MANU/CB/0573/2008

Equivalent C itation: [2009]17ST J191(CESTAT-Bangalore), 2009[14]S.T.R.706(Tri. - Bang.),

[2009]19STT263

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL

SOUTH ZONAL BENCH, BANGALORE
Appeal No. ST/126-130/2008 (Arising out of Orders-in-Appeal No. 4 to 8/2007 (H-
IV) Dated 26.12.2007 Passed by the Commissioner of Central Excise, Customs and
Service Tax (Appeals-II) Hyderabad)
Decided On: 04.11.2008
Appellants: Nipuna Services Ltd. (Presently known as Satyam BPO Ltd.)
Vs.
Respondent: The Commissioner of Central Excise, Customs and Service Tax
(Appeals-II)
Hon'ble Judges/Coram:
T.K. Jayaraman (T) and M.V. Ravindran (J), Members
Counsels:
For Appellant/Petitioner/Plaintiff: G. Shiva Dass, Adv.
For Respondents/Defendant: Joy Kumari Chander, JCDR
ORDER
T.K. Jayaraman, Member (T)
1. All these appeals have been filed against the Orders-in-Appeal No. 4 to 8/2007 (H-
IV) dated 26.12.2007 passed by the Commissioner of Central Excise, Customs and
Service Tax (Appeals-II) Hyderabad.
2 . Shri G. Shiva Dass, the learned Advocate, appeared on behalf of the appellants
and Smt Joy Kumari Chander, the learned JCDR, for the Revenue.
3. We heard both sides.
4 . The issue relates to the refund of credit on input services utilized in the service
exported by the appellants. A portion of the refund claim has been rejected. The
refund, which is rejected is relatable to export through Satyam Computers (India).
The denial of the refund is on the ground that the payment for services rendered by
the appellant was not received in convertible foreign exchange. According to the
Revenue, unless the payment for services rendered is in convertible foreign
exchange, the appellants would not be entitled for the refund in terms of Rule 5 of
Cenvat Credit Rules read with Notification 5/2006-CE (NT) as well as Rule 5 of Export
of Service Rules, 2005.
5. Shri Shiva Dass explained that the appellants rendered services to parties situated
outside India. On this point, there is no dispute. All these parties were sponsored by
Satyam (India). In other words, the contention of the learned Advocate is that
Satyam (India) is the agent of the appellant as far as procuring the foreign clients is
concerned. With regard to the receipt for the services rendered, it was explained that

12-06-2018 (Page 1 of 12) www.manupatra.com Hari Global advisory Services

the appellant raises the invoice in US Dollars to Satyam. In turn Satyam raises the
invoice to the foreign party. The foreign party makes the payment in US Dollars.
However after deducting their commission of 5% M/s. Satyam makes the payment to
the appellant in Indian Rupees. Shri Shiva Dass contended that in these
circumstances, it is clear that the receipt for the services rendered was only in
convertible foreign currency and therefore there is no violation of any of the rules.
Therefore, he argued that the appellants are entitled for the refund of input credit.
6 . Shri Shiva Dass took us through Rule 3 of the Export of Services Rule. He also
invited our attention to the amendment to the said Rules vide the following
notifications:
(i) 28/2005-ST, 13/2006-ST effective from 14.03.2006 and
(ii) 2/2007-ST effective from 01.03.2007.
6.1. The only question is whether the receipt of foreign exchange by Satyam and
converted and paid by Satyam to the appellants in equivalent Indian Rupees can be
considered as receipts of foreign exchange by the appellants to make them eligible
for the grant of refund of the input service used in providing the output service by
the appellants to customers of abroad directly. He referred to an explanation to Rule
5 of Cenvat Credit Rules, 2004 which reads as follows:
Explanation: For the purposes of this rule, the words 'output service which is
exported' means the output service exported in accordance with the Export of
Services Rules, 2005.
6.2. The services rendered by the appellant namely 'Business Auxiliary Service,'
'Business Support Service' and 'Data Base access or retrieval Service' fall under the
Rule 3(3) of the Export of Services Rules, 2005. For such services, the only
requirement to satisfy EOS is that the recipient of the taxable service is located
outside India and the service is used, in or in relation to commerce or industry. The
proviso to the said Rule 3(3) would apply to those cases where the recipient of such
service has any commercial or industrial establishment or any office relating thereto,
in India and if the following conditions are satisfied:
a) Order for provision of such service is made by the recipient of such service
from any of his commercial or industrial establishment or any office located
outside India;
b) Service so ordered is delivered outside India and used in business outside
India; and
c) Payment for such service provided is received by the service provider in
convertible foreign exchange;
6.3. It was argued that the above proviso to Rule 3(3)(ii)(i) will have no applicability
to the appellant for the following reasons:
a) The taxable services are provided to a recipient located outside India in
relation to commerce or industry
b) The recipient, as could be seen from the work orders, does not have any
commercial or industrial establishment or any office relating thereto in India

12-06-2018 (Page 2 of 12) www.manupatra.com Hari Global advisory Services

 c) The orders were placed from USA/Australia/other foreign country and they
were executed directly by Nipuna either as "onsite" overseas activity or
delivered to the overseas party located outside India. There was no
interaction in relation to these work orders with any office in India or any
commercial or industrial establishment in India.
6.4. An amendment was carried out to the EOS Rules by Notification No. 26/2005-ST
dated 07.06.2005. This did not affect the position of the appellants.
7 . Rule 3(3) of the EOSR was substituted with effect from 19.04.2006, which
prescribed conditions under Rule 3(1) and 3(2). The rules did not provide that one
has to satisfy conditions prescribed under Rule 3(1) as well as those prescribed
under Rule 3(2). Therefore, even if a person satisfies the conditions given under Rule
3(1) or Rule 3(2), then the service provided by him will qualify as an export of
service. Both the Sub-rules provide for separate set of conditions to qualify for export
of service. The appellant had satisfied all the conditions given in Rule 3(1), which is
not disputed by the Department. Therefore, the appellant was not required to satisfy
the condition under Rule 3(2) of receiving payments in foreign exchange. It is only
with effect from 01.03.2007 when Rule 3(2) was linked to Rule 3(c) of the EOSR, the
condition of receipt of payment in convertible foreign exchange became a mandatory
condition for export of service. In this case, as the entire refund is for the period
prior to 01.03.2007, the condition of receipt of money in convertible foreign
exchange cannot be held against the appellants for denial of the refund claim. It was
argued that there was no statutory requirement relating to receive payments in
foreign currency prior to 19.04.2006 and even after amendment dated 19.04.2006
the condition to receive payments in foreign exchange is not applicable as the
appellant has fully satisfied the condition of Rule 3(1) to qualify as export of services
and therefore the refund should be granted. The following case laws are relied on:
a) TNT India Private Ltd. v. The Commissioner of Service Tax, Bangalore
2007-TIOL-1038-CESTAT-BANG.
b) Prakash Air Freight Pvt. Ltd. v. CST, Bangalore MANU/CB/0301/2008
c) The Professional Couriers v. Commissioner of Service Tax, Chennai 2008-
TIOL-388-CESTAT-MAD
8. The intention of the government is not to export duties and taxes. The requirement
of receipt of money in foreign exchange should be interpreted liberally in cases
where it has been established that the services have indeed been exported. There is
no doubt that the services have been exported and refund has been allowed in cases
where FIRC have been produced by the appellants. It is only in those cases where
invoice though raised in US dollars but consideration received in Indian rupees that
the Department has denied the refund. The Tribunal in the case of PSA Sical
Terminals Ltd. v. CC Tuticorin MANU/CC/0191/2003 held that such payment should
also be considered as receipt in foreign currency.
9. If it is taken that Satyam is acting as an agent for the appellant for procurement of
orders and for receipt of payment from the service receiver, then also the appellant is
eligible for refund. The relation between the appellant and Satyam is clearly evident
from Clause 2 of the Alliance agreement which clearly shows that Satyam is working
for promoting the business of appellants only and not as a principal. In the present
case, Satyam has procured orders as an agent against commission and which have
been executed by Nipuna. In consideration of the services rendered by the appellant,

12-06-2018 (Page 3 of 12) www.manupatra.com Hari Global advisory Services

Satyam, as an agent, has received the payment on behalf of the appellant from the
service receiver and in return Satyam has received commission for his agency
services from the appellant. (Clause 3 of the Alliance agreement). Similar to Agency
contract, the entire responsibility for the execution of the contract is upon the
appellant as evidenced from Clause 8 of the Alliance agreement. The very fact that
the Department has granted refund in those cases where the export of services has
taken place to customers directly but invoice in foreign currency was raised on
Satyam and Satyam has paid in foreign exchange indicates that the tripartite
agreement between the appellants, Satyam and the customers is recognized by the
Department.
10. The learned JCDR while reiterating the impugned order, invited our attention to
the procedure devised by the Central Government for refund of cenvat credit in
respect of input or input services used in providing output service, which has been
exported. She referred to the condition of submission of the certificate from bank
certifying realization of export proceeds. It was argued that the refund under Rule 5
of Cenvat Credit Rules, 2004 is always subject to certain conditions. There is no
absolute right to entitlement of refund when the conditions are not fulfilled. The
contention that the refund claim was rejected only on the ground that payment in
foreign currency was received by Satyam and not by the appellant is not right as the
OIA has clearly stated "the ground on which a portion of the refund was sought to be
denied was non-receipt of proof of realization of export proceeds in foreign currency
in the form of FIRCs (Foreign Exchange Inward Remittance Certificates) by the
appellant".
1 1 . We have gone through the records of the case carefully. Briefly stated the
appellants rendered services to recipients situated abroad. This fact is not in dispute.
However, the payment for the said services was not directly received by the
appellants. In terms of the agreements, it was Satyam (India) who received the
amount in convertible foreign exchange from the recipient of the services rendered.
After, deducting the commission due to them, they paid the rest of the amount to the
appellant in Indian rupees. Revenue is denying the refund on the ground that the
appellant had not produced FIRC certificate from the bank. In other words, according
to the Revenue, in the absence of direct receipt of the convertible foreign currency by
the appellant, the conditions of Rule 5 of Cenvat Credit Rules read with EOS Rules,
would not be satisfied. Consequently, the refund claim was rejected. The appellants
are highly aggrieved over the impugned order upholding the order of the Original
Authority. A very important legal point involving interpretation of Rule 5 of the
Cenvat credit Rules/Rule 3 of EOSR has been raised.
1 2 . In order to have clarity, we have to go through the provisions of Export of
Service Rules right from the date of inception of the said rules. The point made by
the learned Advocate is that prior to 01.03.2007, there was no requirement at all in
respect of the services rendered by them to have received payment in foreign
exchange to qualify as Export of Service in terms of EOSR. Let us examine the entire
thing to see if the contention of the appellant is sustainable.
13. The Export of Services Rules, 2005 was notified by Notification No. 9/2005-ST
dated 03.03.2005. It was effective from 15.03.2005. The main rule is Rule 3. For
clarity we are reproducing the said Rule as notified on 03.03.2005.
3. Export of taxable service. - The export of taxable service shall mean, -

12-06-2018 (Page 4 of 12) www.manupatra.com Hari Global advisory Services

 (1) in relation to taxable services specified in Sub-clauses (d), (p),
(q), (v) and (zzq) of Clause (105) of Section 65 of the Act, such
taxable services as are provided in relation to an Immovable property
which is situated outside India;
(2) in relation to taxable services 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), (zzj), (zzl) (zzm) (zzn), (zzo), (zzp),
(zzs), (zzt), (zzv), (zzw), (zzx) and (zzy) of Clause (105) of Section
65 of the Act, such services as are performed outside India:
Provided that if such a taxable service is partly performed
outside India, it shall be considered to have been performed
outside India;
(3) in relation to taxable services, other than, -
(i) the taxable services specified in Sub-clauses (a), (f), (h),
(i), (j), (l), (m), (n), (o) (p) (q) (s) (t) (u) (v) (w) (x) (y),
(z) (zb) (zc), (zi), (zj),(zn) (zo) (zq), (zr), (zt) (zu), (zv)
(zw) (zza) (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl),
(zzm), (zzn), (zzo), (zzp), (zzq), (zzs), (zzt), (zzv), (zzw),
(zzx) and (zzy); and
(ii) the taxable service specified in Sub-clause (d) as are
provided in relation to an Immovable property, of Clause
(105) of Section 65 of the Act, -
(i) such taxable services which are provided and used in or in
relation to commerce or industry and the recipient of such
services is located outside India:
Provided that if such recipient has any commercial or
industrial establishment or any office relating thereto, in
India, such taxable services provided shall be treated as
export of services only if -
(a) order for provision of such service is made by the
recipient of such service from any of his commercial or
industrial establishment or any office located outside India;
(b) service so ordered is delivered outside India and used in
business outside India; and
(c) payment for such service provided is received by the
service provider in convertible foreign exchange;
(ii) such taxable services which are provided and used, other
than in or in relation to commerce or industry, if the recipient
of the taxable service is located outside India at the time
when such services are received.
Explanation. - For the purposes of this rule "India" includes
the designated areas in the Continental Shelf and Exclusive

12-06-2018 (Page 5 of 12) www.manupatra.com Hari Global advisory Services

 Economic Zone of India as declared by the notifications of
the Government of India in the Ministry of External Affairs
Nos. S.O. 429(E), dated the 18th July, 1986 and S.O.
643(E), dated the 19th September 1996.
13.1. The above rule gives the meaning of export of taxable service. There are
presently more than 100 taxable services. It is necessary to have a very clear concept
of export of services. In respect of goods, it is not very difficult to understand what is
meant by export. Goods are tangible objects. For. e.g. when we say export of sugar,
the sugar bags have actually moved out from our country to some destination
abroad. What about services? When do we say they are exported? In these days of
internet and information technology, it would be very difficult to give a precise
definition of export of services. However, Rule 3 reproduced above, attempts to
categorize the taxable services into three categories. We can observe that there is
Rule 3(1) we have 3(2) we have 3(3). Why such categorization?
13.2. A careful reading would reveal that Rule 3(1) relates to certain taxable services
provided in relation to an immovable property situated outside India. The said
services are specifically mentioned in the said Rule. For e.g. Insurance cover is given
to immovable property. When the said immovable property is situated abroad, the
insurance service provided to such property amounts to export of insurance service.
Similar is the case with regard to the other services mentioned in Rule 3(1). Suffice
to say that the services mentioned in Rule 3(1) relate to immovable property situated
abroad.
13.3. Rule 3(2) indicates various services. When the services are performed outside
India, they would be considered as Export of Services. In certain cases, a service
may be partly performed in India and partly abroad, in such case also, the services
would deemed to have been exported. Rule 3(2) enumerates various services. A
careful scrutiny would reveal that in respect of the services the performance is
tangible. Examples: erection, commissioning, installing services, cargo handling,
clearing and forwarding etc. In any case, in the present appeal, we are not concerned
with these categories.
13.4. Now let us come to Rule 3(3). It has got two Sub-clauses (i) and (ii). Sub-Rule
3(i) does not concern us as it only states that the services mentioned therein are
excluded from the scope of Rule 3(3). The reason is, these services have been
mentioned in Rule 3(2). Further, Sub-rule 3(ii) excludes services relating to namely
insurance provided to immovable property. After Sub-rule 3(ii), there is a Sub-clause
3(ii)(i). The numbering system could have been better. In any case, let us interpret
the said Sub-clause (i) which is below 3 (ii). This clause covers the services, which
are subject matter of the present appeals. A careful reading of the said Sub-clause (i)
of Sub-rule 3(ii) reveals that in respect of these services, when the recipient of the
services is located outside India, then the said services would be deemed to have
been exported. There is a proviso for this Sub-rule 3(ii)(i). This proviso states that if
the recipient who is located outside India has any commercial or industrial
establishment or any office in India, then such taxable services shall be treated as
export of services only when the three conditions a, b, c enumerated therein are
satisfied. One of such conditions is that the payment for service is received by the
service provider in convertible foreign exchange. The question is whether the
appellant would fall under this category? On going through the Sub-rule 3(ii)(i), it is
clear that the services provided should relate to commerce or industry. This is
satisfied. The recipient of services should be located outside India. This condition is

12-06-2018 (Page 6 of 12) www.manupatra.com Hari Global advisory Services

also satisfied. However, the condition relating to receipt of payment in convertible
foreign exchange in terms of the proviso is applicable only and if only, the recipient
has any establishment in India. As far as the appellants are concerned, their service
recipients do not have any office in India. Therefore, the requirement of receipt of
convertible foreign exchange as mentioned in the Rule 3(3)(ii)(i) would not be
applicable to them. What emerges from this analysis is that in terms of Export of
Service Rule, 2005, as it then stood, there is no requirement for the appellant to
receive payment in foreign exchange.
13.5. Now, we have to understand how far the position as per the above rules got
modified subsequently due to further amendments. Summing up, as far as the Export
of Service Rules 2005 is concerned, only in respect of services relating to 3(3)(ii)(i),
where the recipient has office in India, the requirement of payment in convertible
foreign exchange is a must to deem such services as Export of Services. In other
words, as long as the services specified in 3(3) are provided in relation to commerce
and industry and recipient of such services is located outside India and the service
recipient has no specified establishment in India, the appellant would be covered to
qualify for the benefits available to export of services.
14. Now, we have to understand the implications of an amendment vide Notification
No. 28/2005-ST dated 07.06.2005. For clarity the said amendment is reproduced
below:
1. (1) These rules may be called the Export of Services (Amendment) Rules,
2005.
(2) They shall come into force on the 16th day of June, 2005.
In the Export of Services Rules, 2005, in Rule 3, - 2.
(i) in Sub-rule (1), -
(a) for the word, brackets and letters "and (zzq)", the
brackets, letters and word", (zzq), (zzza), (zzzb), (zzzc) and
(zzzh)" shall be substituted;
(b) the following proviso shall be inserted at the end,
namely:
Provided that for the purposes of this Sub-rule, any taxable
services provided shall be treated as export of services only
if -
(a) such service is delivered outside India and used in
business or for any other purpose outside India; and
(b) payment for such service provided is received by the
service provider in convertible foreign exchange.;
(ii) in Sub-rule (2), -
(a) for the word, brackets and letters "and (zzy)", the
brackets, letters and word ", (zzy), (zzzd), (zzze) and (zzzf)"
shall be substituted;

12-06-2018 (Page 7 of 12) www.manupatra.com Hari Global advisory Services

 (b) after the first proviso, the following proviso shall be
inserted, namely:
Provided further that for the purposes of this Sub-rule, any
taxable services provided shall be treated as export of
services only if-
(a) such service is delivered outside India and used in
business or for any other purpose outside India; and
(b) payment for such service provided is received by the
service provider in convertible foreign exchange.;
(iii) in Sub-rule (3), -
(a) in Clause (i), for the word, brackets and letters "and
(zzy)", the brackets, letters and word", (zzy), (zzza), (zzzb),
(zzzd), (zzze), (zzzf) and (zzzh)" shall be substituted;
(b) in Clause (ii), for the brackets and letter "(d)", the
brackets, letters and word "(d) and (zzzc)" shall be
substituted.
14.1. A careful reading of the amendment would reveal two things. The main
changes have been brought about in Rule 3(1), 3(2). Of course there is some change
in Rule 3(3) also. As regards the changes in respect of 3(1) and 3(2), we can state
that there have been additions of certain more taxable services. We need not discuss
them here, as they are not relevant. But, the other important changes are the
insertion of following conditions.
(a) Such service is delivered outside India and used in business or for any
other purpose outside India
(b) Payment for service provided is received by the service provider in
convertible foreign exchange
14.2. We had already stated in the earlier paragraph that EOSR 2005 categorized the
services into three categories. By this amendment, in respect of the services relating
to categories in Rule 3(1) and 3(2), the above conditions have been inserted to deem
such services as export of service. It is very clear that the services rendered by the
appellants would not come under Rule 3(1) and Rule 3(2) of EOSR, 2005.
Consequently, the condition with regard to the receipt of payment in convertible
foreign exchange would continue to inapplicable. We mentioned that there was some
change in Sub-rule (3) but that change is not relevant for us. Thus, it can be seen the
Government has deliberately not amended Rule 3(3) while amending Rule 3(2) and
3(1) providing for receipt of payment in convertible foreign exchange to deem the
services relating to said rule as export of service. The conclusion is that Notification
28/2005-ST dated 07.06.2005 has not changed the position with regard to the
services rendered by the appellant from what was obtaining in terms of Notification
No. 9/2005-ST dated 03.03.2005.
1 5 . Now we have to understand the effect of amendment by Notification No.
13/2006-ST dated 19.04.2006 for clarity we are reproducing the said amendment in
toto.

12-06-2018 (Page 8 of 12) www.manupatra.com Hari Global advisory Services

In exercise of the powers conferred by Sections 93 and 94 of the Finance Act,
1994 (32 of 1994), the Central Government hereby makes the following rules
further to amend the Export of Services Rules, 2005, namely:
1 (1) These rules may be called the Export of Services (Amendment)
Rules, 2006.
(2) They shall come into force on the date of their publication in the
Official Gazette.
2. In the Export of Services Rules, 2005 (hereinafter referred to as
the said rules), in the preamble, for the words, brackets and figures
"Sub-section (1) and Sub-section (2) of Section 94", the words and
figures "Sections 93 and 94" shall be substituted:
3. In the said rules, for Rule 3, the following rule shall be substituted,
namely:
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 specified 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

12-06-2018 (Page 9 of 12) www.manupatra.com Hari Global advisory Services

 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 service 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 service 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....
15.1. The above amendment has brought about important changes. When the Export
of Service Rule 2005 were introduced the services were categorized under Rule 3(1),
3(2), 3(3). The amendment of 13/06 has changed this position. After the
amendment, Sub-rules 3(1)(i) and 3(1)(ii) enumerates a large number of taxable,
service within its scope. Rule 3(1)(iii) excludes certain services from its scope. Rule
3(2) states that the provision of any taxable service shall be treated as Export of
Service when the following conditions are satisfied, namely (i) (ii)
i. such service is delivered outside India and used outside India; and
ii. 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
16. We find that the condition of payment in foreign exchange is not mentioned in
Rule 3(1). When that condition is not mentioned, there is no requirement for services
enumerated in 3(1) for receipt of payment in foreign exchange rate so as to quality
as export of Foreign Service. In other words, 3(1) and 3(2) appear to be
independent. As far as the appellant is concerned, their services would squarely fall
within the category of 3(1) and therefore, the conditions given in 3(2) would not be
applicable to them. In fine, Notification dated 19.04.2006 has also not changed the
position as far as the appellant is concerned.
1 7 . Now let us examine the last amendment vide Notification 2/2007 ST dated
01.03.2007. For clarity the said amendment is reproduced below:

12-06-2018 (Page 10 of 12) www.manupatra.com Hari Global advisory Services

 In exercise of the powers conferred by Sections 93 and 94 or me Finance Act,
1994 (32 of 1994), the Central Government hereby makes the following rules
further to amend the Export of Services Rules, 2005, namely:
1. (1) These rules may be called the Export of Services (Amendment)
Rules, 2007.
(2) They shall come into force on the date of their publication in the
Official Gazette.
2. In the Export of Services Rules, 2005, in Rule 3, for Sub-rule (2),
the following Sub-rule shall be substituted, namely:
(2) The provision of any taxable service specified in Sub-rule
(1) shall be treated as export of service when the following
conditions are satisfied, namely:
(a) such service is provided from 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.
17.1. A scrutiny of the above amendment reveals that the condition enumerated in
Sub-rule 2 are applicable to the services mentioned in Sub-rule 1. This notification is
effective from 01.03.2007. In other words, all the services which are mentioned in
Sub-rule 1 including the services rendered by the appellant would be deemed to be
treated as export of service only when the payment is received by the service
provider in convertible foreign exchange. Alternatively, the appellant has to fulfill the
conditions of receipt of payment in convertible foreign exchange only with effect from
01.03.2007. As the period involved in the present case is prior to 01.03.2007, the
appellant is not hit by the said condition. Legally they are entitled for the refund in
terms of the existing rule.
18. When we examine the factual situation, it is seen that the appellant has directly
rendered the services to the recipients abroad. This is an undisputed fact. The
payment for the services rendered has also been made in foreign currency. Revenue
is denying the refund for the simple reason that the appellant themselves had not
directly received the payment in foreign currency. In our view, the stand of the
Revenue is not sustainable. If Revenue's contention is accepted it would amount to
levying service tax on services exported. It is axiomatic that goods and services
exported would not be subjected to local taxes. Denying the refund would violate this
fundamental principle of taxation. Further, the fact of the matter is Satyam (India)
acts as an agent of the appellant. They procure business for the appellants by virtue
of their brand image and reputation. It is the appellants who render the services
directly to the recipients situated abroad. The payment is also rendered only in

12-06-2018 (Page 11 of 12) www.manupatra.com Hari Global advisory Services

foreign exchange though by their agent, viz. Satyam (India). This is evident from the
plethora of record submitted by the appellant. Hence, even if it is assumed that right
from the beginning, there was a requirement for getting the payment in foreign
exchange, we would hold that the appellant would be satisfying such a condition also
by a liberal interpretation of the notification. Alternatively, what is received by the
agent Satyam in foreign exchange would be deemed to have been received by the
appellant for the purposes of EOSR.
Summing up
19. There is no merit in the impugned orders. Thus, the appeals are allowed with
consequential relief.
(Operative portion of this Order was pronounced in open court on conclusion of
hearing)

© Manupatra Information Solutions Pvt. Ltd.

12-06-2018 (Page 12 of 12) www.manupatra.com Hari Global advisory Services