By TIOL News Service

MUMBAI, MAY 27, 2015: THE Commissioner (Appeals) upheld the rejection of refund claim amounting to Rs.10,89,279/- on the ground that the appellant have not received the payment in convertible foreign exchange but was received in Indian rupees. While holding so the lower appellate authority relied on the decision in ETA Travel Agency Pvt. Ltd - 2007-TIOL-1182-CESTAT-MAD.

Before the CESTAT, the appellant submitted that though the payment for the export services were received in Indian rupees but the same were received through Deutsche Bank who have issued Foreign Inward Remittance Certificate (FIRC) as statutorily provided under Exchange Control Manual of Reserve Bank of India. Furthermore, in the FIRCs it was certified - "We also certify that the payment thereof has not been received in non-convertible rupees or under any special trade or payments agreements."

Inasmuch as it cannot be said that merely because the payment was received in Indian rupees it is not a convertible foreign exchange, added the appellant. The appellant also referred to Exchange Control Manual wherein the issuance of such FIRC is statutorily provided in the case of receipt or remittance of foreign exchange. It is also submitted that as per Notification No. FEMA 9/2000-RB dated 3rd May, 2000 issued by Reserve Bank of India under Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 it is provided that when a person receives in India, payment in rupees from the account of the bank or any exchange house situated in any country outside India, maintained with authorised dealer, the said person shall be deemed to have repatriated the realised foreign exchange to India. The Foreign Exchange Notification No. FEMA 14/2000-RB dated 03/05/2000 issued by Reserve Bank of India was also adverted to. Reliance is also placed on the decisions in J.B. Boda and Company Private Ltd AIR 1997 SC 1543, Shelpan Exports - 2010-TIOL-1037-CESTAT-AHM; National Engineering Industries Ltd. - 2008-TIOL-939-CESTAT-DEL; Nipuna Services Ltd. - 2009-TIOL-709-CESTAT-BANG

The AR reiterated the departmental stand.

The Bench extracted Clause 3A.6(i) of the Exchange Control Manual, para 4 of the FEMA Notification 9/2000-RB dated 3rd May, 2000, para 3 of FEMA Notification 14/2000-RB dated 03/05/2000 issued by Reserve Bank of India and inter alia observed -

+ It is clear that Foreign Inward Remittance Certificate (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 other than non-convertible foreign exchange, in other words, the payment is in convertible foreign exchange.

+ When a person receives in India payment in 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 the present case, the payment in Indian rupees was received from foreign country through Deutsche Bank. Therefore, the said Indian rupee is nothing but foreign exchange repatriated from foreign country to India. Therefore, such payment in rupees is equal to the foreign exchange.

+ The payment in rupees from the account of a bank situated in any country (other than a member country of Asian Clearing Union or Nepal or Bhutan) is a manner of receipt of foreign exchange. In the present case, as is evident that the Indian rupees was received thru the account of Deutsche Bank which is situated in foreign country. Therefore, in terms of Regulation 3 made under Section 47 of the Foreign Exchange Management Act, 1999, in the present case the foreign remittance in Indian rupees through Deutsche Bank is the receipt of payment in convertible foreign exchange.

After relying on the apex court decision cited by the appellant, the Bench held -

+ I am of the considered view 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 Export of Service Rules, 2005 stand complied with. The appellant filed the appeal in respect of the total amount of Rs. 12,62,158/-. However, from the Order-in-Appeal, I find that an amount of Rs. 1,64,081/- was held as admissible. Therefore, the appellant should not be aggrieved with this part of the amount.

In respect of other issues concerning admissibility of credit availed in respect of security services and air travel services, the Bench observed that primarily the issue was not raised in the SCN but nonetheless the said services are to be considered as having a direct nexus with export services and hence are to be treated as Input service.

The order rejecting the refund of Rs.10,98,077/- was set aside and the appeal was allowed.

In passing: Also see 2015-TIOL-741-CESTAT-MUM - Urschel India Trading Pvt. Ltd.

(See 2015-TIOL-956-CESTAT-MUM)