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2013 (31) S.T.R. 738 (Tri. - Mumbai)

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI
[COURT NO. I]
S/Shri P.R. Chandrasekharan, Member (T) and Anil Choudhary, Member (J)

VODAFONE ESSAR CELLULAR LTD.

Versus

COMMISSIONER OF C. EX., PUNE-III

Final Order Nos. A/503-508/2013-WZB/C-I(CSTB) and Stay Order Nos. S/386-389/2013-WZB/C-I(CSTB), dated 12-32013 in Application No. ST/Stay/1531-1533 and 1718/2011 in Appeal Nos. ST/510-512 and 569/2011 and ST/320 and
509/2012

Rebate - Export of services - Telecom service provided in India to International

in-bound roamers registered with foreign telecom network operator - Payment
received from impugned foreign telecom operators in convertible foreign exchange HELD : No contract/agreement between assessee and subscriber of foreign telecom
operator - Therefore foreign telecom service provider paying for services as recipient
of service - Telecom services falling under category III - Export of Services Rules,
2005 - Transaction constituting export since services rendered to foreign services
provider located abroad - Board Circular clarifying benefit accruing to foreign service
provider as subscriber billed for services rendered - Ratio of Tribunals decision in
Paul Merchants [2013 (29) S.T.R. 257 (Tribunal)] squarely applicable - Subscriber of
foreign telecom service provider not recipient of service - Rule 3(1)(iii) of Export of
Service Rules, 2005. [paras 5.1, 5.2, 5.3, 5.4]

Appeals allowed
CASE CITED
Paul Merchants Ltd. v. Commissioner 2013 (29) S.T.R. 257 (Tribunal) Relied on [Paras 3, 5.4]
DEPARTMENTAL CLARIFICATIONS CITED
C.B.E. & C. Circular No. 111/5/2009-S.T., dated 24-2-2009.................................. [Paras 3, 4, 5.3]
C.B.E. & C. Circular No. 141/10/2011-TRU, dated 13-5-2011........................................... [Para 4]
REPRESENTED BY :

Shri Prasad Paranjape, Advocate, for the Appellant.

Shri V.K. Agarwal, Addl. Commissioner (AR), for the Respondent.

[Order per : P.R. Chandrasekharan, Member (T)]. - In all the above appeals and stay applications arising out of
order-in-appeal Nos. PIII/RS/145-152/2011, dated 24-6-2011 and PIII/RS/51/2012, dated 20-2-2012, a common issue is
involved and therefore, they are taken up together for consideration.
2. The appellant, M/s. Vodafone Cellular Essar Ltd., Pune, provided telecom services in India to international inbound roamers registered with foreign telecom network operators but located in India at the time of providing of the said
services and claimed rebate on the ground that the payment was received in convertible foreign exchange from the
foreign telecom network operators and the services rendered should be treated as export of service under the Export of
Service Rules, 2005. Their claims were rejected by the adjudicating authority against which they filed appeals. The lower
appellate authority in the impugned orders held that the service provided by the Indian telecom operator to a person
located in India, who is a subscriber of the foreign telecom operator, known as in-bound roamer for effective enjoyment in
India is chargeable to service tax in India and hence the appellant is not eligible for any rebate. Accordingly he rejected
the appeals. Hence the appellant is before us.
3. The ld. Counsel for the appellant makes the following submissions :(i)
The appellant has entered into International Roaming Agreement with various Foreign Telecom Service
Providers to establish and operate International Roaming between their Public Mobile Networks. The
services made available to individual roaming subscribers shall only be those for which the Roaming
subscribers have valid subscriptions in their Home Public Mobile Network. A VPMN operator providing
services to a HPMN operator shall, under the same technical terms and conditions, offer the same services
to its other International roaming partners. Both parties agree that when a Roaming Subscriber uses the
services of the VPMN operator, the roaming subscribers HPMN operator shall be responsible for payment of
charges for the services so used in accordance with the tariff of the VPMN operator. HPMN operator is
defined as the party who is providing mobile telecommunications services to its subscribers in a geographic
area where it holds a licence or has a right to establish and operate a Public Mobile Network. VPMN
operator shall mean a party who allows Roaming Subscribers of an HPMN operator to use its Public Mobile
Network. Thus as per the agreement, the service is rendered to the foreign telecom service provider who
charged for the services and not to the subscriber of the foreign telecom service provider. The consideration
is received in convertible foreign exchange and hence, the transaction is one of export as defined in Export
of Service Rules, 2005.
(ii) Export of Service Rules, 2005 classifies the taxable services into three categories and the telecommunication

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service provided by the appellant falls under category III. As per Rule 3(1)(iii) of the said Rules, this category deals
with such services when provided in relation to business or commerce, be provision of such services to a
recipient 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. To constitute export/conditions prescribed in Rule 3(2)
needs to be satisfied. Prior to 27-2-2010, the condition required to be satisfied were such service is
provided from India and used outside India; and payment for such service received by the service provider in
convertible foreign exchange. With effect from 27-2-2010, the conditions were modified and the only
condition that needs to be satisfied is that payment for such service is received in convertible foreign
exchange. The appellant has satisfied these conditions for both the periods and therefore, the transaction
undertaken by them is export as defined in the law and therefore, they are rightly entitled for the export
rebate.
(iii) Vide Circular No. 111/5/2009-S.T., dated 24-2-2009, the C.B.E. & C. has clarified the scope of the expression
such service is provided from India and used outside India for various categories of services. 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, 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 terms of the above clarification, the services rendered by
the appellant qualify as exports.
(iv) As per the UK VAT Circular vide VATPOSS15100, the place of supply of telecommunication services is
where they are used and enjoyed when supplied and when such services are provided by a non-EC provider
to a U.K. Customer or a non-business customer in another Member State, to the extent that effective use
and enjoyment takes place in the UK (such element being subject to UK VAT). Similarly as per Tax Laws
Amendment Bill 2010 of Australia, GST relief for telecommunication supplies for global roaming in Australia
has been provided and telecommunication services for global roaming in Australia has been made GST free
when such services are provided to subscribers of a non-resident telecommunication supplier while the
subscribers are visiting Australia. Thus the receiver of service is the foreign telecom service provider and not
their subscribers in all countries where GST is operational.
(v) He also relies on the decision of the Tribunal in the case of Paul Merchants Ltd. [2012-TIOL-1877-CESTATDEL = 2013 (29) S.T.R. 257 (Tri. - Del.)] wherein in the case of money transfer from abroad by Western
Union through its agents in India who delivered the money to the Indian beneficiary, it was held that the
agents in India has rendered service to the Western Union and the transaction is export as defined in Export
of Service Rules, 2005. The ratio of the said decision applies to the facts of the present case.
Accordingly, the ld. Counsel pleads for allowing the appeal with consequential relief.
4. The ld. Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the lower appellate
authority. He submits that the service has been rendered in India and at the time of rendering the service, the subscriber
of the foreign telecom service provider is situated in India and hence the consumption and enjoyment of the service is in
India. C.B.E. & C. vide Circular 141/10/2011-TRU, dated 13-5-2011 while clarifying the Circular dated 24-2-2009 issued
by the Board has stated that the accrual of benefit should be judged based on where the effective use and enjoyment of
service has been obtained. Accordingly he prays for upholding the impugned order.
5. We have carefully considered the submissions made by both the sides. As the issue is of a recurring nature
and involves interpretation of law, we are taking up the appeals for consideration and disposal after waiving the
requirement of any pre-deposit.
5.1 We have perused the agreement entered into between the appellant and the foreign telecom service
providers. As per the said agreement, the appellant has agreed to provide telecom services to the customer of the foreign
telecom service provider while he is in India using the appellants telecom net work. The consideration for the service
rendered is paid by the foreign service provider. There is no contract/agreement between the appellant and the subscriber
of the foreign telecom service provider to provide any service. Since the contract for supply of service is between the
appellant and foreign telecom service provider who pays for the services rendered, it is the foreign telecom service
provider who is the recipient of the service. From the provisions of law relating to GST in UK and Australia, relied upon by
the appellant, this position becomes very clear. Your customers customer is not your customer. When a service is
rendered to a third party at the behest of your customer, the service recipient is your customer and not the third party. For
example, when a florist delivers a bouquet on your request to your friend for which you make the payment, as far as the
florist is concerned you are the customer and not your friend.
5.2 Export of Service Rules, 2005 defines export in respect of taxable services. For this purpose, the services
have been categorized into 3. Category I deals with specified services provided in relation to an immovable property
situated in India. Category II deals with specified taxable services where such taxable service is partly performed outside
India and states that when it is partly performed outside India, it shall be treated as performed outside India. Category III
deals with services not covered under category I and II. The telecom services fall under category III. As far as category III
services are concerned, the transaction shall be construed as export when provided in relation to business or commerce
to a recipient located outside India and when provided otherwise to a recipient located outside India at the time of
provision of such service. The additional conditions required to be satisfied are such services as are provided from India
and used outside India; and consideration for the service rendered is received in convertible foreign exchange. As
observed earlier, the service is rendered to a foreign telecom service provider who is located outside India and therefore,
the transaction constitutes export and we hold accordingly.
5.3 The Boards clarification vide Circular No. 111/5/2009-S.T., dated 24-2-2009 makes this position very clear.
Para 3 of the Circular which is relevant is reproduced verbatim below :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

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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 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 employee 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 provider 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 accrues outside India. Thus for category III services, 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 .*

Thus what emerges from the above circular is that when the appellant rendered the telecom service in the context of
international roaming, the benefit accrued to the foreign telecom service provider who is located outside India since the
foreign telecom service provider could bill his subscriber for the services rendered. This is the practice followed in India
also. When an Indian subscriber to, say, MTNL/BSNL goes abroad and uses the roaming facility, it is the MTNL/BSNL
who charges the subscriber for the telecom services including service tax, even though the service is rendered abroad by
the foreign telecom service provider as per the agreement with MTNL/BSNL.
5.4 The Paul Merchants case (supra) relied upon by the appellant dealt with an identical case. The question
before the Tribunal in that case was when Agents/Sub-agents in India of Western Union Financial Services, Panama,
makes payments to an Indian beneficiary on behalf of the customer of Western Union in foreign country, whether the
services rendered by the Indian Agents/Sub-agents should be treated as export or not under Export of Service Rules,
2005. By a majority decision, it was held that the service being provided by the agents and sub-agents is delivery of
money to the intended beneficiaries of the customers of Western Union abroad and this service is business auxiliary
service, being provided to Western Union. It is the 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. The ratio of the said decision applies
squarely to the facts of the present case before us. Once the ratio is applied, it can be easily seen that the service
recipient is the foreign telecom service provider and not the subscriber of the foreign telecom service provider who is
roaming in India.
6 In sum, we allow the appeals with consequential relief, if any. The stay applications are also disposed of.

(Operative part pronounced in the Court)

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