Services Rendered By Indian Commission Agent To Foreign Principal Will Qualify As Export Of Service

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the services rendered by Indian commission agents to foreign principals will qualify as “export of service. The bench of Justice Dilip Gupta (President), P.A. Augustian (Judicial Member), and C.J. Mathew (Technical Member) has observed that export of services would take place under rule 3(1)(iii) of the 2005 Export Rules if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India. This is because the foreign entity is located outside India and the payment is received by the person residing in India in convertible foreign exchange.

The appellant is a wholly-owned subsidiary of Arcelor Mittal Stainless International, Paris, France. It was appointed as a sub-agent by Arcelor France, a commission agent for steel mills situated outside India, for procuring sale orders for the products manufactured by these mills from customers across the world. Arcelor France does not have any offices in India. A prospective customer in India is either approached by Arcelor India or contacts Arcelor India regarding a stainless steel requirement, but in either case, the request is forwarded by Arcelor India to the foreign steel mills with the technical requirements of the Indian customer.

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Once the foreign mills and the Indian customer come to an understanding on the terms and conditions of supply, a written contract is executed between the Indian customer and the foreign mills, or a purchase order is placed with the foreign mills. The documents are prepared by the foreign mills in the name of the Indian customer, and the Indian customer, in turn, pays the foreign mills. Thus, the goods directly pass from the foreign mills to the Indian customer.

A part of the commission received by Arcelor France, as the main agent, from the foreign mills is paid to Arcelor India based on the volume of sales in each quarter in convertible foreign currency. A dispute arose in relation to the commission received by Arcelor India from Arcelor France for the period from April 2005 to January 2009. Arcelor India contended that there was no privity of contract between it and the steel mills located outside India, and it received the consideration only from Arcelor France. It, therefore, did not collect or pay service tax on the commission received from Arcelor France from April 2005 to January 2009.

The department, however, believed that service tax was levied on the commission received by Arcelor India from Arcelor France since the services were performed and consumed in India and would not qualify as “export of service” under the Export of Service Rules, 2005. Arcelor India believed that it was not required to pay service tax on the commission received from Arcelor France as the service qualified as an “export of service.”

However, Arcelor India paid service tax under protest during the investigation for the period April 2005 to January 2009 with interest but subsequently filed refund claims. The tribunal noted that Arcelor India, which is a service provider, is providing BAS service to Arcelor France, which is a service recipient. Arcelor India is, therefore, providing service to Arcelor France, which is situated outside India, and Arcelor India receives consideration in convertible foreign exchange. The service provided by Arcelor India is, therefore, delivered outside India and used outside India, as is the requirement under the 2005 Export Rules prior to March 1, 2007. Arcelor India provides services from India that are used outside India, as is the requirement after March 1, 2007. It cannot, therefore, be doubted that Arcelor India provides “export of service” as contemplated under Rule 3 of the 2005 Export Rules.

The CESTAT has held that Arcelor France is an agent of the foreign steel mills, and Arcelor India is its sub-agent. Arcelor India provides the necessary details of the customers in India to the foreign steel mills, and, thereafter, the foreign steel mills and the Indian customers execute a contract for the supply of the goods. The goods are directly supplied by the foreign steel mills to Indian customers. Arcelor India also satisfies condition (b) of Rule 3(2) as payments for service have been received in convertible foreign exchange.

Case Title: M/s. Arcelor Mittal Stainless (I) P. Ltd. Versus Commissioner Service Tax Case No.: Service Tax Appeal No. 88483 Of 2014 Date: 09.06.2023 Counsel For Appellant: V. Sridharan, Vinay Jain and Somesh Jain Counsel For Respondent: Anand Kumar