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Landmark Judgment On The 'Export Of Services'
M/s Western Union Network Ltd. (WUN), Ireland, is a company engaged in money transfer from persons located in one country to persons located in any other country. M/s Paul Merchants Ltd. (PML) entered into an agreement with WUN for executing part of the business activities of WUN in India as an agent, through sub-agents appointed with the prior approval of WUN.
The Revenue contested that the activity of making payment to the recipient in India is the only service which PML is rendering and this service is rendered in India. For 'export of service' the crucial fact is the delivery of the service to a foreign destination where the same would be received as an 'import'. However, no such fact emerges from the contracts of PML with WUN and of the sub-agents with PML. The ultimate consumers of the service are in India and India is the ultimate destination of the services provided by PML and sub-agents. No service goes from India to a foreign destination. Hence, this cannot qualify as 'export of service'.
However the taxpayer argued the persons in India to whom the money is delivered by PML/ sub-agents are only the recipients of money sent to them by persons aboard through WUN. They are not the recipients of service provided by PML/ sub-agents. The ultimate beneficiary of the service is the person situated abroad who approaches WUN and pays for the services. Since the service has been received by WUN, the services have to be treated as having been delivered to WUN and used by them outside India, and hence, exported out of India.
The tribunal, on a perusal of the tripartite arrangement between WUN, PML and the sub-agents, concluded that the sub-agents are providing services to WUN and it is WUN who is the beneficiary of the service provided by the sub-agents. Since the payment for these services is received in convertible foreign currency by PML, the services provided by the sub-agents have to be treated as 'export of service'.
The decision in this case involves businesses with very high revenue stakes and is likely to be challenged by the Revenue, accordingly, the issue cannot be said to have achieved finality. However, it is a significant breakthrough in service tax jurisprudence and comes as a breather to the industry at large. This space ought to be watched closely for further developments.