainable. The same is set aside. The appeal is allowed. Page No: 472

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