Case: Vodafone Idea Limited and Ors Vs. The Union of India and Ors

3. Since we felt, if revenues petition is admitted and we grant a stay to the impugned order, then the question of considering Vodafone Idea Limiteds petition for refund would not arise. Therefore, we took up the petition filed by revenue as main petition.4. Though the petitions are listed for admission, by consent are taken up for final hearing. Petition filed by revenue is taken as reply to petition filed by Vodafone India Limited.7. It is the case of Vodafone Idea Limited that under the telecommunication license received from Government of India, it provides telecom services. Vodafone Idea Limited provides, inter-alia, the services in the nature of international Inbound Roaming Services (IIR) and International Long Distance (ILD) Services to Foreign Telecom Operators (FTOs). Vodafone Idea Limited is registered under the Maharashtra Goods and Services Tax Act, 2017 (for brevity MGST Act) under registration No. 27AAACB2100P1ZX. The services provided by Vodafone Idea Limited is export of services within the meaning of section 2(6) of the Integrated Goods and Services Tax Act, 2017 (for brevity IGST Act).8. As per section 16(3) of the IGST Act, a registered person making zero rated supply shall be eligible to claim refund under either of the following options:(a) Supply of goods under bond or letter of undertaking (LuT) without payment of IGST and;(b) Supply of goods with payment of IGST and claim refund of such tax paid.Petitioner chose the second option and exported services on payment of Integrated Tax and claimed refund thereof.9. During the period April- 2019 to September 2019, Vodafone Idea Limited filed applications dated 26.03.2021 and 20.05.2021 for refund of integrated tax paid on export of services under Form RFD01A in accordance with the provisions of Section 54 of the Central Goods and Service Tax Act, 2017 (for brevity CGST Act) read with Rule 96 of the Central Goods and Service Tax Rules, 2017 (for brevity Rules). Vodafone Idea Limited also submitted various documents along with the said applications. Subsequently deficiency memos were issued by respondent Nos. 3 and 4 and Vodafone Idea Limited was called upon to submit documents mentioned therein. Vodafone Idea Limited, vide letters dated 28.04.2021 and 18.05.2021, complied with the deficiencies and submitted the documents.10. Respondent No.4 issued two show-cause-notices dated 14.06.2021 and 06.07.2021 calling upon Vodafone Idea Limited to show cause as to why its refund claims, for reasons mentioned in the show cause notices, should not be rejected. Respondent No.3, by a letter dated 22.06.2021, also called upon Vodafone Idea Limited to submit its explanation on the issues raised therein. Vodafone Idea Limited by letters dated 29.06.2021 and 13.07.2021 replied to the show-cause-notices. By two orders dated 16.07.2021 and 19.07.2021, respondent No.4 rejected refund claims of Vodafone Idea Limited. Respondent No.4 held, inter-alia, that the place of supply of services provided by Vodafone Idea Limited was the State of Maharashtra and cannot be considered as export of services. Further, an amount of Rs.29,98,63,922/- for the period April 2019 to June 2019 was rejected on the ground that the same was filed beyond the period of two years from the date of receipt of consideration in foreign currency.11. Aggrieved by these two orders, Vodafone Idea Limited filed the said appeals before the Joint Commissioner of CGST and CX (Appeals). The Joint Commissioner (Appeals), by a common order dated 18.08.2021, allowed both appeals of Vodafone Idea Limited. In view of the said order Vodafone Idea Limited claims to have become eligible for refund of Rs. 1,02,74,14,843/- alongwith appropriate interest. It is this order that revenue has impugned in its petition.

Reasoning:
We have considered the said order-in-original passed on 19.07.2021 by the Deputy Commissioner of CGST & Central Excise Commissionerate and also the order in appeal dated 18.08.2021 passed by the Joint Commissioner (Appeals) and in our view the order passed in appeal by the Joint Commissioner (Appeals) is the correct order.19. As per clause (a) of Section 2(93) of the CGST Act, recipient means where the consideration is payable for supply of goods or service, the person who is liable to pay the consideration. Clauses (b) and (c) of Section 2(93) is applicable when no consideration is payable. In this case consideration is payable by the FTO for the services rendered to it. We find the adjudicating authority in his orders does refer to the terms of agreements with FTO. The services are rendered under agreements with the service recipients and according to the agreement, Vodafone Idea Ltd is contractually obligated only to the FTOs for the services under the agreement; the consideration is payable by the FTOs and the consideration is payable in convertible foreign exchange. There is no mention of any agreement with subscriber of FTO. Vodafone Idea Ltd has reiterated that there is no contract with subscriber of FTO making it liable to pay value of service to Vodafone Idea Ltd. We find that practically it is impossible for Vodafone Idea Ltd to have contract with subscriber of FTO. Therefore, the subscriber is not liable to make any payment to Vodafone Idea Ltd. In the impugned order it is stated as per the agreement reproduced in para 16.1 (Appeal No.257/2021) and 13.1 (Appeal No.258/2021) of the impugned orders with M/s. Cello Partnership or M/s. Verizon Wireless USA D/B/A, for provision of service is payable by FTO. This is not controverted by Revenue. It is a fact that payment is received from FTO. Hence, subscriber of the FTO cannot be considered as recipient of service as held by Adjudicating Authority. FTO is undoubtedly the recipient of service.The provision of section 13(3)(b) is applicable in the case where services are supplied to an individual as Section 13(3) (b) starts with the words service supplied to an individual. We find that in the instant case the said services were supplied to FTO and not to an individual. The FTO had supplied services to their subscriber (individual). Here, the supplier of services is Vodafone Idea Ltd and the recipient of the service is FTO as discussed above. Further, Vodafone Idea Ltd has no idea of subscribers of FTO and therefore question of supplying service to an individual (subscribers) does not arise. Vodafone Idea Ltd had issued invoices to FTO and not to any individual which substantiates that services were not provided to an individual.21. We would agree with the concept that customers customer cannot be your customer. In the case at hand customer of Vodafone Idea Limited is the FTO and the subscribers of FTO are the customers of FTO. When a service is rendered to a third party customer of FTOyour customer, the service recipient is your customer and not the third party customer of FTO. These issues have been considered by the Central Excise and Service Tax Appellate Tribunal (CESTAT Act), West Zonal Branch, Mumbai and one of Banglore Tribunal. We accept the views expressed and law laid down by the Tribunals. The relevant portion reads as under :-1. Vodafone Essar Cellular Ltd. V. CCE ((2013) (31)STR 738(Tri-Mum)) (para 5.1, 5.2, 5.3 & 5.4)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 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.2. CST v Bayer Material Science (2015) 38 STR 1206 (Tri-Mumbai) (para 7)7. A similar issue came up before this Tribunal in the case of Vodafone Essar Cellular Ltd v. CCE, Pune-III - 2012(31) S.T.R. 738 wherein it was held that the telecom service provided in India to international inbound roamers registered with foreign telecom network operator, payment received from impugned foreign telecom operators in convertible foreign exchange, in that set of facts this Tribunal has held that the service have been provided outside India as an export of service. In this case, the respondent is in a better footing that in the case of Vodafone Essar Cellular Ltd. (supra) wherein it was held that the service recipient is the foreign telecom service-provider and not the subscriber of the foreign telecom service in India and providing service in India and it is a case of export of service. In the circumstances, I hold that the learned Commissioner (Appeals) has rightly held that the case of export of service as per Rule 3(1) (iii) of Export of Services Rules, 2005. In the circumstances, I do not find any infirmity with the impugned order and the same is upheld. The appeal filed by the Revenue is dismissed.3. ABS India Ltd. v CST (2009) 13 STR 65 (Tri Bang) (para 4)The appellant is a company incorporated in India. They have a subsidiary company in Singapore. The appellant booked orders for the sales of the goods manufactured by the subsidiary situated in Singapore. For this purpose, they received certain commission and initially they paid the Service Tax. Later they realized that as they had exported the service, they would not be liable to pay Service Tax. Hence, they requested for refund of the amount. The refund was rejected by the Original Authority. The rejection order has been upheld by the Appellate Authority. Both the Original Authority and Appellate Authority have held that the service has been rendered in India and it has been utilized delivered in India and it is also used in India. The learned Advocate strongly argued that the understanding of the lower authority is not correct, the services have rightly been delivered abroad and they have been used by the Singapore Company. They relied on several case laws. They also stated that it should not be considered that the appellant and the company in Singapore are related, even though one is a subsidiary of the other, they are separate legal entities. They produced a large number of case laws on this subject. They also relied on the decision of this Tribunal in the case of M/s. Blue Star v. CCE vide Final Order No. 489/2008, dated 27-3-2008 [2008 (11) S.T.R.23] (Tribunal), wherein a similar situation was dealt with. The situation here also is similar. In this case, the Indian company is the principal and the Singapore Company is a subsidiary. The appellant is the Indian Company, booked certain orders for the Singapore Company. It cannot be said that these booking of the orders indicate service being rendered in India. It is not correct. And also because the appellant books the orders for the Singapore Company, we have to consider that the service is delivered only to the Singapore Company. The recipient of the service is a Singapore Company. When the recipient of the service is Singapore Company, it cannot be said that service is delivered in India and the benefit of the service is derived only by the recipient company. Because of the booking of the orders, the Singapore Company gets business. Therefore, the service is also utilized abroad. In terms of Rule 3(2) of the Export of Services Rules, 2005 the service rendered is indeed a service, which has been exported. In such circumstances, the appellant is not required to pay the service tax. There is absolutely no merit in the impugned order. Hence, we allow the appeal with consequential relief.22. In our opinion, therefore Vodafone Idea Limited has provided services to FTOs and not to the individual subscribers of FTOs. Therefore Section 13(3)(b) is not attracted. Section 13(3)(b) on which reliance has been placed by the Deputy Commissioner is not applicable.23. As per Section 13(2) of the IGST, the place of supply of services, except the services specified in sub-sections (3) to (13), shall be the location of the recipient of services. As discussed earlier, the recipients of the services is the FTO. We find that Vodafone Idea Limited has not supplied services specified in sub-sections (3) to (13) of Section 13. Therefore, the place of service or supply of service supplied by Vodafone Idea Limited is the location of recipient of the service, i.e., location of the FTO, which is outside India.In this regard, there is nothing to substantiate that the subscriber is acting on behalf of the FTO. The relationship between the FTO and the subscriber is on principal to principal basis and not on principal and agent basis. In this case, if the subscriber notices any deficiency in service he cannot talk directly to Vodafone Idea Ltd as representative of the FTO. The subscriber has to approach the FTO for the purpose of rectifying the deficiency. We find that this itself would substantiate that the subscriber is not representative or agent of the FTO. Further, we find no evidence to substantiate that the FTO has authorised its subscriber to be its representative.25. From the above, it is therefore evident that in the instant case, sub-section(2) of Section 13 is applicable and not sub-section (3)(b) of Section 13. Therefore, performance of services has no relevance in this case.