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2014 (36) S.T.R. 1109 (Tri. - Bang.)

IN THE CESTAT, SOUTH ZONAL BENCH, BANGALORE
S/Shri B.S.V. Murthy, Member (T) and S.K. Mohanty, Member (J)

COMMR. OF S. TAX, BANGALORE

Versus

GE INDIA TECHNOLOGY CENTRE P. LTD.

Final Order Nos. 20971-20972/2014, dated 12-6-2014 in Application No. ST/Stay/733/2012 in Appeal Nos. ST/917/2009DB and ST/1090/2012-DB

Refund claim - Export of services - Service Tax paid on export of Research and
Development and Engineering service rendered to GE, USA - Rejection of claim alleging
(i) Services amounting to Business Support Service, (ii) Assessee extended arm of GE,
USA, (iii) Consideration not in relation to quantum of services, and (iv) Nonsatisfaction of condition in Rule 3(2) of Export of Services Rules, 2005 - HELD :
Assessee undertaking Scientific Research and Technical Analysis services for GE, USA GE, USA incorporated under laws of State of New York while assessee incorporated
under Companies Act, 1956 - No basis for conclusion that assessee set up to look after
interest of GE, USA in relation to business or commerce - Method of determination of
consideration not to form basis of classification - Subsequent SCN proposing
classification of services as Scientific and Technical analysis service - Tribunals
decision in Gap International Sourcing (India) Pvt. Ltd. and Paul Merchants Ltd. [2013
(29) S.T.R. 257 (Tri.-Del.)] squarely favouring assessee - Appeal allowed except as
regards ground of nexus between input service and output service - Impugned order
set aside - Matter remanded - Section 11B of Central Excise Act, 1944 as applicable to
Service Tax vide Section 83 of Finance Act, 1994 - Rule 3(2) of Export of Services
Rules, 2005. [paras 7, 7.1, 8, 9, 10, 11, 12]
Appeal - Infructuous appeal - Parallel litigation initiated on same issue - Same
claim to be addressed by Commissioner (Appeals) - Therefore appeal becomes
infructuous and accordingly rejected - Section 86 of Finance Act, 1994. [para 12(b)]

Revenues appeal rejected/Assessees appeal allowed

CASES CITED
Gap International Sourcing (India) Pvt. Ltd. v. Commissioner 2014-TIOL-465-CESTAT-Del. Followed [Paras 7, 11]
Glyph International Ltd. v. Commissioner 2014 (34) S.T.R. 732 (Tribunal) Distinguished [Para 2]
Glyph International Ltd. v. Union of India 2014 (34) S.T.R. 727 (Del.) Followed........ [Para 3]
Paul Merchants Ltd. v. Commissioner 2013 (29) S.T.R. 257 (Tribunal) Followed [Paras 7, 11]
REPRESENTED BY :

S/Shri S. Venkataraman & Sukumar A., Advocates, for the Appellant.

S/Shri S. Teli & R. Gurunathan, AR, for the Respondent.

[Order per : B.S.V. Murthy, Member (T)]. - Before hearing started, the learned AR submitted that he has a
preliminary objection to be raised before the matter is taken up. He was allowed to do so.
2. He submits that in the case of Glyph International Ltd. vide Miscellaneous Order Nos. 125 & 126/2013-CR,
dated 15-4-2013 [2014 (34) S.T.R. 732 (T)], the Tribunal had held that the rejection of rebate claims filed in respect of
service tax cannot be considered by the Tribunal and are not maintainable. He relies on Paragraph 21 of this order. The
same is reproduced below :
21. In view of the above analysis, the irresistible conclusion shall be that the Tribunal by virtue of Section 83 of
Finance Act, 1994, should not entertain the rebate claim covered by first proviso to Section 35B(1) of Central Excise Act,
1944, in the appellate jurisdiction under Section 86 of Finance Act, 1994 because revisionary jurisdiction and appellate
jurisdiction are clearly demarcated in law and nature and character thereof in common law is well understood.
Consequently, Revenue succeeds in saying that rebate claim matters should go to revisionary jurisdiction. We hold
accordingly. Single bench not having dealt jurisdiction issue in one of the appeals of the appellant that has no significance
for our consideration and plea of judicial insistency is baseless.

3. Learned counsel would submit that the matter was carried before the Honble High Court and Honble High
Court after considering the issue passed a detailed order dated 20-3-2014 in W.P. (C) 6224/2013 [2014 (34) S.T.R. 727
(Del.)]. Since the order of the Tribunal has been set aside, the matter can be decided by this Tribunal. Accordingly the
preliminary objection is rejected and the appeals are taken up for hearing.
4.1 GE India Technology Centre Pvt. Ltd., Bangalore (the appellant) is filing the present appeal against the orderin-appeal No. 49/2009, dated 25 August, 2009 (the impugned order) passed by the Commissioner of Central Excise
(Appeals-II), Bangalore Commissioner (Appeals). The appeal involves question regarding sanction of rebate of service tax
that was paid by the appellant on the export of Scientific and Technical Services during February and March, 2008. The
facts leading up to the present appeal are stated in the following paragraphs.
4.2 The appellant is a private limited company registered under the Companies Act, 1956. It is engaged in

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providing and exporting R&D and Engineering services (R&D) Services in various disciplines to GE, USA (GE USA)
and their overseas entities under an agreement dated 13 June, 2001.
4.3 The scope of various R&D services provided and exported by the appellant to GE USA and their overseas
entities is as under :
i.
To carry out R&D services in the areas of chemistry and catalysis, chemical engineering and mathematical
modeling, engineering mechanics, electronics systems, information technology and e-commerce, metallurgy
and ceramics, manufacturing and business processes, etc., or any other areas to be mutually agreed.
ii.
Advising GE USA on the type of technical expertise or know-how, if any, that is required to be
imparted/applied by the appellant.
iii. Research to improve productivity of the existing products manufactured by various GE overseas entities.
iv. Research to develop new materials for existing usages and new usages for the existing products.
v.
Research to increase the life and/or reduce the weight of the existing products.
Studying the existing capabilities of products and evaluate the newer technologies available to meet the
vi.
criterion set by the business of GE overseas entities.
4.4 The deliverables as per the terms of the agreement, depending upon the nature of the services provided, are
as follows :
i.
Technical reports, design documents or publication surveys related to the research and development activity;
ii.
Models/tools developed in the course of the research and development activity; and
iii. Prototypes/product samples developed as a result of the research and development activity.
The deliverables for the services are exported by the appellant to GE USA and their overseas entities generally in
the form of customized electronic data, a report or tangible articles/prototypes as samples with no commercial value as per
the time frame and in accordance with the other conditions laid down in service requests.
4.5 During the course of providing and exporting the aforesaid taxable Scientific or Technical consultancy services
to GE USA and their overseas entities, the appellant procured and used various input services and availed of the credit of
the service tax paid thereon in accordance with the provisions of the Cenvat Credit Rules, 2004 (the Credit Rules). The
credit so taken was utilized by it for payment of service tax, education cess and higher education cess on the export of
services to GE USA and its overseas entities. In respect of the services exported by the appellant during the months of
February and March, 2008 it paid service tax and cesses aggregating to Rs. 9,47,42,681/- by utilizing Cenvat credit of Rs.
9,47,32,681/- and paying the remaining amount of Rs. 10,000/- in cash.
4.6 The appellant on 7 May, 2008 filed with the jurisdictional Deputy Commissioner, Service Tax (DCST) a rebate
claim for the amount of Rs. 9,47,42,681/-.
5. The refund claim was rejected on the following grounds :
i.
ii.
iii.
iv.

the service provided by the appellants is Business Support Service and cannot be considered as Scientific or
Technical Consultancy Services.
The GE ITC is an extended arm of GE USA and is established in India to look after the interest of GE USA in
relation to business or commerce.
Consideration as per the agreement is not in relation to a particular service but is in relation to the quantum of
service provided and is equal to the total cost incurred by GE ITC plus 5% thereof.
The conditions laid down in Rule 3(2) of the Export of Services Rules, 2005 are not satisfied since the service
is not provided from India and used outside India. In this case services are used only in India.

6. The learned counsel submits that the claim of the department that the service has to be classified as Business
Support Service is not correct since the Revenue itself has classified their service for a subsequent period as Scientific or
Technical Consultancy Service only. He draws our attention to the appeal memorandum in the Revenue appeal which has
been listed today before us wherein in Paragraph 2 it has been stated that the research and development services
rendered by the assessee to their group companies has to be classified as Scientific or Technical Consultancy Service. In
fact a show cause notice was issued on this basis.
7. In any case after going through the agreement, we find that the appellant according to the agreement is
required to carry out research and development and submit reports. The subsequent clause in the agreement in Para 1.1
also would show that basically the appellants are undertaking Scientific Research and Technical Analysis and submit report
to GE USA who utilize the report in a manner they overlook to utilize the same. The learned counsel relies upon the
decision in the case of Gap International Sourcing (India) Pvt. Ltd. v. CST - 2014-TIOL-465-CESTAT-DEL. We find that in
Paragraphs 8.5 and 8.6 which are relevant the Tribunal observed as follows.
8.5 In the context of export of service, once a service, on the basis of Rule 3(1)(i), 3(1)(ii) or 3(1)(iii) of the Export
of Services Rules, 2005 has been determined to have been received outside India i.e. consumed outside India, the
conditions in Rule 3(2) regarding their delivery outside India and use outside India are automatically satisfied as, as
explained in para 8.1 above, in the context of services, the receipt, consumption and delivery of the service is the same.
Therefore the condition regarding delivery of service being outside India and use of service being outside India prescribed
in Rule 3(2) of Export of Services Rules, 2005 were superfluous and for this reason only, these conditions were deleted,
first, the condition regarding delivery of service being outside India was deleted w.e.f. 1-3-2007 and thereafter the condition
regarding use of service being outside India was deleted w.e.f. 27-2-2010. These amendments, therefore, have to be
treated as clarificatory amendments. Therefore if some service covered by Rule 3(1)(iii) of Export of Services Rules, 2005,
i.e. service in relation to business or commerce, has been provided by a person in India to a company located abroad, not
having any branch or establishment in India, for use in its business, the service provided in India shall be treated as export,
if the payment has been received in convertible foreign exchange. The performance of such service in India, would not
make them received/consumed in India, if beneficiary user/recipient of said service provided in relation to business or
commerce, who has paid for these services and has used the service in his business, is located abroad. The position would
be different if the company located abroad who has paid for the service, also has some branch/project in India and the
service provided in India is meant for that branch/project only - in that case, the consumption of service would be in India

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and the service would be taxable in India. But if the recipient company located abroad, has no branch or project or
establishment in India and the service covered by Rule 3(1)(iii) provided in India is meant for use in the business of the
company located abroad, it would be export of service.
8.6 In view of the above discussion, the Boards Circular No. 141/10/2011, dated 13-5-2011 clarifying that for the
period prior to 27-2-2010, the condition regarding used outside India also needs to be independently satisfied for availing
the benefit of export and that effective use of advertisement services shall be the place where the advertising material is
disseminated to the audience though the actual benefit to my finally accrue to the buyer who is located at another place is
not only not in accordance with the provisions of Rule 3(1) of the Export of Services Rules, 2005, but is also contrary to the
law laid down by the Apex Court in the cases of All India Federation of Tax Practitioners (supra) and Association of Leasing
and Financial Service Companies (supra), as a service which has not been consumed in India, cannot be taxed in India.

We find that this decision is applicable to the facts of this case. It has been held in this decision that if the beneficiary is
abroad and it is used abroad, Tribunal took the view that service has been exported. Further we also find that the reliance
placed by the learned counsel at Para 71.1 in the case of Paul Merchants Ltd. v. CCE, Chandigarh reported in 2013 (29)
S.T.R. 257 (Tri.-Del.) is also relevant and is applicable. Paragraph 71.1 is reproduced below for better appreciation.
71.1 It has been pleaded that the recipient of the services provided by the agents of WU is not WU but the
persons in India receiving the money sent by their friends and relatives abroad through WU and their agents and this is not
the export of service. This plea is totally incorrect. The service recipient is the person on whose instructions/orders the
service is provided, who is obliged to make the payment from the same and whose need is satisfied by the provision of the
service. WU having accepted money along with commission from their customers abroad for delivery to their intended
beneficiaries in India are under obligation to get the money delivered in India and for this purpose, they have engaged the
agents, as WU does not have any business establishment or offices in India to discharge this obligation directly. The
obligation of WU to deliver the money received by them from their customers abroad to their intended beneficiaries in India
is discharged by the agents either directly or through sub-agents and for this the agents get a commission from WU. Thus it
is WU who have received the services provided by agents and have used this in relation to their business of money transfer
and therefore have to be treated as recipient and consumer of service not the person receiving money in India through WU.
There is one more reason why the persons to whom the money was delivered by agents/sub-agents of WU cannot be
treated as recipient of services provided by WU. Service tax is akin to tax on sale of goods. Service tax can be said to be a
tax on sale of service. Just as sale of goods which attracts sales tax is transfer of property in goods by a person (seller) to
another person (buyer) for some consideration, a service is an activity carried out by a person for another for some
consideration. Just as in case of sale of goods it is buyer who is obliged to pay for the goods purchased, in case of
provision of service, it is recipient of the service who is obliged to pay for the service to the service provider. Thus the
service recipient is the one who is obliged to pay for the services to the service provider and whose need is satisfied by the
service or in other words, is the buyer of service. To illustrate, if a manufacturer A is under obligation to provide free repair
service during a specified warranty period to his customers in respect of some goods sold to them and he engages B to
provide the services of free repairs during warranty period to his customers C1, C2, C3and for this he pays to B, the
recipients of the service provided by B would be A, not the customers C1, C2, C3In general in case of services
provided by an agent to some person on behalf of his principal for some commission, it is the principal who is the service
recipient/beneficiary, not the person affected by the services performed by the agent, who may be affected pleasantly or
unpleasantly (e.g. when the service performed by the agent is the service of money recovery or some other unpleasant
service performed on behalf of the principal) depending upon the nature of the services performed in respect of him. He
cannot be called beneficiary or recipient of the service provided by the agent. Since the service provided by the agents has
been used by WU in their money transfer business abroad, the same has to be treated as received and consumed abroad,
not received and consumed in India.

8. Another ground taken for denying the claim of the appellant that the Scientific and Technical Consultancy
Services provided by them to their foreign entities cannot be considered as export of services emanates from the
agreement according to the Revenue. According to the Revenue, the agreement between GE USA and GE ITC, GE ITC is
an extended arm of GE USA and is established in India to look after the interests of GE USA in relation to business or
commerce.
9. We have gone through the agreement and we do not find any point there which results in the conclusion taken
by the learned Commissioner in the order. The agreement is between GE USA and GE ITC. GE USA is incorporated under
the laws of State of New York and GE ITC is a company incorporated under the Companies Act, 1956. This itself shows
that both are separate entities. No other evidence has been taken into account to show that GE ITC is an extended arm.
Even if it is a subsidiary company, as submitted by the learned counsel, a subsidiary company is considered as a separate
entity in the eyes of law. Further we also do not find any basis to come to the conclusion that GE ITC was set up to look
after the interests of GE USA in relation to business or commerce. In Para 1.1 the role of GE ITC has been indicated and it
requires GE ITC from time to time and on a request made by GE USA to provide the services. On the one hand they are
required to carry out research and development in respect of GE projects and also provide other services as and when
requested. We do not find sufficient evidence to support this conclusion at this stage. Therefore we cannot sustain the view
taken GE ITC is an extended arm of GE USA.
10. As regards the stand taken that appellants are providing a cluster of services and are receiving consideration
in the form of cost plus 5% and therefore it has to be held that the service provided is Business Support Service cannot be
upheld since for classification, the method by which consideration is determined cannot be the basis. The basis has to be
the fact that the services provided should fit into the definition of the service under which it is supposed to be categorized.
On the one hand it is appellants claim that they are providing only Scientific and Technical Analysis and specific evidence
as regards why any activity of the appellant comes under Business Support Service by explaining the nature of the activity
vis--vis the definition so pointed out to us. Therefore prima facie we cannot support this view. Moreover as submitted by
the learned counsel, subsequently Revenue itself has issued show cause notice proposing classification of the services as
Scientific and Technical Service.
11. As regards the observation that the conditions laid down in Rule 3(2) of Export of Services Rules, 2005 are not
satisfied, we find that the reliance of the learned counsel on the decision in the case of Paul Merchants Ltd. and in the case

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of Gap International Sourcing (India) Pvt. Ltd. are squarely in favour of the assessee. Therefore this observation
also cannot be sustained.
12. This brings us to the question as to what should be the decision in this case. Learned counsel submits that in
the normal course it would have been necessary to decide other issues also. On the one hand issue that has been left out
in the above decision is a question of nexus. The learned counsel would submit that as regards nexus even though the
appellant has filed an appeal against the order of Commissioner (Appeals) in order-in-appeal No. 139/2013, dated 12-42013 against the disallowance of benefit in respect of certain services, he seeks directions from the Tribunal to the original
authority that in respect of the present refund claim under dispute before us, the nexus between the input service and the
output service can be decided by the original authority in accordance with the decision taken in the above decision (orderin-appeal No. 139/2013). He submits that since the amount involved is small, the appellant is willing to forego the same in
respect of services the credit on which has been held to be inadmissible on the ground of nexus between the input service
and output service by the Commissioner. He also submits that this decision in order-in-appeal No. 139/2013 has not been
appealed against by the department. We consider these submissions to be reasonable and fair. Accordingly we set aside
the impugned order and remand the matter to the original authority with the following observations :
(a) Appeal is allowed with consequential relief if any to the appellants except as regards the ground of nexus
between input services and output services which as requested by the counsel shall be decided in
accordance with the order-in-appeal 139/2013. As regards verification of documents, quantification of
amounts, these aspects have not been completed since the adjudication order was passed on the basis of
principles and not on the basis of verification of documents. This exercise shall be carried on in accordance
with law. In view of the fact that the matter is pending for a period of more than 5 years and the refund claim is
in respect of export of services, we consider the request of the learned counsel that original authority should
be directed to decide the matter within a specific time line is reasonable. Accordingly we direct the appellant
to furnish all the documents and details required for verifying the refund claim along with a statement showing
the amount admissible to them as per the decision of Commissioner (Appeals) in order-in-appeal No. 139/213
and thereafter the original adjudicating authority is requested to complete the exercise and ensure that
admissible refund is sanctioned within 3 months from the date of communication of this order to the original
authority. The appellants are free to submit a copy of the order to the original authority as and when they get
the copy to ensure that the original authority also gets the order in time and no disputes arise on the date of
communication of the order.
(b) As regards the Revenue appeal, the learned counsel submitted that the appeal has become infructuous. This
is because the order of Commissioner (Appeals) remanding the matter to the original authority which is under
challenge and the revenue appeal has been implemented by the original authority and the refund claim has
been once again rejected against which the appellants have already filed the appeal. This position would
show that a parallel litigation has already started on the very same issue and since the very same claims
would be coming up before the Commissioner (Appeals), therefore the appeal has become infructuous and is
accordingly rejected.
(Operative portion of the order has been pronounced in open Court on 12-6-2014)

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