By TIOL News Service
MUMBAI, APRIL 08, 2013: WHAT better way to examine and explain the issue involved to the Revenue than by giving the following example. “When a florist delivers a bouquet on your request to your friend for which you make the payment, as far as the florist is concerned, you are the customer and not your friend.”
The appellant, M/s Vodafone Cellular Essar Ltd., Pune, provided telecom services in India to international in-bound roamers registered with foreign telecom network operators but located in India at the time of providing of the said services and claimed rebate on the ground that the payment was received in convertible foreign exchange from the foreign telecom network operators and the services rendered should be treated as export of service under the Export of Service Rules, 2005. Their claims were rejected by the adjudicating authority against which they filed appeals.
The lower appellate authority also held that the service provided by the Indian telecom operator to a person located in India, who is a subscriber of the foreign telecom operator, known as inbound roamer for effective enjoyment in India is chargeable to service tax in India and hence the appellant is not eligible for any rebate.
As their appeals were rejected the appellant is before the CESTAT.
After explaining the modalities involved in providing cellular services for a person who is a subscriber of a foreign telecom operator and relying on the Board Circular 111/5/2009-ST dated 24.02.2009 and the Majority decision in Paul Merchants Ltd. [2012-TIOL-1877-CESTAT-DEL] and the UK Vat Circular/GST law in Australia, the appellant submitted that the service provided by them is an “export of service” in terms of the Export of Service Rules, 2005 and they are entitled for rebate.
The Revenue representative stuck to the order passed by the lower authorities and inter alia submitted that the service has been rendered in India and at the time of rendering the service, the subscriber of the foreign telecom service provider is situated in India and hence the consumption and enjoyment of the service is in India; that in view of the CBEC Circular 141/10/2011-TRU dated 13.05.2011 [clarifying the circular dated 24.02.2009] the accrual of benefit should be judged based on where the effective use and enjoyment of service has been obtained. Accordingly, he pleaded for upholding the order.
The Bench observed -
“5.1 We have perused the agreement entered into between the appellant and the foreign telecom service providers. As per the said agreement, the appellant has agreed to provide telecom services to the customer of the foreign telecom service provider while he is in India using the appellant's telecom network. The consideration for the service rendered is paid by the foreign service provider. There is no contract/agreement between the appellant and the subscriber of the foreign telecom service provider to provide any service. Since the contract for supply of service is between the appellant the foreign service provider who pays for the service rendered, it is the foreign telecom service provider who is the recipient of the service. From the provisions of law relating to GST in UK and Australia, relied upon by the appellant, this position becomes very clear. Your customer's customer is not your customer. When a service is rendered to a third party at the behest of your customer, the service recipient is your customer and not the third party. For example, when a florist delivers a bouquet on your request to your friend for which you make the payment, as far as the florist is concerned you are the customer and not your friend.
5.2 Export of Service Rules, 2005 defines export in respect of taxable services. For this purpose, the services have been categorized into 3. Category I deals with specified services provided in relation to an immovable property situated in India. Category II deals with specified taxable services where such taxable service is partly performed outside India and states that when it is partly performed outside India, it shall be treated as performed outside India. Category III deals with services not covered under Category I and II. The telecom services falls under category III. As far as category III services are concerned, eh transaction shall be construed as export when provided in relation to business or commerce to a recipient located outside India and when provided otherwise to a recipient located outside India at the time of provision of such service. The additional conditions required to be satisfied are such services as are provided from India and used outside India; and consideration for the service rendered is received in convertible foreign exchange. As observed earlier, the service is rendered to a foreign telecom service provider who is located outside India and, therefore, the transaction constitutes export and we hold accordingly.
5.3 The Board's clarification vide Circular no. 111/5/2009-ST dated 24.02.2009 makes this position very clear. Para 3 of the Circular which is relevant is reproduced verbatim below -
“3.x x x”
Thus what emerges from the above circular is that when the appellant rendered the telecom service in the context of international roaming, the benefit accrued to the foreign telecom service provider who is located outside India since the foreign telecom service provider could bill his subscriber for the services rendered. This is the practice followed in India also. When an Indian subscriber, to say, MTNL/BSNL goes abroad and uses the roaming facility, it is the MTNL/BSNL who charges the subscriber for the telecom services including service tax, even though the service is rendered abroad by the foreign telecom service provider as per the agreement with MTNL/BSNL.
5.4 The Paul Merchant's case (supra) relied upon by the appellant dealt with an identical case. The question before the Tribunal in that case was when Agents/sub-agents in India of Western Union Financial Services, Panama, makes payments to an Indian beneficiary on behalf of the customer of Western Union in foreign country, whether the services rendered by the Indian agents/sub-agents should be treated as export or not under Export of Service Rules, 2005. By a majority decision, it was held that “the service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of Western Union abroad and this service is “business auxiliary service”, being provided to Western Union. It is the Western Union who is the recipient and consumer of this service provided by their Agents and sub-agents, not the persons receiving money in India”. The ratio of the said decision applies squarely to the facts of the present case before us. Once the ratio is applied, it can be easily seen that the service recipient is the foreign telecom service provider and not the subscriber of the foreign telecom service provider who is roaming in India.”
In fine, the Bench allowed the appeals with consequential relief.
In passing : Be that as it may, your enemy's enemy is your friend!
(See 2013-TIOL-566-CESTAT-MUM)
