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2018 DIGILAW 2163 (BOM)

Commissioner Of Service Tax-iv v. Citi Bank N. a.

2018-09-04

M.S.SANKLECHA, RIYAZ I.CHAGLA

body2018
ORDER M.S. Sanklecha, J. - This appeal under Section 83 of the Finance Act, 1994 (the Act) read with 35G of the Central Excise Act, 1944, challenges the order dated 5th August, 2015 passed by the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal). 2. Mr. Jetly, Learned Counsel in support of the appeal, urges only the following question of law, for our consideration :- "Whether in the facts and circumstances of the case, the CESTAT was right in holding that the custodial services provided by the assessee to Foreign Institutional Clients (FII''s) amounts export of service as provided under Rule 3 of Export of Services Rules, 2005, for the period from May, 2006 to December, 200. " 3. Respondent is registered under the category of Banking and Financial Services as defined under Section 65(12) of the Act, providing taxable service under Section 65(105) (zm) of the Act. This appeal is for the period May, 2006 to December, 2007. 4. Respondent renders custodial services to their client situated outside India. Respondent claims rebate of Service Tax paid under the Export of Services Rules, 2005. However, the same was rejected by the authorities on the ground that the custodial services are performed in India in respect of investments made in Indian Companies. Thus, there is no Export of Services so as to be covered by Export of Services Rules, 2005 as claimed by the respondent. 5. However, in appeal, the impugned order of the Tribunal allows the respondent''s Appeal by holding that the services are performed by the respondent to a recipient abroad. Thus, would be covered by Export of Services Rules, 2005. It followed the decision of its Coordinate Bench in the case of Nipuna Services Ltd. vs. CCE, Hyderabad - 2009 (14) 5. T.R. 706 (Bang.) . 6. Mr. Jetly, Learned Counsel for the Revenue submits that all the services by the respondent are performed in India in respect of investment in India. Therefore, the custodial services rendered by the respondent would not be an export of services covered by the Export of Services Rules, 2005. 7. For the proper appreciation of the controversy, we reproduce Rule 3 of the Export of Services Rules, 2005 as existing at the relevant time, which reads as under :- "3. Export of taxable service. Therefore, the custodial services rendered by the respondent would not be an export of services covered by the Export of Services Rules, 2005. 7. For the proper appreciation of the controversy, we reproduce Rule 3 of the Export of Services Rules, 2005 as existing at the relevant time, which reads as under :- "3. Export of taxable service. - (1) Export of taxable services shall, in relation to taxable services, - (i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of Section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India; (ii) specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv) (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm)(zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf) and (zzzp) of clause (105) of Section 65 of the Act, be provision of such services as are performed outside India : Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India; (iii) specified in clause (105) of Section 65 of the Act, but excluding - (a) sub-clauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and (c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service : Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such services is made from any of his commercial establishment or office located outside India. (2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, namely : (a) such services is delivered outside India and used outside India; and (b) payment for such service provided outside India is received by the service provider in convertible foreign exchange. Explanation. - For the purposes of this rule "India" includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September, 1996." 8. It would be noticed that the services rendered by the respondent is in the nature of custodial services performed under Section 65(105)(zm) of the Act. Rule 3 of the Export of Services Rules, 2005 at the relevant time, classifies export of taxable services into three categories namely - (a) services rendered/provided in relation to immovable property situated outside India; (b) performance based services which are necessarily to be performed outside India; and (c) services in relation to business or commerce, provided to recipient located outside India at the time when such services are provided. The clauses (a) & (b) above specify the taxable services which fall within its ambit. Section 65(105)(zm) of the Act does not find mention in clauses (a) & (b) above. It is also not excluded from clause (c). Therefore, it falls within clause (c) above. 9. It would be evident from Rule 3 of the Export of Services Rules that Section 105(zm) of the Act, is not specifically mentioned either as a service provided in relation to immovable property nor as the services specified as performance basis services in subclauses (i) & (ii) of Rule 3 of Export of Services Rules, 2005. Nor is it excluded from subclause (iii) which deals with providing services in relation to business or commerce to a recipient located outside India. The custodial services provided, would be clearly covered by sub-clause (iii) of Rule 3 of the Export of Services Rules, 2005 and the respondent would be entitled to its benefit. 10. Nor is it excluded from subclause (iii) which deals with providing services in relation to business or commerce to a recipient located outside India. The custodial services provided, would be clearly covered by sub-clause (iii) of Rule 3 of the Export of Services Rules, 2005 and the respondent would be entitled to its benefit. 10. In fact, the Central Board of Excise & Customs on 24th February, 2009 has issued a clarificatory Circular No. 111/5/2009, clarifying that in respect of services following under category/clause (c) above i.e. Rule 3(1)(iii) of the Export of Services Rules, 2005, the relevant factor is the location of the Services recipient and not the place of performance. It also clarified that the phrase used ''outside India'', is to mean that the benefits of the service is to accrue outside India. This Circular which is binding on the Revenue, also concludes the issue in favour of the respondent. 11. In view of the above, as the answer to question as proposed is self evident and covered by the binding Circular, no substantial question of law arises. Thus, not entertained. 12. Accordingly, appeal dismissed.