By TIOL News Service

MUMBAI, DEC 04, 2017: THESE are Revenue Appeals against the order passed by Commissioner (Appeals) allowing/upholding the Respondent's claim of refund of CENVATcredit of input services used in export services.

The facts are that the Respondent is engaged in providing services under the category of Business Support Service (BSS). They provide SMS Aggregator services to M/s Facebook under an agreement for which the bills were raised to M/s Facebook, Ireland and the amount was received in convertible foreign currency.

They filed four refund applications towards refund of unutilized CENVAT credit of input services used for export of services in terms of Rule 5 of CCR, 2004.

The claim for the period January - March 2014 and April - June 14 were partly sanctioned whereas the two claims pertaining to July - Sep' 14 and Oct - Dec' 14 were rejected on the ground that the services of BSS provided by the Respondent to M/s Facebook does not qualify as export of service.

Both, Revenue and the assessee filed appeals before the Commissioner(A) who rejected the ones filed by the Revenue and allowed those filed by the assessee.

Hence, Revenue is in appeal.

The grounds taken by the Revenue for reversal of the order are -

1. The Respondent providesSMS Aggregator services to Facebook within India. The SMS Messages are sent to subscribers of Facebook as directed by Facebook. The assessee provided the services in India on behalf of Facebook. Service is provided and consumed in India. Both the actual service provider and recipients of services are located in India. Facebook hired the assessee to provide services in India to the subscribers in India.

2. It is a case of both the service provider and service recipient being located in India and accordingly as per Rule 3 of Place of Provision of Services Rules (POP), the place of provision of service is the location of service recipient of service. As per Rule 8 of POP, place of provision of service is the location of the recipient of the service where the service provider and service recipient are located in the same taxable territory. Therefore the transaction under consideration cannot be treated as export of services.

The respondent inter alia submitted that -

“They perform service on behalf of Facebook in the capacity of independent contractor. They are raising monthly bill to Facebook based on delivery report without indicating the service tax and the payment is received in foreign convertible currency from Facebook towards these services. They are working as an aggregator/facilitator of all SMS's either originating from Facebook or subscribers of Facebook to transmit between them as per specific discretions of Facebook. They cannot charge any fee to the subscriber or send any message to any subscriber other than the SMS message as directed by Facebook. Thus they are simply acting as an aggregator providing SMS Aggregator services to Facebook i.e. HTTP Application Programming Interface (API) connected with Facebook server which are located in USA & Ireland. The Facebook initiates the transmission of SMS from their server located outside India through assessee's API connectivity and the asseesee provides the services to Facebook by sending or receiving SMS to subscriber of Facebook as located in India on instruction of Facebook. As per the agreement, Facebook is liable to pay fees for the services provided by them to the subscribers of Facebook i.e. API Connectivity.”

The Bench considered the submissions and observed -

+ The Respondent has no connection / interaction or relation with the Indian subscribers of Facebook. The services are provided under the terms and conditions of the agreement made between M/s Facebook Ireland and the Respondent.

+ The Respondent is not charging any service charges or part thereof from the Indian subscribers. The CBEC itself in its education guide Para 5.3.3 has clarified that the person who is obliged to make payment to the Service provider is Service Recipient. In the present case it is not only the payment for services but even going further it is service agreement between the Respondent and M/s Facebook Ireland which specifically provides for terms and conditions of services to be rendered under the instructions of M/s Facebook.

+ There is no contractual agreement between the subscribers of Facebook and Respondent. The fee is charged to Facebook. The Respondent has no control over the SMSs to be sent or received. The subscribers of Facebook are not even aware of the existence of Respondent and the type of services rendered by the Respondent.

+ It is expressly stated in Para 3 of the agreement that “Webaroo will not charge any fee to, make any offer to otherwise communicate with any subscriber in connection with the service or this agreement”. It is absolutely clear from the nature of services and the agreement therefor that the respondent cannot be treated as service provider to subscribers of Facebook.

+ Subscribers are not even aware of the existence of the Respondent and their role in services provided by Facebook. The Respondent and the subscribers are not into contractual agreement. There is no consideration flowing to the Respondent from such subscribers. The Respondent is working under the directions/instructions and discretion of Facebook. The subscribers are dependent upon Facebook for receipt / delivery of their SMSs.

+ Coming to the Rule 3 of the Place of Provision of Service Rules, 2012 and its application to the instant case, we find that the proviso to said Rule states that in case location of the service provider is not available in the ordinary course of business, the place of the provision shall be the location of the provider of Service. Further as per Rule 2 (i) of the said Rules the “Location of Service Provider” is the location of his business establishment. In the case in hand there is no dispute about the facts that the service recipient is Facebook which is located outside India and thus its location is available. Hence the Indian subscribers of Facebook cannot be termed as “Service Recipient”. In such case even the Rule 8 of POP would not apply as the service recipient i.e. Facebook is situated in Ireland which is located outside India, a non-taxable territory.

+ If the revenue considered the services of Respondent as having not been rendered to outside taxable territory, it should have issued demand notice to the Respondent for service tax on bills raised by them to M/s Facebook. Having chosen not to do so, the revenue accepts that the services has been rendered to party situated outside India being falling under the category of “Export of Service” and it not taxable.

+ Hence, in such case the rejection of claim under consideration is not correct. There is no dispute about the fact that the consideration of service was received from M/s Facebook in convertible Foreign Exchange, therefore, there is no doubt in our mind that the services of the respondent is clearly exported to Facebook, Ireland, hence the refund claim under Rule 5 of Cenvat Credit Rules, 2004 is admissible to the respondent.

Concluding that there is no merit in the appeals filed by the Revenue, the same were dismissed.

(See 2017-TIOL-4276-CESTAT-MUM)