2005 (98) ECC 395 (AAR)

AUTHORITY FOR ADVANCE RULINGS
(CUSTOMS, EXCISE & SERVICE TAX)

New Delhi

Hon'ble Mr. Justice Syed Shah Mohammed Quadri (Chairman),
Shri Somnath Pal (Member) and Dr. Brahm Avtar Agrawal (Member)

Jason James Clemens

Versus

Commissioner, Service Tax, Delhi

Application No. AAR/105(ST)/2004

Order No. AAR/ST/08/2004, dt. 18.11.2004, Certified on 9.12.2004

Finance Act, 1994

Section 96C(2) -- Advance Ruling -- Notification No. 8/2003 dated 20.6.2003 not relevant to issue of the exigibility of secondary services to service tax -- Question raised that the secondary services which get consumed/merged in the primary services exported by an international call centre should be exempt from service tax is exclusively based on the Circular No. 56/5/2003 dated 25.4.2003 and no statutory provision or notification issued under Section 93 of the Finance Act, 1994 -- As the Notification No. 8/2003 is not relevant to exigibility of secondary services to service tax -- Question not covered under Section 96C(2) -- Thus, the stage of pronouncing an advance ruling not reached -- Application rejected.

PRESENT :

Shri Suresh Gupta, Chartered Accountant for the applicant.

Shri A.K. Roy, Joint CDR, CESTAT, New Delhi for the respondent.

ORDER

Per : Dr. Brahm Avtar Agrawal

The prime point to ponder in the instant application for advance ruling under sub-section (1) of section 96C of the Finance Act, 1994, made by one Mr. Jason James Clemens, a British national of foreign origin and "non-resident", is as to whether the questions stated by the applicant fall within the jurisdiction of the Authority, vide sub-section (2) of the said section, and has arisen in the backcloth painted in the following sub-paras.

1.2 The applicant proposes to set up an international call centre in India in collaboration with "Gemini Pacific Group LLC", an American Company formed under the "Limited Liability Company Law of the State of Delaware".

1.3 It has been submitted on behalf of the appellant that the main business activity of the proposed international call centre would be to sell various products manufactured by the producers of foreign countries to the potential customers throughout Europe and Asia excluding India. Telephone enquiries will be made from the potential customers outside India and on procurement of orders the same will be forwarded to the producers/sellers of goods in foreign countries. The manufacturer/supplier/seller in foreign countries will directly dispatch goods to such customers. The applicant will be entitled for service charges on orders so booked and executed. The entire service charges will be remitted in India in convertible foreign currencies. The services provided by the applicant would constitute the export of services and the same, as submitted by the applicant, "shall be exempt from the levy of service tax".

1.4 It has been further submitted that in order to render the services of the proposed call centre, he will be availing of the services of local telephone operators, who would raise bills upon the applicant and the bills will include service tax. While the services of the local telephone operators would be the major secondary services, the applicant will also be availing of other services such as consultancy/engineering services, on which service tax is leviable. The applicant has stated that he, as an exporter of services and a primary service provider, will be availing of various secondary services, which will ultimately get consumed/merged with the services being exported and, therefore, service tax should not be levied on such secondary services.

1.5 The applicant has in support of his submissions relied on the Notification No. 8/2003-ST dated 20.6.2003 issued by the Central Government and the Circular No. 56/5/2003 dated 25.4.2003, issued by the Central Board of Excise and Customs ("Board"). They read as under:

"Notification No. 8/2003-ST[F.No. B3/7/2003 TRU], dated 20.6.2003

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided, by a call centre or a medical transcription centre, to a client from the whole of the services tax leviable thereon under sub-section (2) of Section 66 of the said Act.

Explanation. -- For the purposes of this notification,

(i) "call centre" means a commercial concern which provides assistance, help or information, through telephone, on behalf of another person;

(ii) "medical transcription centre" means a commercial concern which transcribes medical history, treatment, medical observations and the like.

2. This notification shall come into force on the 1st day of July, 2003."

"Circular No. 56/5/2003 [F.No. 254/1/2003-CX-4], dated 25.4.2003

The Central Government has issued Notification No. 2/2003, dated 1-3-2003 in the current years Budget rescinding the earlier Notification No. 6/99-Service Tax, dated 9.4.1999, which exempted taxable services from payment of service tax so along as payment for services rendered is received in convertible foreign exchange, which is not repatriated outside India. Consequent to the issue of Notification No. 2/2003 cited above, service tax would be leviable on all taxable services consumed or rendered in India, irrespective of whether the payment thereof is received in foreign exchange or not.

2. In this regard various representations have been received by the Board raising apprehension that because of the withdrawal of the Notification No. 6/99, export of service would be affected as it would be costlier in the international markets.

3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination-based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax-free even after withdrawal of Notification No. 6/99 dated 9.4.1999. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax can be availed or reimbursed at present as intersectoral tax credit between services and goods are not allowed.

4. 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 service 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.

..................... .............."

1.6 The applicant mainly relies on para 4 of the above-quoted Circular, which provides, inter alia, that no service tax would be leviable on the secondary services, which ultimately get consumed/merged with the primary services are are being exported.

1.7 In the comments furnished on behalf of the Commissioner, the plea of the applicant is affirmed stating that "it appears that services exported by the said party are exempt from service tax and secondary services used in the primary services exported are also not chargeable to service tax, provided records are being maintained by the primary and secondary service provider to identify the secondary services with the services being exported", vide the letter No. CE/ST/DL.II/Tech./Misc/04/455 dated 14.9.2004 written by the Deputy Commissioner, Service Tax, Delhi-II.

1.8 The questions framed by the applicant seeking advance ruling from the Authority read as under:

"(i) Whether the service tax in first instance is chargeable by the secondary service provider towards the services to international Call Centre (primary service providers) which services constitute 100% exports.

If ruling by the Hon'ble Court on above question is Yes, then, the further question for Advance Ruling before the Hon'ble Bench is placed as under:

(ii) Whether the service tax paid by the primary service provider dealing in 100% export of services, on the bills raised by the secondary service provider, would be entitled for refund, if yes, how and in which manner?

AND

(iii) Whether the refund of service tax paid on secondary services by the primary service provider of 100% exports of services would also entitle the primary service provider for interest/any other compensation on such amount, which prima-facie was not payable."

2. The jurisdiction of the Authority to pronounce its advance ruling is circumscribed by sub-section (2) of section 96C of the Finance Act, 1994, in that the advance ruling can be sought only on questions of the kinds listed therein. Only if the questions raised by the applicant are covered under the said provision, the stage of pronouncing an advance ruling by the Authority would arise. In fact, we have stated in our Order No. 1/2004 dated 16.9.2004 in the instant application that the question as to whether the aforesaid Circular will fall within the meaning of the word "notification" in clause (d) of sub-section (2) of section 96C of the Finance Act shall be considered at the time of hearing.

3. Sub-section (2) of section 96C of the Finance Act, 1994 reads as under:

"The question on which the advance ruling is sought shall be in respect of,--

(a) classification of any service as a taxable service under Chapter V;

(b) the valuation of taxable services for charging service tax;

(c) the principles to be adopted for the purposes of determination of value of the taxable service under the provisions of Chapter V;

(d) applicability of notifications issued under Chapter V;

(e) admissibility of credit of service tax."

4. As the applicant has confined his reliance to clauses (d) and (e), we shall only consider as to whether the question stated by the applicant are covered under any of the said clauses.

5. The plea that the secondary services which get consumed/merged in the primary services exported by an international call centre should be exempt from service tax is exclusively based on the above-quoted Circular dated 25.4.2003 and no statutory provision or notification issued under section 93 of the Finance Act, 1994, has been pointed out in support of the said plea. The Notification dated 20.6.2003 is not relevant to the issue of the exigibility of the secondary services to service tax.

6. It needs no elaborate reasoning to conclude that the circular issued by the Board cannot be termed as a notification issued under Chapter V of the Finance Act, 1994, the subject-matter of clause (d). Chapter V of the Finance Act, 1994 contains 30 sections: sections 64 to 96; section 83 makes applicable in relation to service tax certain provisions of the Central Excise Act, 1944; section 12 of the Central Excise Act, 1944, through a Central Government's notification, in turn makes applicable in relation to service tax certain provisions of the Customs Act, 1962. Out of the provisions made applicable in relation to service tax, sections 68(2), 75 and 93 of the Finance Act, 1994, sections 11B(2) & (5), 11BB, 11C, 12, 37A of the Central Excise Act, 1944 and section 110(1A) of the Customs Act, 1962 mention about notifications dealing with different matters, but the power to issue notifications under the said sections falling in Chapter V has been conferred on the Central Government only. None of those provisions is attracted vis-a-vis the Board's Circular under consideration. The power to issue circulars is conferred on the Board under section 37B of the Central Excise Act, 1944, as made applicable by virtue of section 83 of the Finance Act, 1994, which also falls under Chapter V. However, the Legislature chose to prescribe only notifications and not circulars in section 96C(2)(d) of the Finance Act, 1994. Therefore, reliance on clause (d), in our review, is misplaced.

7. The applicant's reliance on clause (e) is not in order, as none of the questions raised by the applicant relate to "credit" of service tax, which is a concept different from "refund". Moreover, the subsequent two questions stated by the applicant, which mention about refund, are simply dependent on an expected affirmative answer from the Authority on the first question raised by the applicant. In view of our conclusion is regard to clause (d), reliance on clause (e) also is out of place.

8. In the light of the above, we are of the view that the questions raised by the applicant are not covered under sub-section (2) of section 96C of the Finance Act, 1994. Thus, the stage of pronouncing and advance ruling is not reached in the instant case.

9. Accordingly, in partial modification of our Order of September 16, 2004, the application is rejected.

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