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BRIEF FACTS OF THE CASE
1.
M/s Duke Corporate Education India Private Limited having its business
premises at Ground Floor, Academic Block, IIM, Vastrapur, Ahmedabad-380015
(hereinafter referred to as the said service provider) is registered with Service Tax
Commissionerate, Ahmedabad under the category of Management Consultants,
Commercial Training and Coaching, Business Auxiliary Services, Intellectual Property
Rights Services and Legal Consultancy Services and is holding service tax registration
number AACCD5507EST001.
2.
Audit of the records of the said service provider for the F.Y. 2007-08 to 2008-09
was carried out and vide Revenue Para – 2 of the audit report No. 184/09-10 dated
10.03.2010 it was observed that:“During the course of audit, it was observed that the assessee has charged Rs.7,68,339/- during the year
2007-08 and Rs.70,02,035/- during the 2008-09 to their Holding Company M/s Duke CE, USA for support
services provided by the assesse. On verification of the invoice and Annexure to the invoices, issued by the
assesse to M/s Duke CE, USA, it appears that the assesse has provided support services in India. The
taxable service “Commercial training or Coaching” is defined under Section 65(105)(zzc). In the Export of
Services Rules, 2005, Commercial Training or Coaching service is classified under category (ii) and service
performed outside India wholly or partly is to be treated as export of Service. The assesse has not
produced any evidence to establish that services are performed outside India or partly performed outside
India. Further in rule (2)(a) of Export of Services Rules, 2005, it is provided that “such service is performed
from India and used outside India”. Any service provided from India and used outside India is considered
as export of services. In the present case it appears that services provided by the assessee are used in
India. Therefore, support services provided to M/s Duke CE, USA cannot be considered as Export of Service
and service tax is required to be paid. The service tax liability is worked out as under:Year
Amount Received
Taxable Value
Service Tax
2007-08
7,68,339/-
6,83,819/-
84,520/-
2008-09
70,02,035/-
62,31,786/-
7,70,249/-
TOTAL
8,54,769/-
(Source:- Audit Report No. 184/09-10 dated 10.03.2010)
3.(i) In this regard letters from JRO were issued to the said service provider seeking
clarification with regard to the audit observations and the replies to the same were
received in the Range Office.
(ii) Also, summons dated 11.10.2012 & 17.10.2012 were issued to the service provider
and in response to which statement of Shri Nikhil Raval, authorized person of the said
service provider was recorded on 18.10.2012 by the Range Office under the provisions
of Section 14 of the Central Excise Act, 1944 made applicable to service tax matters
vide section 83 of the Finance Act, 1994.
(iii) The observations of the Range Office derived from the correspondences and
statement recorded are as follows:(I) Scope of the Impugned Activites/Services:(a) The said service provider vide letter dated 05.10.2012 had stated regarding the
scope of “Exchanges of Program Support” under which the impugned services were
provided by the said service provider. The same is reproduced as below:“Duke Corporate Education is the foremost global provider of custom corporate education services that
helps organizations address their business challenges. The Company was created to provide intensively
customized corporate education services focused on addressing business challenges. The Company
focuses education on what the client's people need to know, do and believe in order to address current or
anticipated challenges and attain specific business objectives.
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The organization helps its clients implement their strategies through development of their people and
differs from a traditional business school or professional services firm in that the organization is not solely
dependent on the organization's or any single university's faculty. To meet the broad range of client
needs, Duke CE utilizes quality faculty from numerous business schools, other external professionals and
Duke CE experts from across the company. The approach of utilizing the best resources to meet the needs
of a client is central to Duke CE's business model.
This approach requires the exchange of services and support across all parts of Duke CE in a fair and
equitable manner. To achieve this, Duke CE has employed the following standard:
A. The parties shall upon request make commercially reasonable efforts to provide to one another
program support (including faculty). Such faculty shall remain employees or independent contractors of
the party providing the faculty.
B. The parties shall pay one another for program support as follows:
i.
To the extent Duke CE provides to Duke India program support (including faculty), Duke India shall
pay Duke CE for the costs of such program support at an amount equal to (A) the fee charged to the client
for such support, in the case of support provided by Duke CE though its employees, or (B) the actual cost
to Duke CE of such support, in the case of support provided by Duke CE through independent contractors.
ii.
To the extent IIM-A provides to Duke India program support (including faculty), Duke India shall
pay IIM-A for the costs of such program support at an amount equal to (A) the fee charged the client for
such support, in the case of support provided by IIM-A through its employees and (B) the actual cost to
IIM-A of such support, in the case of support provided by IIM -A through independent contractors.
This approach has been supported across Duke CE as well as with third party partner schools.
(b) Also vide letter dated 28.09.2012, the said service provider stated that:“Duke CE, USA is a global learning and development company that provides learning methods, process
and educators to help organizations achieve their goals. Duke CE educates and develops people at every
entry level so that they can contribute to business success. Duke CE delivers corporate education in 63
countries around the world.
In certain occasions, Duke CE, USA requires to provide certain support services from Duke CE India. In
this regard, personnel’s of Duke CE, India executes the said support services.
(c) During the course of recording of the statement on 18.10.2012, Shri Nikhil
Raval, Authorised person of the said service provider deposed that:“M/s Duke Corporate Education (India) Pvt. Ltd. is an Indian Counterpart of M/s Duke CE USA which is a
globally reputed company in the area of executive training. We are engaged in providing specialized
executive training to the officials of our clients.
There are three ways in which we are getting our clients i.e., we earn our revenue from
(a) Company’s who wish to provide executive training to their employees / key personnel’s contact
us for the same.
(b) We ourselves approach the company’s to have orders from them for training their executives.
(c) Sometimes our parent company i.e., M/s Duke USA during the course of providing the services
to their clients requires support from M/s Duke Corporate Education (India) Pvt. Ltd. in certain
manner. These may include specialized training in context of Indian Subcontinent or the areas of
specialization of M/s Duke India.
In the first two cases, we enter into written agreement with the clients directly whereby the scope of
the services, time of services, due date of delivery, consideration / professional fees to be paid etc.
are agreed upon.
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In case of the third case i.e., cases where support in required by M/s Duke USA from us, we normally
agree upon the scope of the services vide our inter-company correspondences only. No written
agreement has been entered for these support services.”
(II) Monetary Consideration Charged / Received for the Impugned Activites /
Services:(a)
The details regarding the invoices raised for providing the said services was
submitted by Shri Nikhil Raval, Authorised signatory of the said service provider
during the record of the statement on 18.10.2012.
(b)
Further, Shri Nikhil Raval, authorized signatory of the said service provider
during the record of statement submitted that:“In cases where the services are provided to clients directly by entering the agreements with them, the
consideration is received directly from the clients in our bank accounts either by cheque or wire
transfers.
While in third case where the services to the clients of M/s Duke USA are provided by us, the
consideration is received from M/s Duke CE, USA in our bank accounts.”
(c)
As per the details submitted by the said service provider, the invoices raised for
the said services from the F.Y.2007-08 and F.Y.2011-12 are as under:TABLE-1
S.
No.
F.Y.
Export
Invoice Date
Export Invoice
Number
Name of the
Party
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
2007-08
2008-09
2009-10
2009-10
2009-10
2010-11
2010-11
2010-11
2010-11
2010-11
2010-11
2010-11
2010-11
2011-12
2011-12
2011-12
2011-12
March-08
March-09
30-Apr-09
31-Aug-09
31-Mar-10
31-May-10
31-Jul-10
31-Aug-10
30-Sep-10
31-Oct-10
31-Jan-11
28-Feb-11
31-Mar-11
31-Oct-11
12-Dec-11
12-Mar-12
12-Mar-12
DCEI/2007-08/0001
DCEI/2007-08/0001
DCEI/2010-10/2010
DCEI/2010-02/2010
DCEI/2010-09/2010
DCEI/2011-11/2010
DCEI/2011-01/2011
DCEI/2011-02/2011
DCEI/2011-03/2011
DCEI/2011-04/2011
DCEI/2011-07/2011
DCEI/2011-08/2011
DCEI/2011-09/2011
2011 C March
2011 D March
2012 D March
2012 E March
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
S.No.
Amount Billed
(in F.C.)
Amount Billed
(in INR)
18990.00
768339
169475.08
7002035
-4500.00
-226358
18461.54
891862
1550.00
69797
15500.00
719591
12000.00
557300
5538.46
257437
1538.46
69063
7700.00
348387
2960.00
137586
1480.00
67356
9483.08
428752
19303.53
896923
20121.24
919180
20857.36
971338
25462.52
1256877
345921.27
15135463
(d) As per the details submitted by the said service provider, the receipt of the said
invoices reflected in Table-1 are as under:
Export
Export Invoice
Invoice Date
Number
1
March-08
2
March-09
DCEI/200708/0001
DCEI/200708/0001
TABLE-2
Amount
Name of the
Received
Party
(in INR)
Receipt
Date
FIRC No.
FIRC Date
Duke CE, USA
768339
15-Dec-11
103293
16-Aug-12
Duke CE, USA
7002035
15-Dec-11
103293
16-Aug-12
5
3
30-Apr-09
4
31-Aug-09
5
31-Mar-10
6
31-May-10
7
31-Jul-10
8
31-Aug-10
9
30-Sep-10
10
31-Oct-10
11
31-Jan-11
12
28-Feb-11
13
31-Mar-11
14
15
16
17
31-Oct-11
12-Dec-11
12-Mar-12
12-Mar-12
DCEI/201010/2010
DCEI/201002/2010
DCEI/201009/2010
DCEI/201111/2010
DCEI/201101/2011
DCEI/201102/2011
DCEI/201103/2011
DCEI/201104/2011
DCEI/201107/2011
DCEI/201108/2011
DCEI/201109/2011
2011 C March
2011 D March
2012 D March
2012 E March
OIO No. 29/STC/AHD/ADC(JSN)/2013-14
Duke CE, USA
-226360
15-Dec-11
103293
16-Aug-12
Duke CE, USA
891862
15-Dec-11
103293
16-Aug-12
Duke CE, USA
69797
15-Dec-11
103293
16-Aug-12
Duke CE, USA
719591
15-Dec-11
103293
16-Aug-12
Duke CE, USA
557300
15-Dec-11
103293
16-Aug-12
Duke CE, USA
257437
15-Dec-11
103293
16-Aug-12
Duke CE, USA
69063
15-Dec-11
103293
16-Aug-12
Duke CE, USA
348387
15-Dec-11
103293
16-Aug-12
Duke CE, USA
137586
15-Dec-11
103293
16-Aug-12
Duke CE, USA
67356
15-Dec-11
103293
16-Aug-12
Duke CE, USA
428752
15-Dec-11
103293
16-Aug-12
Duke CE, USA
Duke CE, USA
Duke CE, USA
Duke CE, USA
896923
919180
971338
1256877
15135462
15-Dec-11
15-Dec-11
29-Mar-12
30-Mar-12
103293
103293
20120901965
20120911933
16-Aug-12
16-Aug-12
30-Mar-12
31-Mar-12
(e)
Moreover, as per the details submitted by the said service provider, the place of
performance of the said services are as follows:TABLE-3
Location
Export
Name of the
of the
Place of
Export Invoice
S.No.
Invoice
Duke CE India
Client Name
Ultimate
performance by
Date
Date
Resource
Service
Duke CE Resource
Receiver
DCEI/2007Duke CE, USA
1
March-08
Mehta
UK
United Kingdom
08/0001
(Project Bosch)
Duke CE, USA
2
Pshastri
UK
India
(Project Bosch)
Duke CE, USA
3
Bbigoness
Hungary
India
(Project Genpact)
Duke CE, USA
4
Pshastri
(Project Ingersoll
USA
China
Rand)
Duke CE, USA
India & North
5
Mehta
USA
March-09
DCEI/2007(Project Medtronic)
Carolina, USA
08/0001
Duke CE, USA
6
Bbigoness
India
India
(Project Oil India)
Duke CE, USA
United Kingdom &
7
Pshastri
Netherland
(Project Rabobank)
India
Duke CE, USA
8
Pshastri
India
India
(Project Satyam)
Duke CE, USA
9
Pshastri
India
India
(Project Satyam)
6
10
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Bbigoness
30-Apr-09
DCEI/201010/2010
12
Pshastri
Pshastri
31-Aug-09
DCEI/201002/2010
13
Smehta
DCEI/201009/2010
DCEI/201111/2010
DCEI/201101/2011
14
31-Mar-10
15
31-May-10
16
31-Jul-10
17
31-Aug-10
DCEI/201102/2011
Nraval
18
30-Sep-10
DCEI/201103/2011
Nraval
19
31-Oct-10
DCEI/201104/2011
Pshastri
20
31-Jan-11
21
28-Feb-11
DCEI/201107/2011
DCEI/201108/2011
22
Pshastri
Pshastri
Nraval
Pshastri
Pshastri
Nraval
23
31-Mar-11
24
DCEI/201109/2011
P Shastri
P Shastri
25
P Shastri
26
Nraval
27
31-Oct-11
2011 C March
P Shastri
28
Smehta
29
P Shastri
30
12-Dec-11
2011 D March
31
32
S Bardrudin
The Taj
12-Mar-12
2012 D March
Nraval
Duke CE, USA
(Project Schaeffler)
Duke CE, USA
(Project Ingersoll
Rand)
Duke CE, USA
(Project Black Mgmt
Forum)
Duke CE, USA
(Project Black Mgmt
Forum)
Duke CE, USA
(Project Bosch)
Duke CE, USA
(Project Bosch)
Duke CE, USA
(Project IBM)
Duke CE, USA
(Project Duke NUS
GMS)
Duke CE, USA
(Project First Gulf
Bank Managers
Prgm)
Duke CE, USA
(Project United
Media Grp Ltd.)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Aegon)
Duke CE, USA
(Project Aegon)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Duke NUS
GMS and IBM)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Black Mgmt
Forum)
Duke CE, USA
(Project Aegon)
Duke CE, USA
(Project Aegon)
Duke CE, USA
(Project Amgen)
Duke CE, USA
(Project IBM)
Germany
North Carolina,
USA & Germany
USA
China
South
Africa
India
South
Africa
India
UK
UK
UK
UK
USA
Singapore
Singapore
Singapore
UAE
USA
UK
India
Malaysia
Malaysia
Malaysia
Malaysia
UK
India
UK
India
Malaysia
Malaysia
Malaysia
Malaysia
Singapore
Singapore
Malaysia
Malaysia
South
Africa
India
UK
India
UK
India
USA
India
USA
Singapore
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33
P Shastri
34
Sonia Karnani
35
Nraval
36
37
12-Mar-12
2012 E March
P Shastri
Deenky Shah
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project Internal)
Duke CE, USA
(Project ERAMET)
Duke CE, USA
(Project Petronas)
Duke CE, USA
(Project ERAMET)
Malaysia
Malaysia
USA
UK
France
France
Malaysia
Malaysia
France
France
It is also on record that ( vide the statement recorded) that
“Location of the ultimate service receiver” reflects the location from where the orders/ contract were
received by Duke CE USA from the clients.
“Place of performance by Duke CE Resource” reflects the place from where the client of M/s Duke CE
USA has been served.
4.
Now the facts mentioned above are to be interpreted in terms of service tax
liability as per provisions contained in the Finance Act, 1994 as amended from time
to time.
4.1
CLASSIFICATION OF THE TAXABLE SERVICES
4.1.1 Vide the said audit report dated 10.03.2010, the audit party was under belief
that the impugned services fall under the category of Commercial Coaching and
Training Services. However, on detailed scrutiny of the scope of the services provided
by the said service provider, it is observed that in service tax matters service provider
and service receiver relationship is of prime importance. In the subject case the
service provider is M/s Duke Corporate education India Pvt. Ltd. whereas the service
receiver is M/s Duke CE, USA. The invoices for the subject services are raised to M/s
Duke CE, USA and the payment for the same is also received from M/s Duke, CE,
USA.
The subject services would have been classifiable under the category of
Commercial Coaching & Training services in case the said services were provided
directly to M/s Duke CE, USA i.e., on a principal to principal basis.
However, in this case the services have been provided to various clients who were
in-fact clients of M/s Duke CE, USA hence the said services are provided on behalf of
M/s Duke CE, USA.
4.1.2 As per Section 65(105)(zzb) of the Finance Act, 1994 as applicable from time to
time, the term “taxable service” means services provided or to be provided
“to a client, by any person in relation to business auxiliary service.”
4.1.3 As per section 65(19) of the Finance Act, 1994, (as amended from time to
time)
‘(19) “business auxiliary service” means any service in relation to, —
(i) promotion or marketing or sale of goods produced or provided by or belonging to the
client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
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(iv) procurement of goods or services, which are inputs for the client; or
Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this
sub-clause, “inputs” means all goods or services intended for use by the client; ‘;
(v) production or processing of goods for, or on behalf of, the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such
as billing, issue or collection or recovery of cheques, payments, maintenance of accounts
and remittance, inventory management, evaluation or development of prospective customer
or vendor, public relation services, management or supervision,
and includes services as a commission agent, but does not include any information technology
service and any activity that amounts to “manufacture” within the meaning of clause (f) of
section 2 of the Central Excise Act, 1944 (1 of 1944).
Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this
clause, —
(a) ”commission agent” means any person who acts on behalf of another person and causes
sale or purchase of goods, or provision or receipt of services, for a consideration, and includes
any person who, while acting on behalf of another person —
(i)
deals with goods or services or documents of title to such goods or services; or
(ii)
collects payment of sale price of such goods or services; or
(iii)
guarantees for collection or payment for such goods or services; or
(iv)
undertakes any activities relating to such sale or purchase of such goods or
services;
(b) “information technology service” means any service in relation to designing, developing
or maintaining of computer software, or computerised data processing or system networking, or
any other service primarily in relation to operation of computer systems;
4.1.4 Interpretation of the above definitions leads to inference that in case any
person provides services on behalf of its client then such services would amount to be
a taxable service under section 65(105)(zzb) of the Finance Act, 1994 as amended
from time to time.
4.1.5 In the present case, from the “Scope of the Impugned Activities/Services”
discussed in para 3 supra, it is explicit that impugned services are provision of
services by the service provider (i.e., Duke, India) of behalf of its client (i.e., Duke
USA), hence squarely classifiable under the category of Business Auxiliary Services
and the service provider (i.e., Duke, India) has received consideration for the same
from M/s Duke, USA.
4.2 CHARGE OF SERVICE TAX
4.2.1 According to section 66 of the Finance Act, 1994 as amended from time to time
service tax at the rate of twelve percent was required to be levied on the value of the
taxable services referred to in sub-clause (zzb) of clause (105) of section 65 and such
amount was to be collected in such manner as may be prescribed.
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4.2.2 The effective rate was reduced to ten percent vide Notification No. 8/2009-S.T.,
dated 24-2-2009.
4.2.3 Thus, there was charge of service tax at the rate of twelve percent (for the
period from 2007-08 to 2008-09) & ten percent (for the period from 2009-10 to 201112) on the taxable service of Business Auxiliary Services. The same was to be
collected along with applicable Education and Higher Education Cess.
4.3
CRITERIA FOR EXPORT OF SERVICES
4.3.1 Vide Rule 4 of Export of Service Rules, 2005 (as amended from time to time) it
is provided that, “Any service, which is taxable under clause (105) of section 65 of the Act,
may be exported without payment of service tax.”
4.3.2 As per Rule 3 of the Export of Service Rules, 2005, the taxable services are
classified in three categories as far as criterion for a taxable service to be called as
export of service is concerned. The same is reproduced as below:-
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), (zzzr),
(zzzy), (zzzz) and (zzzza) 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 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.
4.3.3 From the provisions explained in para 4.3.2, it is explicit that “ Commercial
Training or Coaching services” falls under category prescribed in Rule 3(1)(iii) of the
Export of Service Rules, 2005 and the same would be considered as Export of Service
when
(a) are provided in relation to business or commerce, be provision of such
services to a recipient located outside India and
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(b) order for provision of such service is made from commercial establishment
or office located outside India (in case the recipient has commercial
establishment or any office relating thereto, in India) and
(c) Conditions as per Rule 3(2) are satisfied.
4.3.4 As per Rule 3(2) of the Export of Service Rules, 2005, the conditions for a
taxable service to qualify as export of service are provided. The same is reproduced as
below:-
‘(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 is received by the service provider in convertible foreign
exchange.
4.3.5 Thus, the activity of the said service provider or the services provided by the
said service provider would qualify as export of service if it is proven that the said
services were used outside India and the payment of same is received in convertible
foreign exchange.
4.3.6 The said service provider has submitted the sheets wherein the details of
ultimate location of the service receivers was reflected (Table-3 supra), however on
being asked during the record of the statement, regarding the evidences to prove the
same the said service provider submitted that
“sometimes the services are provided virtually by way of teleconferencing, video conferencing & in
person (as required). At the present juncture, I submit that we may be in possession of bills of travelling,
hotel stay etc. in case of travel of a person to provide such services. However, in other cases it would be
difficult to produce any evidences on account of service being in-tangible in nature.”
4.3.7 Moreover, on perusal of the remittance certificates submitted by the said
service provider it was observed that the amount was reflected in INR only not in
foreign exchange.
On being asked during the record of the statement, regarding the same the said
service provider submitted that
“The said amount was received in convertible foreign exchange in support of the same I hereby again
produce the copy of the FIRC’s against the same.
Further, I want to submit that in case of Rs.1,29,07,247- received by us on 13.12.2011, the payment was
made by M/s DUKE CE USA through a bank account in USA. However, due to some unavoidable reasons,
the said transaction was routed through a Intermediatery Bank i.e., State Bank of India. The said
amount was then transferred to our account maintained in UTI / Axis Bank by State Bank of India.
However, further two remittances amounting to INR 9,71,338.17 & 12,56,876.70 were received directly
in our bank account maintained in HSBC Bank.”
4.3.8 In view of the above discussions it is observed that the said service provider failed to
prove the fact that the impugned services were used outside India and payment for the same was
received in convertible foreign exchange and hence could not be given the benefit of export
of service.
4.4 VALUATION OF THE TAXABLE SERVICES
4.4.1 According to section 67 of the Finance Act, 1994 as amended from time to time
where service tax is chargeable on any taxable service with reference to its value, then
such value shall be the gross amount charged by the service provider for such service
provided or to be provided by him.
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The gross amount charged for the taxable service shall include any amount
received towards the taxable service before, during or after provision of such service.
Gross amount charged includes payment by cheque, credit card, deduction
from account and any form of payment by issue of credit notes or debit notes and
book adjustment, and any amount credited or debited, as the case may be, to any
account, whether called “Suspense account” or by any other name, in the books of
account of a person liable to pay service tax, where the transaction of taxable service
is with any associated enterprise.
4.4.2 Thus, the value to be considered for calculation of service tax was the gross
amount charged for providing the taxable services.
4.4.3 The said service provider was not paying the service tax on the gross amount
charged for the taxable services rendered. In other words they were paying service tax
on part of the gross amount charged / received for the taxable services. As per
observation raised by the audit officers and the details submitted during the record of
the statement, it appears that the said service provider has not paid the service tax
on the following:
S.
No.
F.Y.
1
2
3
4
5
2007-08
2008-09
2009-10
2010-11
2011-12
Amount
Charged /
Received for
Taxable
Services
(including
Service Tax )
768339
7002035
735300
2585471
4044318
15135463
Rate of
Service
Tax
12.36%
12.36%
10.30%
10.30%
10.30%
Table-2
Amount
Charged /
Received for
Taxable
Services
(excluding
Service Tax )
683819
6231786
666637
2344035
3666653
13592930
Basic
Service
Tax
Payable
Education
Cess
Payable
Higher
Education
Cess
Payable
Total
Service
Tax
payable
82058
747814
66664
234404
366665
1497605
1641
14956
1333
4688
7333
29952
821
7478
667
2344
3667
14976
84520
770249
68664
241436
377665
1542533
4.4.4 Thus, the said service provider undervalued the taxable services to the tune of
Rs.1,35,92,930/- rendered by him and accordingly not discharged the service tax
liability amounting to Rs.15,42,533/- on the same.
4.5
PAYMENT OF SERVICE TAX
4.5.1 According to section 68(1) of the Finance Act, 1994 as amended from time to
time “every person providing taxable service to any person shall pay service tax at the
rate specified in section 66 in such manner and within such period as may be
prescribed.”
4.5.2 The said service provider was required to pay the service tax amounting to
Rs.15,42,533/- under section 68(1) of the Finance Act, 1994 read with Rule 6 of the
Finance Act, 1994 for the taxable services rendered but the said service provider
failed to do so.
4.6
FURNISHING OF RETURNS
4.6.1 As per Section 70 of the Finance Act, 1994 as amended from time to time every
person liable to pay the service tax shall himself assess the tax due on the services
provided / received by him and shall furnish a return in such form and in such
manner and at such frequency as may be prescribed.
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4.6.2 The said service provider did not disclose correct information about the taxable
services provided to a service receiver located outside India.
4.6.3 Thus, the said service provider failed to self-assess the taxable value and
service tax liability as prescribed under Section 70 of the Finance Act, 1994.
5.
In view of the Para 4 above, it can be deduced that:-
(a) The said service provider under-valued the amount of Rs.1,35,92,930/- received
towards the taxable services provided by way of mis-declaring the same under the
Export of Services, thereby contravening the provisions of Section 67 of the Finance
Act, 1994.
(b) The said service provider did not pay the applicable service tax to the tune of
Rs.15,42,533/- under section 68(1) of the Finance Act, 1994 read with Rule 6 of the
Finance Act, 1994 for the taxable services rendered thereby contravening the
provisions of Section 68(1) of the Finance Act, 1994. Also, the said service tax is liable
to be recovered from the said service provider.
(c) The said service provider failed to self-assess the service tax liability due upon it
thereby contravening the provisions of Section 70 of the Finance Act, 1994 read with
Rule 7 of the Service Tax Rules, 1994.
6.
PROVISIONS OF RECOVERY OF SERVICE TAX AND PENAL PROVISONS
THEREOF
6.1
According to Section 73(1) of the Finance Act, 1994(as amended from time to
time, where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded by reason of —
(a) fraud; or
(b) collusion; or
(c)
wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made
thereunder with intent to evade payment of service tax, Central Excise Officer may,
within Five year from the relevant date, serve notice on the person chargeable with
the service tax which has not been levied or paid or which has been short-levied or
short-paid or the person to whom such tax refund has erroneously been made,
requiring him to show cause why he should not pay the amount specified in the
notice.
6.2
According to Section 75 of the Finance Act, 1994(as amended from time to
time), every person, liable to pay the tax in accordance with the provisions of section
68 or rules made thereunder, who fails to credit the tax or any part thereof to the
account of the Central Government within the period prescribed, shall pay simple
interest at such rate as is for the time being fixed by the Central Government, by
notification in the Official Gazette for the period by which such crediting of the tax or
any part thereof is delayed.
6.3
According to Section 76 of the Finance Act, 1994 as amended from time to
time, any person, liable to pay service tax in accordance with the provisions of
Finance Act, 1994 fails to pay such tax and the interest on that tax amount, shall be
liable to pay, a penalty which shall not be less than two/one hundred rupees for
every day during which such failure continues or at the rate of two/one per cent of
such tax, per month, whichever is higher, starting with the first day after the due
date till the date of actual payment of the outstanding amount of service tax.
6.4
According to Section 77(2) of the Finance Act, 1994 as amended from time to
time, any person, who contravenes any of the provisions of this Chapter or any rules
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made thereunder for which no penalty is separately provided in this Chapter shall be
liable to a penalty which may extend to Ten Thousand Rupees.
6.5
According to Section 78 of the Finance Act, 1994 as amended from time to
time, where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, by reason of —
(a) fraud; or
(b) collusion; or
(c)
wilful mis-statement; or
(d) suppression of facts; or
(e)
contravention of any of the provisions of this Chapter or of the rules made
thereunder with intent to evade payment of service tax,
the person, liable to pay such service tax or erroneous refund, shall also be liable to
pay a penalty, in addition to such service tax and interest thereon, if any, payable by
him, which shall not be less than, but which shall not exceed twice, the amount of
service tax so not levied or paid or short-levied or short-paid or erroneously refunded.
7.
In view of the provisions detailed in the para-6 supra, it appeared that
7.1
Since the said service provider short paid the service tax to the tune of
Rs.15,42,533/- due upon him, hence the said amount was liable to be recovered
under the provisions of section 73(1) of the Finance Act, 1994 as amended from time
to time.The invocation of extended period for recovery of service tax was justified in
the present case as the said service provider mis-declared the information about the
said services (on which service tax is demanded) in the statutory ST-3 returns with
intent to evade the payment of service tax. It is worth mentioning that had the
accounts of the said service provider not been audited by the service tax department
such evasion of service tax would have gone unnoticed.Thus, it appeared that, there
was deliberate withholding of essential information from the department by misstatement about said services provided and value realized. It appears that all these
material information have been concealed from the department deliberately,
consciously and purposefully to evade payment of service tax. Therefore, in this case
all essential ingredients exist to invoke the extended period in terms of Section 73(1)
of Finance Act, 1994 to demand the service tax short paid.
7.2
Interest on the said amount as per applicable rate is also liable to be paid
under section 75 of the Finance Act, 1994 as amended from time to time.
7.3
As the said service provider has not paid the due service tax, it has made itself
liable for penalty under section 76 of the Finance Act, 1994 as amended from time to
time.
7.4
Also, as the the said service provider did not disclosed proper & correct
information in the statutory ST-3 returns as prescribed under section 70 of the
Finance Act, 1994 hence, failed to comply with the Statutory provisions of the said
act and became liable for penalty under Section 77 of the Finance Act, 1994.
7.5
All the above acts of contravention on part of the said service provider seemed
to have been committed willfully with intent to evade payment of service tax rendering
them liable for penalty under Section 78 of the Finance Act, 1994.
8.
Now therefore, M/s Duke Corporate Education India Private Limited, Ground
Floor, Academic Block, IIM, Vastrapur, Ahmedabad-380015 was hereby called up on
to Show Cause no.STC/4-48/O&A/12-13 dated 4.06.2013 by
the Additional
Commissioner of Service Tax, Service Tax, Ahmedabad, having its office at 1 st Floor,
Central Excise Bhavan, opp. Polytechnic, Ambawadi, Ahmedabad-380015 as to why:-
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1) the amount of Rs.1,35,92,930/- received should not be treated as taxable
value under the category of ‘Commercial Training or Coaching Service’
(consequently denied the benefit of export of service) and applicable service tax
amounting to Rs.15,42,533/- (Rupees Fifteen Lakhs Forty Two Thousand Five
Hundred Thirty Three only) should not be demanded and recovered from them
under the provisions of the Section 73 (1) of the Finance Act, 1994.
2) Interest as applicable rate on the amount of Service Tax liability should not be
demanded and recovered from them for the delay in making the payment
under Section 75 of the Finance Act, 1994 ;
3) Penalty should not be imposed upon them under Section 76 of the Finance Act
1994, for the failure to make the payment of Service Tax in prescribed time
limit ;
4) Penalty should not be imposed upon them under Section 77(2) of the Finance
Act, 1994 for the failure to self-assess the correct taxable value and misdeclaration regarding export of services in ST -3 returns.
5) Penalty should not be imposed upon them under Section 78 of the Finance
Act, 1994 for suppressing the value of taxable services provided by them before
the department with intent to evade payment of service tax.
DEFENCE REPLY
9.
The assessee vide their letter dated 19.7.2013 has denied the allegations made
in the SCN and submitted that :
9.1
The service have not been provided outside India
They submitted that they have provided the ultimate location from which the
performance of service has taken place for the period between FY 2007-2008 to FY
2011-2012.Moreover Mr. Nikhil Raval in his recorded statement has stated that :
“Sometimes the services are provided virtually by way of teleconferencing, video
conferencing and in person ( as required). He submitted that they may be in
possession of bills of traveling, hotel stay, etc in case of travel of a person to
provide such services. However, in other cases it was difficult to produce any
evidences on account of service being in tangible in nature.”
10.
The Ministry in Order to clarify this issue has issued a Circular No
111/05/2009-ST dated 24.2.2009 which is reproduced below :
In terms of rule 3(2) (a) of the Export of Services Rules 2005, a taxable service shall
be treated as export of service if ‘ such service is provided from India and used
outside India”. Instances have come to notice that certain activities, illustrations of
which are given below, are denied the benefit of export of services and the refund of
service tax under rule 5 of the Cenvat Credit Rules 2004 ( Notification No 5/2006-CE
(NT) dated 14.3.2006 on the ground that these activities do no satisfy the condition
‘used outside India’.
(i) Call centres engaged by foreign companies who attend to calls from customers or
prospective customers from all around the world including from India,.
(ii) Medical transcription where the case history of a patient as dictated by the doctor
abroad is typed out in India and forwarded back to him,.
(iii) Indian agents who undertake marketing in India of goods of a foreign seller. In this case,
the agent undertakes all activities within India and receives commission for his services from
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foreign seller in convertible foreign exchange,.
(ill) Foreign financial institution desiring transfer of remittances to India, engaging an Indian
organisation to dispatch such remittances to the receiver in India. For this, the foreign
financial institution pays commission to the Indian organisation in foreign exchange for the
entire activity being undertaken in India.
The departmental officers seem to have taken a view in such cases that since the activities
pertaining to provision of service are undertaken in India, it cannot be said that the use of the
service has been outside India.
2. The matter has been examined Sub-rule (1) of rule 3 of the Export of Services Rules, 2005
categorizes the services into three categories :
(i) Category (I) Rule 3(1)(i) .. For services (such as Architect service, General Insurance
service, Construction service, Site Preparation service) that have some nexus with
immovable property, it is provided that the provision of such service would be 'export' if they are
provided in relation to an immovable property situated outside India.
(ii) Categorv (II) Rule 3(I)(ii) : For services (such as Rent-a-Cab operator, Market Research
Agency, set-vice, Survey and Exploration of Minerals service, Convention service, Security
Agency service, Storage and Warehousing service) where the place of performance of
service can be established, it is provided that provision of such set-vices would be 'export' if
they are performed (or even partly performed) outside India.
Categorv (III)IRule 3(1)(iii) : For the remaining services (that would not fall under
category I or II), which would generally include knowledge or technique based services, which
are not linked to an identifiable immovable property or whose location of performance
cannot be readily identifiable (such as, Banking and Other Financial services, Business .
Auxiliary services and Telecom services), it has been specified that they would be `export',(a) If they are provided in relation to business or commerce to a recipient located outside
India; and
(b) If they are provided in relation to activities other than business or commerce to a
recipient located outside India at the time when such services are provided.
It is an accepted legal principle that the law has to be read harmoniously so as to avoid
contradictions within a legislation. Keeping this principle in view, the meaning of the term
'used outside India' has to be understood in the context of the characteristics of a particular
category of service as mentioned in sub-rule (1) of rule 3. For example, under Architect
service (a Category I service [Rule 3(1)(W), even if an Indian architect prepares a design
sitting in India for a property located in U.K. and hands it over to the owner of such property
having his business and residence in India, it would have to be presumed that service has
been used outside India. Similarly, if an Indian event manager (a Category II service [Rule
3(I)(ii)fl arranges a seminar for an Indian company in U.K. the service has to be treated to
have been used outside India because the place of performance is U.K. even though the
benefit of such a seminar may flow back to the employees serving the company in India.
For the services that fall under Category III [Rule 3(1)(iii)], the relevant factor is the
location of the service receiver and not the place of performance. In this context, the
phrase 'used outside India' is to be interpreted to mean that the benefit of the service
should accrue outside India. Thus, for Category III services [Rule 3(1)(iiiil, it is possib le
that export of service may take place even when all the relevant activities take place in
India so long as the benefits of these services accrue outside India. In all the illustrations
mentioned in the opening paragraph, what is accruing outside India is the benefit in terms of
promotion of business of a foreign company. Similar would be the treatment for other
Category III [Rule 3(1)(iii)] services as well.
11.
As stated in Para 3 of the above circular, in case of services provided by Duke India to Duke
CE, USA which can be classified as BAS services falling under third category of export services, the
following conditions needs to be satisfied.
a. The service should be provided to a recipient located outside India –
As per the said Rule 3(1)(iii), location of the service recipient is the criteria to determine
export of service, meaning thereby if the location of the service recipient is outside India,
provision of service will be considered as export of service. Further, they wished to bring to
the notice that the place of performance of service is not a criteria to determine export of
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service unlike in Rule 3(1)(i) or Rule 3(i)(ii) of Export Rules. Hence the noticee which has
provided services to Duke CE, USA , located outside India and has fulfilled the criteria of
export of services under the category of Business Auxilliary Services.
b. Though all the services are provided within India, its benefits should accrue outside India.
11.1 As stated in the above Circular, even though all services are completed in India, in case the
benefit is accrued outside India, the same can still be termed as export of services. We would like to
submit that in most of the cases we have provided our services to Duke CE, USA outside India by
sending our experts outside India. In certain cases the services have been provided through video
conferencing activity, but the ultimate benefit has accrued to Duke CE, USA, situated outside India,
has the same as enabled them to fulfill their contractual liability with their clients.
12.
Because of the confusion that was building on the interpretation of Export of Service Rules,
GOI amended Export Rules vide Notification 6/2010-ST dated February 27, 2010 and also issued
Circular vide Letter D.O.E. No. 334/1/2010-TRU dated February 26, 2010. Some relevant extracts
from the letter are given below:
7. AMENDMENT TO EXPORT OF SERVICE RULES, 2005
7.1 Export of Service Rules, 2005 have been amended as follows:
The taxable service, namely 'Mandap Keeper Service' has been shifted from the list under
rule 3(1) (it) [i.e. performance related services] to the list under rule 3(1)(i) [immovable
property related services] and three taxable services, namely 'Chartered Accountant
Services', 'Cost Accountant Services' and 'Company Secretary's Services', have been shifted from
the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule
3(1)(iii) [residual category of services]. Notification No. 6/2010-ST, dated 27th
February2010 refers. Identical changes have been made under the Taxation of services
(Provided from Outside India and Received in India) Rules, 2006 as well (Notification
No.16/2010-ST, dated 27th February 2010 refers);
"The condition prescribed under rule (2) (a) i.e. 'such service is provided from India
and used outside India' has been deleted (Notification No.6/2010-ST, dated 27th February
2010 refers)."
13.
At this juncture, we would like to submit that CBEC had issued another Circular No.
141/10/2011 dated May 13, 2011, wherein referring to the clarification provided through Circular
111/05/2009, it was mentioned that to determine as to whether the service is actually used outside India
or not, the effective use of services is an important aspect and not the accrual of benefit. Therefore,
as per the circular, for considering a service as export out of India it is the place of effective use of
such services which has to be looked at rather than the accrual of benefit.
14.
Further, Board's circular No. 56/05/2003 St dated 25-04-2003 has specified that whether a
service is export or not should be based on the fact whether the service was done by the principle
service provider or the secondary service provider:
". Another question raised is about the taxability of secondary services which
are used by the primary service provider for the export of services, Since the
secondary services ultimately gets consumed/merged with the services that are
being exported no service tax would be leviable on such secondary services.
However in case where the secondary service gets consumed in part or toto for
providing service in India, the service tax would be leviable on the secondary
service provider. For this purpose both primary and secondary service
providers would maintain the records deemed fit by them to identify the
secondary services with services that are being exported”.
15.
This has to be decided strictly in accordance with the provisions of Export of Services Rules,
2005. In case of services in respect of immovable property, mentioned in Rule 3(1)(i), the services will
be treated as export if the same have been provided in respect of an immovable property located
abroad. In case of performance based services mentioned in Rule 3(1)(ii), the service is to be treated
as export if it has been performed abroad. In case of other services mentioned in Rule 3(1)(iii) when
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performed in India in relation to business or commerce, the services shall be treated as export if the
business is located abroad. Though for period till 28- 2-2007 there was a condition in this regard in
Rule 3(2) of Export of Services Rules, 2005 that "the service is delivered outside India and is used
outside India - and from 1-3-2007 to 26-2-2010, the condition was that "the service has been used
outside India", with effect from 26-2-2010 these conditions have been deleted, as according to
Board's Letter No. 334/1/2010-TRU, dated 26-2-2010 this change has been carried out keeping in
view of certain difficulties that were faced by the trade while following this rule. This, amendment
has to be treated as clarificatory in nature and hence retrospective in nature, as the trade and the
Board have always understood the Rule 3(2)(a) to mean that as long as the party aboard is deriving
benefit from services in India, it is export of services. This is clear from the Board's Circular No.
111/05/09-S.T., dated 24-2-2009. In any case, throughout the period of dispute, since it is Duke CE,
US who had received the services in question, was the beneficiary of the same and had used this service
for their business of professional training for the intended beneficiaries of their clients abroad, the
services have to be treated as delivered abroad and used abroad.
Considering the above, Large Bench of Delhi Tribunal in the case of Paul Merchants
Limited Vs. CCEx, Chandigarh (2013-29-STR-257) has held that what constitutes export of service
is to be determined strictly with reference to the provisions of Export of Service Rules, 2005. Not
doing so and leaving this question to be determined by individual tax payers or tax collectors for
each service, based on their deductive ability would result only in total confusion and chaos.
Accordingly, money transfer service is being provided by the Western Union from abroad to their
clients who approached their offices or the offices of their Agents for remitting money from to
friends/relatives in India. The service being provided by the agents and sub agents is delivery of
money to the intended beneficiaries of the customers of WU abroad and this service is "business
auxiliary service", being provided to Western Union. It is Western Union who is the recipient and
consumer of this service provided by their Agents and sub-agents, not the persons, receiving money
in India. Hence, these services so provided by the agents and/or sub-agents would be classified as
exports of service as per the principles of 'Export of Service Rules, 2005' since the consumer of
services provided by the agents and sub-agents of Western Union in India was actually Western Union entity
located abroad, who used their services for their money transfer business and not the persons who received
money in India.
16.
In addition, in the case of Blue Star Limited v. CCE, Bangalore (2008-TIOL-716-CESTATBangalore) where the assessee was engaged in booking orders for its principals situated in US,
UK and other foreign countries. The assessee booked orders in India for which it
received commission. The role of the assessee, as an agent, was confined to taking orders from
domestic buyers and passing the same to foreign suppliers. After the orders were booked,
the buyers used to directly get in touch with foreign suppliers, who exported the goods to India
and received payments for sale, directly from the buyers. The assessee was considering the
services as exports under the taxable head Business Auxiliary Services. The service tax
authorities took the view that such services were being provided in India and therefore, cannot
be said to have been exported. Considering the facts of the case and the relevant legal
provisions, the CESTAT held that booking of orders in India on behalf of the foreign suppliers,
which resulted in a sale of goods by the foreign suppliers to customers in India, shall be
considered as if the service has been used outside India and accordingly qualify as export
in terms of the Export Rules.
17.
Further, in the case of ABS India Ltd v. Commissioner of Service Tax, Bangalore (2008TIOL-2102-CESTAT-Bangalore), the assessee was a Company incorporated in India having a
subsidiary company in Singapore. The assessee booked orders for the sales of goods
manufactured by the subsidiary situated in Singapore. As per the assessee, these services fall
under the taxable category of Business Auxiliary Services and qualify as exports. The claim
18.
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of export was rejected by the service tax authorities and the matter eventually reached
before the CESTAT. Considering the facts of the case, the CESTAT held that when the
recipient of the service is Singapore Company, it cannot be said that service is delivered in India.
Due to booking of orders, the Singapore Company gets business; therefore, the service is also
utilized abroad, In terms of the Export Rules the service rendered is indeed a service, which
has been exported. In such circumstances, the appellant is not required to pay the Service tax.
Further, relying on the case of Paul Merchants (supra) produced by the larger bench
of the New Delhi CESTAT, the Mumbai CESTAT in the case of M/s. Vodufone Essar
Cellular Ltd. v. CCE, Pune-Ill (2013-TIOL-566-CESTAT-MUM) took a similar
view. In the Vodafone case, the appellant entered into an agreement with foreign telecom
service partner wherein the appellant agreed to provide telecom services to the
subscribers of foreign telecom service partners when such subscribers visit India and use
appellant's telecom network. The appellant was to receive consideration for such services
from foreign telecom service partner only and not from the subscribers. In this case, the
department contended that the services were provided by the appellant to the subscribers in
India; hence, the benefit of export of service is not available to the appellant. However, the
Hon'ble CESTAT held that since the contract for supply of telecom services was between
the appellant and foreign telecom service partner, who paid for the services rendered by the
appellant, it is the foreign telecom service partner, who is the recipient of services
provided by the appellant. Accordingly, the CESTAT allowed the benefit of export of services to
19.
the appellant.
20
.In the present facts, since Duke India has provided its services to Duke US which have been
used in the provision of services by Duke CE, US outside India, we believe that the services are
used outside India by Duke CE, US. Hence, in view of the above referred judicial pronouncements read
with the CBEC Circular No. 111/05/2009 dated February 24, 2009, we humbly submit that the services
provided by the Noticee to Duke CE, US were used outside India and accordingly qualified as export
of service.
21.
Notwithstanding the above, assuming that the services provided by Duke India is
classifiable as 'Commercial Training or Coaching services' which is classified as
performance based service in the Export of Service Rules, 2005. This would mean that when
even a part of the service is provided outside India, then the whole service would be
considered as export of services for the purpose of levy of service tax. Accordingly, those
projects where the place of performance is specified as outside India
22.
Sub –rule (1) of rule 3 of Export of services Rules 2005 categortizes the service into three
categories.
(ii) Category (II) [Rule 3(I)(ii)I : For services (such as Rent-a-Cab operator, Market
Research Agency service, Survey and Exploration of Minerals service, Convention
service,Security Agency service, Storage and Warehousing service) where the place
of performance of service can be established, it is provided that provision
of such services would be export if they are performed ( or even partly
performed ) outside India.
22.1 On the basis of the above circular, Tribunals in the following cases have held that even if
a part / portion of the services have been provided outside India then the service classified under
the performance based criteria in the Export of Service Rules, 2005 would be considered as export of
service for the purpose of taxability.
(1) Manish Agarwal vs. Commissioner of Service Tax, Ahmedabad ( 2012)-27 –STR-155 Tri-
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Ahmd).
(2) KSH International (P) Ltd v/s. Commissioner of Central //exci8se, Belapur (2010-215STT-307-Mumbai CESTAT)
23.
Further it was submitted that even the FIRC issued by the SHSBC reads as under :
"In the case where foreign currency amount has been mentioned as "INR" in the FIRC, it is being
confirmed that the bank has received the funds in "INR" to the debit of Vostro account and that such
proceeds are received in fully convertible foreign exchange."
Thus, it is submitted that it is due to the above banking transaction mechanism, that the bank of the
noticee issued the FIRCs indicating equivalent INR amount only. However, as mentioned earlier,
the fact that the bank has issued FIRC itself goes to support the fact that the bank received foreign
currency.
24.
Since the term ‘ convertible foreign exchange ‘ has not defined in the service
tax legislation, reference is made to the exchange control regulations in India, as
contained in the foreign Exchange Management Act, 1999. As per Section 2 (n) of the
FEMA “ foreign exchange” means foreign currency and includes –
a. Deposits credits and balances payable in any foreign currency.
b. Drafts, travelers cheques, letters of credit or bills of exchange, expressed or
drawn in Indian currency but payable in any foreign currency.
c. Drafts, travellers cheques, letters of credit or bills of exchange drawn by banks,
institutions or persons outside India, but payable in Indian currency.
25.
In light of the above, it was submitted that FEMA defines foreign currency
which includes deposits, credits and balances payable in any foreign currency, drafts,
travelers cheques, letters of credit or bills of exchange, expressed or drawn in Indian
currency but payable in any foreign currency and also draft, travelers cheques, letters
of credit or bills of exchange drawn by banks, institutions or persons outside India,
but payable in Indian currency.
26.
In view of the above, they submitted that the demand proposed in the SCN is
baseless and against legal provisions and various judicial precedents and liable to set
aside.The Noticee submitted that it is a well settled proposition in law that imposition
of penalty is the result of quasi-criminal adjudication. It is submitted that penalty can
be levied only if it is proved that there is presence of guilty, dishonest and willful
intent either to defraud revenue or evade payment of Tax on Noticee part.
27.
The decision of Supreme court in union of India vs. Rajasthan Spinning and
weaving Mills 2009 (238) ELT 3 (SC) held clearly that element of mensrea is essential
for imposition of penalty.
27.1 The decision of the Supreme court in the case of M/s. Hindustan Steel Ltd vs.
State of Orissa 91978) ELTJ 159 SC has categorically held that :
“ the discretion to impose a penalty must be exercised judicially. A penalty will
be ordinarily imposed in cases where the party acts deliberately in defiance of
the law, or is guilty of contumacious or dishonest conduct, or acts in conscious
disregard of its obligation, but not in cases where there is a technical or venial
breach of the provisions of Act or where the breach flows from a bonafide belief
that the offender is not liable to act in the manner prescribed by the statute.”
28.
Further the noticee relied on the decision of Mundra Port & Speical Economic
Zone Ltd v/s. CCE Rajkot [ 2009 (13) STR 178 ( Tri Ahmd)] wherein it was observed
that if the intention of the noticee is bonafide penal provisions cannot be invoked. In
view of above submission, it is clear that in absence of mensrea no penalty under
Section 78 can be levied on Noticee.
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28.1 With respect to simultaneous levy of penalty under Section 76 and 78, Punjab
and Haryana High court in the case of CCE vs. first flight courier Ltd (2011 -22-STR622) has held that penalties under section 76 and 78 are not simultaneously
imposable. Section 78 provides for higher amount of penalty and is more
comprehensive. Penalty under Section 76 is not justified if penalty is already imposed
under Section 78. No question of law arises and as such revenue appeal was
dismissed.
29.
Without prejudice to above, Section 80 of the Finance Act provides that
nothwithstanding anything contained in provisions of Section 76 and Section 78,
penalty cannot be imposed if assessee proves that there was reasonable cause for the
said failure. In the instant case the following are the grounds on which they claim
reasonable cause.
a. Duke India has provided services to the client’s of Duke CE, USA on behalf of
the later;
b. Regular audits have been conducted by service tax authorities.
30.
Further they have submitted that as per Section 75 of the Finance Act, 1994
as amended, every person who fails to pay service tax or any part thereof to the
credit of Central government within the prescribed period shall pay simple interest at
the rate fixed by the Central government for the period by which payment of such tax
or part of tax thereof is delayed. Therefore as per Section 75 interest is payable only
when a person has delayed or has not paid service tax on due dates.
31.
In the instant case the Noticee submitted that in view of above various factual
and legal submission, the Noticee has rightly classified the service under the category
of “ Business Auxiliary service” and accordingly the question of payment of interest
does not arise and requested to drop the proceedings in the SCN.
32.
Shri Hardik Shah, Consultant for the noticee, appeared for personal hearing on
23.9.2013. He submitted that he filed written brief of his arguments which is taken on record.
He reiterated the submissions made in written reply filed by them. Another hearing was held
on 11.12.2013, wherein Shri Hardik Shah, Consultant submitted a written brief/synopsis of the
PH conducted. They reiterated the submissions made earlier and in their written reply.
DISCUSSIONS AND FINDINGS
33.
I have carefully gone through the facts on records, the show cause notice under reference
and submissions made by the noticee vide their letter dated 19.07.2013 and during the personal
hearings.
34.
Before proceeding with the case, I would like to narrate the nature of services provided
by the noticee. The services provided by the noticee have been synopsized as under, in view of
their submissions to the Department vide letters dated 05.10.2012, 28.09.2012 and also the
statement of Shri Nikhil Raval, Authorised signatory recorded on 18.10.2012:



M/s Duke Corporate Education (India) Pvt. Ltd. or the noticee, is an Indian Counterpart
of M/s Duke CE USA which is a globally reputed company in the area of executive
training.
The noticee focuses on education on what the client's people need to know, do and
believe in order to address current or anticipated challenges and attain specific business
objectives.
The noticee helps its clients implement their strategies through development of their
people and differs from a traditional business school or professional services firm in that
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the organization is not solely dependent on the organization's or any single university's
faculty.
To meet the broad range of client needs, the noticee utilizes quality faculty from numerous
business schools, other external professionals and Duke CE experts from across the company.
The approach of utilizing the best resources to meet the needs of a client is central to noticee’s
business model.

This approach requires the exchange of services and support across all parts of Duke CE/noticee in
a fair and equitable manner. To achieve this, the noticee has employed the following standard:
A. The parties shall upon request make commercially reasonable efforts to provide to one
another program support (including faculty). Such faculty shall remain employees or
independent contractors of the party providing the faculty.
B. The parties shall pay one another for program support as follows:
i.
To the extent Duke CE provides to the noticee program support (including
faculty), the noticee shall pay Duke CE for the costs of such program support at an
amount equal to (A) the fee charged to the client for such support, in the case of support
provided by Duke CE though its employees, or (B) the actual cost to Duke CE of such
support, in the case of support provided by Duke CE through independent contractors.
ii.
To the extent IIM-A provides to the noticee program support (including
faculty), the noticee shall pay IIM-A for the costs of such program support at an amount
equal to (A) the fee charged the client for such support, in the case of support provided
by IIM-A through its employees and (B) the actual cost to IIM-A of such support, in the
case of support provided by IIM -A through independent contractors.


Duke CE educates and develops people at every entry level so that they can contribute to
business success. Duke CE delivers corporate education in 63 countries around the world.
In certain occasions, Duke CE, USA requires to provide certain support services from Duke CE
India. In this regard, personnel’s of Duke CE, India executes the said support services.
 There are three ways in which the noticee gets their clients i.e., they earn revenue from
(a) Companies who wish to provide executive training to their employees / key personnel’s contact
the noticee for the same.
(b) The noticee themselves approach the company’s to have orders from them for training their
executives.
(c) Sometimes their parent company i.e., M/s Duke USA during the course of providing the services
to their clients requires support from M/s Duke Corporate Education (India) Pvt. Ltd. in certain
manner. These may include specialized training in context of Indian Subcontinent or the areas
of specialization of M/s Duke India.

In the first two cases, they enter into written agreement with the clients directly whereby the
scope of the services, time of services, due date of delivery, consideration / professional fees
to be paid etc. are agreed upon.

In case of the third case i.e., cases where support in required by M/s Duke USA from us, they
normally agree upon the scope of the services vide our inter-company correspondences only.
No written agreement is entered for these support services and the consideration is received
from M/s Duke CE, USA in their bank accounts.
(Emphasis Supplied)
34.1 On the basis of the above, I find that that the services provided by the noticee can be
briefly stated as under:
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(i)
(ii)
The service is in relation to commercial and specialized training.
The service of training is provided to the clients by the noticee for a
consideration.
(iii)
The noticee utilizes quality faculty from numerous business schools, other
external professionals to meet the needs of their clients.
The training focuses on education on what the client's need to know, do and
believe in order to address current or anticipated challenges and attain specific
business objectives.
(iv)
(v)
(vi)
The training imparted by the noticee includes skill, knowledge, lessons
and almost every kind of imparting of information on various subjects
related to commerce and industry.
Any institute or establishment providing commercial training or
coaching for imparting skill or knowledge or lessons on any subject or
field with or without the issuance of a certificate is commercial training
or coaching centre.
35.
Further as per Wikipedia, the word
“Training” means the acquisition
of knowledge, skills, and competencies as a result of the teaching of vocational or practical
skills and knowledge that relate to specific useful competencies.
35.1 Now, the definition of taxable services namely: Commercial Training or Coaching
Service as per Section 65 (105) (zzc) of the Finance Act, 1994 read with Section 65 (26) and 65
(27), is reproduced below:
“(26) “commercial training or coaching” means any training or coaching provided by a
commercial training or coaching centre;
(27) “commercial training or coaching centre” means any institute or establishment
providing commercial training or coaching for imparting skill or knowledge or lessons
on any subject or field other than the sports, with or without issuance of a certificate and
includes coaching or tutorial classes but does not include pre-school coaching and
training centre or any institute or establishment which issues any certificate or diploma
or degree or any educational qualification recognized by law for the time being in force;
“Explanation. — For the removal of doubts, it is hereby declared that the expression
“commercial training or coaching centre” occurring in this sub-clause and in clauses
(26), (27) and (90a) shall include any centre or institute, by whatever name called, where
training or coaching is imparted for consideration, whether or not such centre or institute
is registered as a trust or a society or similar other organization under any law for the
time being in force and carrying on its activity with or without profit motive and the
expression “commercial training or coaching” shall be construed accordingly;”
35.2
In this connection, I refer to Board’s Circular No. 107/1/2009-S.T., dated 28-1-2009,
wherein it has been clarified that the word “Commercial” used in the definition is with reference
to activity of training or coaching and not to the nature or activity of the institute providing
training or coaching.
“2. Commercial Nature of Institute
The first issue arises from the very name i.e. Commercial ‘training or coaching center’. Many
service providers argue that the word commercial appearing in the aforementioned phrase,
suggests that to fall under this definition, the establishment or the institute must be commercial
(i.e. having profit motive) in nature. It is argued that institutes which are run by charitable
trusts or on no-profit basis would not fall within the phrase ‘commercial training or coaching
center’ and none of their activities would fall under the taxable service. This argument is
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clearly erroneous. As the phrase ‘commercial training or coaching center’ has been defined in
a statute, there is no scope to add or delete words while interpreting the same. The definition
commercial training or coaching center has no mention that such institute must have
‘commercial’ (i.e. profit making) intent or motive. Therefore, there is no reason to give a
restricted meaning to the phrase. Secondly, service tax, unlike direct taxes, is chargeable on the
gross amount received towards the service charges, irrespective of whether the venture is
‘profit making, loss making or charity oriented’ in its motive or its outcome. The word
“Commercial” used in the phrase is with reference to the activity of training or coaching and
not to the nature or activity of the institute providing the training or coaching. Thus, services
provided by all institutes or establishments, which fulfills the requirements of definition, are
leviable to service tax.”
(Emphasis supplied)
35.3
Further I find that “commercial training or coaching services” shall include any centre or
institute, by whatever name called, where training or coaching is imparted for consideration,
whether or not such centre or institute is registered as a trust or a society or similar other
organisation under any law for the time being in force
35.4
In the case of M/s LANDMARK EDUCATION INDIA Versus COMMISSIONER OF
C. EX., THANE-II reported at 2013 (31) S.T.R. 718 (Tri. - Mumbai), in a similar case as that of
the noticee, it was held that :
12. As the applicants are organizing training course, seminars, workshops for
consideration to improve the skills therefore prima facie, it cannot be said that the
applicants are not imparting any Commercial Training or Coaching for imparting skill or
knowledge or lessons on any subject.
35.5
In another landmark case of GREAT LAKES INSTITUTE OF MANAGEMENT
LTD.Versus COMMR. OF S.T., CHENNAI reported at 2008 (10) S.T.R. 202 (Tri. - Chennai),
wherein the assessee had also received consideration from abroad for imparting knowledge or
lessons on any subject or field other than sports as defined in clause 26 of Section 65 of the Act
was classified by the Hon’ble Tribunal under ‘Commercial training or coaching centre’, which was
also upheld by the Apex Court in 2010 (19) S.T.R. 481 (S.C.).
36.
I also find that the noticee has also contended that their services fall under the BAS since
they provide services to the clients of M/s Duke CE, USA. I find that the definition of BAS during
the period w.e.f. 16-6-2005 :“ Business Auxiliary Service’ means any service in relation to,(i)
promotion or marketing or sale of goods produced or provided by or belonging to the
client; or
(ii)
promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv)
procurement of goods or services, which are inputs for the client; or
Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this subclause, “inputs” means all goods or services intended for use by the client;
(v)
production or processing of goods for, or on behalf of, the client;
(vi)
provision of service on behalf of the client; or
(vii)
a service incidental or auxiliary to any activity specified in sub-clauses
(i) to (vi), such as billing, issue or collection or recovery of cheques,
payments, maintenance of accounts remittance, inventory management,
evaluation or development of prospective customer or vendor, public
relation services, management or s
(viii)
upervision, and includes services as a commission agent, but does not
include any information technology service and any activity that
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amounts to “manufacture” within the meaning of clause (f) of Section 2
of the Central Excise Act, 1944 (1 of 1944).
Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this
clause (a) “commission agent” means any person who acts on behalf of another person and causes
sale or purchase of goods, or provision or receipt of services, for a consideration, and includes
any person who, while acting on behalf of another person (i)
deals with goods or services or documents of title to such goods or services; or
(ii)
collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv)
undertakes any activities relating to such sale or purchase of such goods or services;
(b) ”information technology service” means any service in relation to designing, [or
development of computer software] or system networking, or any other service primarily in
relation to operation of computer systems;]”
36.1 I find that in the first place the noticee does not have a contract with M/s Duke CE
USA. Secondly, the noticee is not providing services to M/s Duke CE USA, but to the clients of
M/s Duke USA. There is no contract/agreement, as well, between the noticee and the clients of
M/s Duke USA. The payment is also made by M/s Duke CE USA and not by the clients of M/s
Duke CE USA and therefore the “provision of service on behalf of the client” i.e between the
noticee and the clients of M/s Duke CE USA is absent and therefore, the services does not fall
within the purview of BAS.
36.2 In the case of BRIJ MOTORS PVT. LTD.Versus COMMISSIONER OF CENTRAL
EXCISE, KANPUR reported at 2012 (25) S.T.R. 489 (Tri. - Del.), the term “provision of
service on behalf of the client” under BAS was examined and came to the conclusion as under:
“Business Auxiliary Services - Automobile seller-assessee setting up “ready to interact”
outlets in their premises for sourcing and referring business to promote market loan
from bank to potential customers - For loan taken by customers, assessee getting
commission from bank - HELD : Assessee was providing service to banks who were
paying for same - Contract was between assessee and Bank, and not between loan
seekers and assessee - In that view, it was not a case of “provision of service on behalf
of the client”
36.3 Thus, in view of the above discussions, I find that the amounts received by the noticee
on the above count is chargeable to service tax under the category of “ Commercial Training or
coaching Service” and not under “Business Auxiliary Services” as contended by the noticee.
37.
Further, I find that the noticee has contended that throughout the period of dispute, since it
is Duke CE, US who had received the services in question, was the beneficiary of the same and had used
this service for their business of professional training for the intended beneficiaries of their clients abroad,
the services have to be treated as delivered abroad and used abroad and is to be treated as Export of
Services under Export of Service Rules, 2005.
37.1 Vide Rule 4 of Export of Service Rules, 2005 (as amended from time to time) it
is provided that, “Any service, which is taxable under clause (105) of section 65 of the Act,
may be exported without payment of service tax.”
37.2 As per Rule 3 of the Export of Service Rules, 2005, the taxable services are
classified in three categories as far as criterion for a taxable service to be called as
export of service is concerned. The same is reproduced as below:37.3
Rule 3. Export of taxable service. – (1) Export of taxable services shall, in relation to taxable
services‚–
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(i) specified in sub-clauses (d), (m), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr),
(zzzy), (zzzz), (zzzza) &(zzzzm) 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), [* * *], (n), (o), [* * *], (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), (zzzp),
(zzzzg), (zzzzh), (zzzzi), (zzzzk) and (zzzzl) of clause (105) ofsection 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;
Provided further that where the taxable services referred to in sub-clauses (zzg), (zzh) and (zzi)
of clause (105) of section 65 of the Act, are provided in relation to any goods or material or any
immovable property, as the case may be, situated outside India at the time of provision of
service, through internet or an electronic network including a computer network or any other
means, then such taxable service, whether or not performed outside India, shall be treated as
the taxable service performed outside India; 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), (zzzr) and (zzzzm) 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 service is made from any of his commercial
establishment or office located outside India:
Provided further that where the taxable service referred to in sub-clause (zzzzj) of clause (105)
of section 65 of the Act is provided to a recipient located outside India, then such taxable service
shall be treated as export of taxable service subject to the condition that the tangible goods
supplied for use are located outside India during the period of use of such tangible goods by
such recipient.
(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 is received by the service provider in convertible foreign exchange.
Explanation.- For the purposes of this rule “India” includes the installation structures and vessels
located in the continental shelf of India and the exclusive economic zone of India, for the
purposes of prospecting or extraction or production of mineral oil and natural gas and supply
thereof.
{*Omitted w.e.f. 27.02.2010}
37.4 From the provisions above, there is no doubt that “Commercial Training or
Coaching Services ” falls under category prescribed in Rule 3(1)(iii) of the Export of
Service Rules, 2005 and the same would be considered as Export of Service when the
services
(a) are provided in relation to business or commerce, be provision of such
services to a recipient located outside India and
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(b) order for provision of such service is made from commercial establishment
or office located outside India (in case the recipient has commercial
establishment or any office relating thereto, in India) and
(c) Conditions as per Rule 3(2) are satisfied.
37.5 As per Rule 3(2) of the Export of Service Rules, 2005, the conditions for a
taxable service to qualify as export of service are provided. The same is reproduced as
below:-
‘(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 is received by the service provider in convertible foreign
exchange.
37.6 Thus, the activity of the said service provider or the services provided by the
said service provider would qualify as export of service if it is proven that the said
services were used outside India and the payment of same is received in convertible
foreign exchange. I find that the period of dispute is from 2007-08 to 2011-12,
therefore till 27.02.2010, the noticee has to prove that the “ such services is provided
from India and used outside India” and thus their contention that the place of performance of
service is not a criteria to determine export of service is not tenable.
37.7 The said service provider has submitted the sheets wherein the details of
ultimate location of the service receivers was reflected (Table-3 supra), however on
being asked during the record of the statement, regarding the evidences to prove the
same the said service provider submitted that
“sometimes the services are provided virtually by way of teleconferencing, video conferencing &
in person (as required). At the present juncture, I submit that we may be in possession of bills of
travelling, hotel stay etc. in case of travel of a person to provide such services. However, in other
cases it would be difficult to produce any evidences on account of service being in-tangible in
nature.”
37.8 Moreover, on perusal of the remittance certificates submitted by the said
service provider it was observed that the amount was reflected in INR only not in
foreign exchange.On being asked during the record of the statement, regarding the
same the said service provider submitted that
“The said amount was received in convertible foreign exchange in support of the same I hereby
again produce the copy of the FIRC’s against the same.
Further, I want to submit that in case of Rs.1,29,07,247- received by us on 13.12.2011, the
payment was made by M/s DUKE CE USA through a bank account in USA. However, due to
some unavoidable reasons, the said transaction was routed through a Intermediatery Bank i.e.,
State Bank of India. The said amount was then transferred to our account maintained in UTI /
Axis Bank by State Bank of India.
However, further two remittances amounting to INR 9,71,338.17 & 12,56,876.70 were received
directly in our bank account maintained in HSBC Bank.”
37.9 Further, the noticee contended that as stated in Circular no. 111/05/2009-ST dated
24.02.2009, even though all services are completed in India, in case the benefit is accrued outside
India, the same can still be termed as export of services and that they would like to submit that in most
of the cases they have provided their services to Duke CE, USA outside India by sending their
experts outside India. In certain cases the services have been provided through video conferencing
activity, but the ultimate benefit has accrued to Duke CE, USA, situated outside India, has the same as
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enabled them to fulfill their contractual liability with their clients.
38.
For ease of understanding I reproduce the Circular No. 111/5/2009-S.T., dated 24-2-2009
Subject :
Applicability of the provisions of the Export of Services Rules, 2005 in
certain situations.
In terms of rule 3(2)(a) of the Export of Services Rules 2005, a taxable service shall be
treated as export of service if “such service is provided from India and used outside
India”. Instances have come to notice that certain activities, illustrations of which are
given below, are denied the benefit of export of services and the refund of service tax
under rule 5 of the Cenvat Credit Rules, 2004 [Notification No. 5/2006-C.E. (N.T.),
dated 14-3-2006] on the ground that these activities do not satisfy the condition ‘used
outside India’, (i)
Call centres engaged by foreign companies who attend to calls from customers
or prospective customers from all around the world including from India;
(ii)
Medical transcription where the case history of a patient as dictated by the
doctor abroad is typed out in India and forwarded back to him;
(iii) Indian agents who undertake marketing in India of goods of a foreign seller. In
this case, the agent undertakes all activities within India and receives commission for
his services from foreign seller in convertible foreign exchange;
(iv)
Foreign financial institution desiring transfer of remittances to India, engaging
an Indian organisation to dispatch such remittances to the receiver in India. For this,
the foreign financial institution pays commission to the Indian organisation in foreign
exchange for the entire activity being undertaken in India.
The departmental officers seem to have taken a view in such cases that since the
activities pertaining to provision of service are undertaken in India, it cannot be said
that the use of the service has been outside India.
2. The matter has been examined. Sub-rule (1) of rule 3 of the Export of Services Rule,
2005 categorizes the services into three categories :
(i) Category I [Rule 3(1)(i)] : For services (such as Architect service, General
Insurance service, Construction service, Site Preparation service) that have some nexus
with immovable property, it is provided that the provision of such service would be
‘export’ if they are provided in relation to an immovable property situated outside India.
(ii) Category II [Rule 3(1)(ii)] : For services (such as Rent-a-Cab operator, Market
Research Agency service, Survey and Exploration of Minerals service, Convention
service, Security Agency service, Storage and Warehousing service) where the place of
performance of service can be established, it is provided that provision of such services
would be ‘export’ if they are performed (or even partly performed) outside India.
(iii) Category III [Rule 3(1)(iii)] : For the remaining services (that would not fall under
category I or II), which would generally include knowledge or technique based services,
which are not linked to an identifiable immovable property or whose location of
performance cannot be readily identifiable (such as, Banking and Other Financial
services, Business Auxiliary services and Telecom services), it has been specified that
they would be ‘export’, -
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(a)
If they are provided in relation to business or commerce to a recipient located
outside India; and
(b)
If they are provided in relation to activities other than business or commerce to a
recipient located outside India at the time when such services are provided.
3. It is an accepted legal principle that the law has to be read harmoniously so as to
avoid contradictions within a legislation. Keeping this principle in view, the meaning of
the term ‘used outside India’ has to be understood in the context of the characteristics of
a particular category of service as mentioned in sub-rule (1) of rule 3. For example,
under Architect service (a Category I service [Rule 3(1)(i)]), even if an Indian architect
prepares a design sitting in India for a property located in U.K. and hands it over to the
owner of such property having his business and residence in India, it would have to be
presumed that service has been used outside India. Similarly, if an Indian event
manager (a Category II service [Rule 3(1)(ii)]) arranges a seminar for an Indian
company in U.K. the service has to be treated to have been used outside India because
the place of performance is U.K. even though the benefit of such a seminar may flow
back to the employees serving the company in India. For the services that fall under
Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver
and not the place of performance. In this context, the phrase ‘used outside India’ is to be
interpreted to mean that the benefit of the service should accrue outside India. Thus, for
Category III services [Rule 3(1)(iii)], it is possible that export of service may take place
even when all the relevant activities take place in India so long as the benefits of these
services accrue outside India. In all the illustrations mentioned in the opening
paragraph, what is accruing outside India is the benefit in terms of promotion of
business of a foreign company. Similar would be the treatment for other Category III
[Rule 3(1)(iii)] services as well.
4. All pending cases may be disposed of accordingly. In case any difficulty is faced in
implementing these instructions, the same may be brought to the notice of the
undersigned. These instructions should be given wide publicity among trade and field
officers.”
39.
The noticee is contending that the ultimate benefit has accrued to Duke CE, USA. However, it
is clear that the noticee and not M/s Duke CE, USA has received monetary consideration for the services
provided by them. The noticee themselves have stated that in most of the cases they have provided
their services to Duke CE, USA outside India by sending their experts outside India. In certain
cases the services have been provided through video tele-conferencing and video conferencing activity.
Further, I find that Shri Nikhil Raval, in his statement dated 18.10.2012 has stated as under:
“There are three ways in which the noticee gets their clients i.e., they earn revenue from
(d) Companies who wish to provide executive training to their employees / key personnel’s contact
the noticee for the same.
(e) The noticee themselves approach the company’s to have orders from them for training their
executives.
(f) Sometimes their parent company i.e., M/s Duke USA during the course of providing the services
to their clients requires support from M/s Duke Corporate Education (India) Pvt. Ltd. in certain
manner. These may include specialized training in context of Indian Subcontinent or the areas
of specialization of M/s Duke India.”
39.1
Thus, I find that in some cases, that M/s Duke CE USA requires their support for which
they are compensated by M/s Duke CE USA. However, the noticee is contending that the
ultimate benefit has accrued to Duke CE, USA, situated outside India, as the same has enabled
them to fulfill their contractual liability with their clients. In this context, I find that the Board
has issued a clarificatory Circular No. 141/10/2011-TRU, dated 13-5-2011, wherein at Para 3 &
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5, it has been clarified that:
“ 3. It may be noted that the words “accrual of benefit” are not restricted to mere
impact on the bottom-line of the person who pays for the service. If that were the
intention it would render the requirement of services being used outside India during the
period prior to 28-2-2010 infructuous. These words should be given a harmonious
interpretation keeping in view that during the period upto 27-2-2010 the explicit
condition was provided in the rule that the service should be used outside India. In
other words these words may be interpreted in the context where the effective use and
enjoyment of the service has been obtained. The effective use and enjoyment of the
service will of course depend on the nature of the service. For example effective use of
advertising services shall be the place where the advertising material is disseminated to
the audience though actually the benefit may finally accrue to the buyer who is located
at another place.
4. This, however should not apply to services which are merely performed from India
and where the accrual of benefit and their use outside India are not in conflict with each
other. The relation between the parties may also be relevant in certain circumstances,
for example in case of passive holding/ subsidiary companies or associated enterprises.
In order to establish that the services have not been used outside India the facts
available should inter alia, clearly indicate that only the payment has been received
from abroad and the service has been used in India. It has already been clarified that in
case of call centers and similar businesses which serve the customers located outside
India for their clients who are also located outside India, the service is used outside
India.
5. Besides above, to attain the status of export, a number of conditions need to be
satisfied which are specified in Rule 3(1) and Rule 3(2) of Export of Services Rules,
2005. The Circular No. 111/05/2009-S.T. explained the expression “used outside India”
only and the other conjunct conditions, as applicable from time to time, also need to be
independently satisfied for availing the benefit of an export.”
39.2 I find that that the services provided by the noticee i.e “ Commercial training or
Coaching Services” falls under Category II as defined in the Circular dated 24.02.2009 and not
under category III as contended by the noticee since it is not a service under BAS. In the instant
case, the noticee sends experts outside India and in certain cases there is teleconferencing, as
mentioned in their reply dated 19.07.2013. Thus, the service has to be treated to have been used
outside India because the place of performance is abroad, however, the benefit of such a
seminar, flows back to the employees serving the company in India in terms of monetary
benefits/profits. Whatever money is received even if one calls it a profit or surplus, the
surplus is flowed back into the noticee to attain its objectives. In view of the above, “ the
accrual of benefits” is with the noticee and not M/s Duke USA. Thus, the issue regarding
remittance to the noticee in foreign exchange is infructuous, as I have come to a conclusion that
the noticee has not exported their services. Accordingly, the judgments cited by the noticee at
Paras 25 to 28 of their defence reply, are therefore not applicable to the present case.
39.3 Thus I hold that the services performed by the noticee are not a ‘export of
service’ under Business Auxiliary Services and I consider Rs. 1,35,93,930/- as a
taxable value under “Commercial training or Coaching Service” and the service tax
amounting to Rs. 15,42,533/- is recoverable under Section 73 of the Act on this
count.
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40.
As discussed above, the demand has been held to be sustainable on merits. Thus I find
that it was the duty of the noticee to declare such activities, and receipt towards the same in
their ST-3 returns filed by them from time to time. With regard to the issue that extended
period of limitation & suppression of facts, I note that the noticee are a reputed organization
and are well aware of the Rules & Regulations as laid down under Service Tax Rules, 1994.
They had deliberately under-valued the amount of Rs.1,35,92,930/- received towards
the taxable services provided, by way of mis-declaring the same under the ‘Export of
Services’, thereby contravening the provisions of Section 67 of the Finance Act, 1994
and which was noticed only when the details were sought by the audit team. I find that they
were well aware of the facts regarding such transactions and the incomes garnered thereof had
not been disclosed before the department and therefore the contention of the noticee that they
have not suppressed the facts is not acceptable in this case. Thus, the suppression with an
intent to evade payment, on part of the assessee, is proved beyond doubt and proviso to Section
73(1) of the Finance Act, 1994 has rightly been applied in the instant case and therefore, by
their such act of omission and commission, the assessee have rendered themselves liable for
penalty.
40.1 Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs Neminath Fabrics Pvt.
Ltd., reported at 2010 (256) ELT 369 (Guj), while deciding the similar issue in Central Excise,
has held that proviso can not be read to mean that because there is knowledge, suppression
which stands established disappears – concept of knowledge, by no stretch of imagination, can
be read into provisions – suppression not obliterated, merely because department acquired
knowledge of irregularities. The relevant para is reproduced below ;
“20. Thus, what has been prescribed under the statute is that upon the reasons
stipulated under the proviso being satisfied, the period of limitation for service of show
cause notice under sub-section (1) of Section 11A, stands extended to five years from the
relevant date. The period cannot by reason of any decision of a Court or even by
subordinate legislation be either curtailed or enhanced. In the present case as well as in
the decisions on which reliance has been placed by the learned advocate for the
respondent, the Tribunal has introduced a novel concept of date of knowledge and has
imported into the proviso a new period of limitation of six months from the date of
knowledge. The reasoning appears to be that once knowledge has been acquired by the
department there is no suppression and as such the ordinary statutory period of
limitation prescribed under sub-section (1) of Section 11A would be applicable.
However such reasoning appears to be fallacious inasmuch as once the suppression is
admitted, merely because the department acquires knowledge of the irregularities the
suppression would not be obliterated.”
40.2 In view of the above, I find that extended period for recovery of service tax on category
of “Commercial training or Coaching Services” on rendering of taxable services, under the
proviso to section 73(1) of the Finance Act, 1994 was rightly invoked and the SCN is
sustainable on limitation. Therefore, the service tax amount of Rs. 15,42,533/- is recoverable
from the noticee along with Interest as provided in proviso to Section 73(1) of the Finance Act,
1994 read with Section 75 of the Act ibid.
41.
Since the noticee had not discharged service tax liability on the amount of taxable
value on the services mentioned in the foregoing paras and as demanded under the show
cause notice and therefore, they have contravened the provisions of Section 67 and 68 of the
Finance Act, 1994 and thereby rendered themselves liable to penal action under Sections 76 &
78 of Finance Act 1994.
42.
As regards the issue of imposition of penalty under Section 76 of the Finance Act, 1994,
I observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive
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w.e.f. 10.05.2008 and once penalty under Section 78 is imposed, no penalty under Section 76
can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard.
Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In
the case before me, the demand of service tax is for the period from 2007-08 to 2011-12,
therefore, I hold that penalty under Section 76 of the said Act is imposable on the noticee. I find
that as the noticee has not paid service tax within the stipulated time period as prescribed under
Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, I hold
them liable to penalty under Section 76 of the Finance Act, 1994. My conclusion is also based
on various decisions of Hon’ble High Courts & Tribunals as mentioned below ;






CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)
UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)
UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)
Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)
CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)
Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)
42.1 I further observe that the Hon’ble CESTAT in the case of M/s Gujarat Industrial
Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated
05.08.2010, has held that no lenient view can be taken under section 76 of the Finance Act,
1994. The relevant paras are reproduced below;
“2.
After hearing both the sides, I find that in this case, the assessee was registered
more than 6 years back and no explanation has been given by them for delayed filing of
return and delayed payment of service tax. Under these circumstances, I am not finding
fault in stand taken by the lower authority that penalty is imposable under section 76 and
once it is held that penalty is imposable under section 76, the amount fixed as per the
provision of section 76 is required to be imposed. Under these circumstances, even
though the Ld. Advocate submitted that the appellant is a non profit organization, no
lenient view can be taken in view of the provisions of law.
3.
Accordingly, the appeal is rejected.”
42.2 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at
2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant
para is reproduced below ;
“10. A plain reading of Section 76 of the Act indicates that a person who is liable to
pay service tax and who has failed to pay such tax is under an obligation to pay, in
addition to the tax so payable and interest on such tax, a penalty for such failure. The
quantum of penalty has been specified in the provision by laying down the minimum
and the maximum limits with a further cap in so far as the maximum limit is
concerned. The provision stipulates that the person, who has failed to pay service tax,
shall pay, in addition to the tax and interest, a penalty which shall not be less than
one hundred rupees per day but which may extend to two hundred rupees for
everyday during which the failure continues, subject to the maximum penalty not
exceeding the amount of service tax which was not paid. So far as Section 76 of the
Act is concerned, it is not possible to read any further discretion, further than the
discretion provided by the legislature when legislature has prescribed the minimum
and the maximum limits. The discretion vested in the authority is to levy minimum
penalty commencing from one hundred rupees per day on default, which is
extendable to two hundred rupees per day, subject to a cap of not exceeding the
amount of service tax payable. From this discretion it is not possible to read a further
discretion being vested in the authority so as to entitle the authority to levy a penalty
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below the stipulated limit of one hundred rupees per day. The moment one reads
such further discretion in the provision it would amount to re-writing the provision
which, as per settled canon of interpretation, is not permissible. It is not as if the
provision is couched in a manner so as to lead to absurdity if it is read in a plain
manner. Nor is it possible to state that the provision does not further the object of the
Statute or violates the legislative intent when read as it stands. Hence, Section 76 of
the Act as it stands does not give any discretion to the authority to reduce the penalty
below the minimum prescribed.”
42.3 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of
CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises
reported at 2011 (21) STR 107 (Guj.).
43.
Now I come to the issue of imposition of penalty under Section 78 of the Finance Act,
1994. Before going to the merits of the case, I refer to the judgment in the case involving
Aircel Digilink India Ltd. v/s Commissioner of Central Excise, Jaipur, as reported in 2006 (3) STR
386 (Tri.-Del) and the case involving Bharti Cellular Ltd. v/s Commissioner of Central Excise,
Delhi, as reported in 2006 (3) S.T.R. 423 (Tri.-Del). In both the cases, the Hon. Tribunal upheld
invocation of extended period after taking note of the fact that appellants had not disclosed
certain details and mode of computation in their ST-3 details and that there was nothing on
record to suggest that appellants ever approached the office of the service tax authorities to
ascertain the details of their liability to pay the service tax. Similarly, in case of Insurance &
Provident Fund Department v/s. Commissioner of Central Excise, Jaipur-I, 2006 (2) S.T.R. 369
(Tri.-Del.), Hon. Tribunal held that non-disclosure of full amount of premium collected would
attract invocation of extended period. The ratio of the above judgments can be applied to the
present case also as the noticee had kept the Department in dark about its activities and had
not only suppressed the material facts from the department but has also failed to comply with
law and procedures, including payment of service tax. In view of the above, I hold that in the
facts and circumstances of the present case, proviso to section 73 (1) of Finance Act, 1994, is
rightly invoked for raising the demand for service tax against the noticee. I find that as the
noticee had suppressed the facts with intention to evade payment of service tax, penalty
under Section 78 of the Finance Act, 1994 is mandatorily imposable as has been held by the
Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC) and Rajasthan
Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I hold that penalty is imposable
on the noticee under Section 78 of the Finance Act, 1994. I, therefore, hold that they have
rendered themselves liable to penalty under Section 78 of the Finance Act, 1994. My above
view also gets support from below mentioned case laws;
 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.)
 CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.)
 Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of M/s
Bajrang Security Services Vs CST, Ahmedabad.
 Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010 in the case of M/s
Dhaval Corporation Vs CST, Ahmedabad.
43.1 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of
CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also
upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994.
Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K
Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)
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44.
I also find that penalty under Section 76 ibid is provided for failure to pay service tax
whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant
case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax
Rules, 1994, have not been found paid as well as service tax has not been paid by suppressing
value of taxable service by reason of wilful mis-statement and suppression of facts. Of course
these two offences may arise in the course of same transaction, or from the same action of the
person concerned. But the incidents of imposition of penalty are distinct and separate and even
if the offences are committed in the course of same transaction or arises out of the same act the
penalty is imposable for ingredients of both offences, this aspect was also considered by the
Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna
Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of
Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16)
S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty who commits default
simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which
provides harsher penalty who commits default with mens rea. Since in this case also, the noticee
has committed default with mens rea, the decision of the tribunal is squarely applicable.
45.
Further, as regards imposition of simultaneous penalty, I place my reliance on the
judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central
Excise v. Krishna Poduval (supra) which is aptly applicable to the present case. I find that the
imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and
suppression of value of taxable service respectively which are two distinct and separate
offences attracting separate penalties. I find that the said assessee have committed both the
offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are
imposable on the said service provider for the period upto 9.5.2008. Therefore, I am of the
view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed
under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the
decisions of Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further
supported by various decisions of tribunals in the cases of ;
a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009
(14) S.T.R. 680 (Tri.-Ahmd.)
b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13)
S.T.R. 40 (Tri.-Ahmd.), and
c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134)
E.L.T. 799 (Tri.-Del.).
d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated
30.06.2010 / 26.08.2010.
e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010
dated 09.06.2010 / 23.06.2010.
f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh
– 2009 (16) STR 183 (Tri.Del.)
46.
In light of the aforesaid discussions and findings, I hold that the service tax amount of
Rs. 15,42,533/- alongwith interest is liable to be confirmed under Section 73 of the Finance
Act,1994 read with Section 75 of the Act ibid and they are also liable to penalty under the
provisions of Section 76 and 78 of the Finance Act, 1994.
47.
Accordingly, I pass the following order:-
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ORDER
1) I consider the amount of Rs.1,35,92,930/- received by the noticee as taxable value
under the category of “Commercial Training or Coaching Service” and consequently
deny the benefit of export of service.
2) I confirm the demand of service tax amounting to Rs. 15,42,533/- (Rupees Fifteen Lakhs
Forty Two Thousand Five Hundred Thirty Three only) on value shown at (1) above, and
order it to be recovered from them under the provisions of the Section 73 of the
Finance Act, 1994.
3) I direct M/s Duke Corporate Education India Private Limited, Ahmedabad to pay the
interest as applicable on the amount of their total service tax liability of Rs. 15,42,533/under Section 75 of the Finance Act, 1994.
4) I impose a penalty of Rs. 200/- (Rupees Two Hundreds Only) per day /{ Rs. 100/(Rupees One Hundred only ) w.e.f. 8.04.2011} or at the rate of 2% of the service tax
amount per month/ {1% of the service tax amount per month w.e.f. 8.04.2011} ,
whichever is higher, subject to maximum of the outstanding tax amount, from the date
on which such tax was due till the actual payment of outstanding tax amount,
whichever is earlier, under the provisions of Section 76 of the Finance Act, 1994, as
amended, for failure to pay Service Tax within the stipulated period as required under
the provisions of Section 68 (1) of the Finance Act, 1994 read with Rule 6 of the Service
Tax Rules, 1994, as amended.
5) I impose a penalty of Rs.10,000/- (Rupees Ten Thousand Only) under Section 77 of the
Finance Act 1994 for failure to self assess the tax due on the services provided by him
and misdeclaration regarding export of services in ST-3 return..
6) I also impose a penalty of Rs.15,42,533/- (Rupees Fifteen Lakhs Forty Two Thousand
Five Hundred Thirty Three only upon them under Section 78 of the Finance Act, 1994
for suppressing the value of taxable services provided by them with an intent to evade
payment of service tax. If the service tax amount is paid along with appropriate interest
as applicable, within 30 days from the date of receipt of this order, then the amount of
penalty under Section 78 shall be reduced to 25% of the service tax amount, provided if
such penalty is also paid within such period of 30 days.
(J.S.NEGI)
Additional Commissioner
Service Tax, Ahmedabad
BY REGISTERED A.D/ HAND DELIVERY
F. No. STC/4-48/O&A/2012
Date:
26.12.2013
To
M/s Duke Corporate Education India Private Limited,
Ground Floor, Academic Block,
IIM, Vastrapur, Ahmedabad-380015.
Copy to:
(1)
(2)
(3)
(4)
The Commissioner, Service Tax, Ahmedabad ( Attn: RRA Cell)
The Assistant Commissioner, Service Tax, Division-I, Ahmedabad
The Superintendent, Range-V, Division-I, Service Tax, Ahmedabad with an extra
copy of the OIO to be delivered to M/s Saket and dated acknowledgement obtained
from him.
Guard File.