By TIOL News Service

MUMBAI, NOV 01, 2018: THE appellant is a 100% subsidiary of SHOP YOUR WORLD PTE LTD, SINGAPORE (Parent Company). The Parent Company sells their products to their customers in India.

In terms of the Service Agreement entered into between the Appellant and its Parent Company, the Appellants were providing various services classified as "Business Auxiliary Services" to their Parent Company, such as collecting of payments from their customers on behalf of the Parent Company, co-coordinating with Courier, customer support service etc. and for the said services they were being paid service charges in the form of commission, by their Parent Company.

Clause 4 of the service agreement reads -

The Company shall pay to Import Express compensation for the services as follows:

The service provided in Annexure 'A' shall be the cost incurred by Import Express for providing these services plus 4%.

Import Express shall invoice the Company on a monthly basis. All such payments shall be made by the Company within 7 days from the date of the receipt of such invoice. The amount owed for services rendered by Import Express on behalf of the company may be netted off against the receivables of the company collected by Import Express on behalf of the company.

Many a times the customers made payment for the Parent Company's products to the Appellant in India and the appellant in turn after deducting their service charge/commission in term of Clause 4 of the Service Agreement, transferred the remaining amount to the Parent Company at Singapore through banking channel.

Refund claim filed under the Export of Services Rules, 2005 was rejected by the lower authorities on the ground that in the aforesaid instances no services were exported.

The appellant is before the CESTAT and cites the decisions in National Engineering Industries -2008-TIOL-939-CESTAT-DEL, Pam Pharma & Allied Machinery Co. Pvt. Ltd. -2014-TIOL-2342-CESTAT-MUM and Arafaath Travels Pvt. Ltd. -2017-TIOL-3659-CESTAT-MAD in support of their contention that the procedure of retaining the service charge/commission amount and only remitting the remaining portion of proceeds will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of monies in convertible foreign exchange.

The AR justified the stand taken by the lower authorities.

The Bench considered the submissions and by relying upon the apex court decision in J. B. Boda & Co. Pvt. Ltd. Vs. CBDT - 2002-TIOL-2578-SC-IT observed thus -

"6. According to me, since out of the total payment to be made by the Appellant in India to its Parent Company at Singapore, the same was reduced to the extent of his service charges/commission and the remaining amount was remitted to the foreign Parent Company in foreign exchange, and since such Indian Rupees was obtained in lieu of foreign exchange, therefore the same will be deemed to be convertible exchange…"

After extracting the provisions of rule 3(2) of the Export of Services Rules, 2005, the Bench further observed -

"8. Although Rule 3(2) requires the payments to be received by the service provider i.e. the Appellant herein, in convertible foreign exchange, but in view of the decision mentioned above and in particular the decision of the Hon'ble Supreme Court in the matter of J. B. Boda& Co. Pvt. Ltd. (supra) and the decision of the Tribunal in the matter of National Engineering Industries Ltd. (supra) and Arafaath Travels Pvt. Ltd. (supra), even the procedure of retaining the service charge/commission amount and only remitting the remaining portion of the proceeds in foreign exchange will have to be necessarily treated as saving of foreign exchange and by implication is akin to receipt of monies in convertible foreign exchange…"

Concluding that the appellant is entitled for refund, the appeal was allowed.

(See 2018-TIOL-3312-CESTAT-MUM)