Back A missed call
D. Murali
| A ruling on the secondary services consumed by a call centre is a missed opportunity for this player. |
JASON James Clemens, a British national, had what seemed quite reasonable as a request when he approached the Authority for Advance Rulings (AAR) for some relief on the service tax front. He wanted to set up an international call centre in India in collaboration with Gemini Pacific Group LLC, an American company. The call centre's main business activity was to be the sale of various foreign products to "potential customers throughout Europe and Asia excluding India".
As explained in the text of the AAR's order, the centre was to respond to telephonic enquiries of potential customers from outside India, procure orders, and forward the same to producers/sellers of goods in foreign countries, who in turn would directly dispatch goods to customers. Jason was to receive service charges on orders so booked and executed, "remitted in India in convertible foreign currencies". As averred in the application before the AAR, the services provided would constitute export of services, and be exempt from the levy of service tax.
The Central Government's Notification No. 8/2003 dated June 20, 2003 conferred such a benefit. It gave service tax exemption to taxable services provided by a call centre or a medical transcription centre. There, `call centre' was defined as a commercial concern that provides assistance, help or information, through telephone, on behalf of another person. And `medical transcription centre' meant a commercial concern that transcribes medical history, treatment, medical observations and such.
While that was fine, Jason foresaw the need for secondary services, such as from local telephone operators, and consultants/ engineers. His worry was that the providers of secondary services would raise bills including service tax. As an exporter of services, and as a primary service provider, Jason was of the view that the secondary services that he consumed in the process of business would "ultimately get consumed/merged with the services being exported". And, so there should not be any service tax on such secondary services, he prayed.
To support his stand, Jason cited Circular No. 56/5/2003 dated April 25, 2003, issued by the Central Board of Excise and Customs (CBEC). This had reiterated that service tax is destination-based consumption tax and so it was not applicable on export of services. It clarified that no credit of service tax can be availed of or reimbursed at present for service consumed/provided in India in the manufacture of goods that are ultimately exported, "as inter-sectoral tax credit between services and goods is not allowed".
Yet, there was a benign paragraph in the Circular to assist Jason's wish; it said that no service tax would be leviable on secondary services that ultimately got consumed/merged with the services that are being exported. To get this benefit, however, both primary and secondary service providers should maintain "the records deemed fit by them to identify the secondary services with services that are being exported".
What about cases where secondary services got consumed in part or toto for providing service in India? In such instances, there would be service tax on the secondary service provider, according to the Circular. Armed with such a compassionate communiqué, it would be logical to think that Jason's problem is an open-and-shut case; but that was not to be.
The AAR studied Jason's query and did an introspection to first assess its own jurisdiction to pronounce advance ruling. This is circumscribed by Section 96C(2) of the Finance Act, 1994 where there's a list of questions that can be posed to the Authority. Jason had banked upon Clauses (d) and (e) of this provision, which were about questions on applicability of notifications issued, and admissibility of credit of service tax.
Next, the AAR noted that the subject of secondary services getting consumed/merged in the primary services exported by an international call centre was discussed in the April 2003 Circular. The July 2003 Notification was "not relevant to the issue". Then came an apparently innocuous reasoning by the AAR that was to set the case onto a different trajectory: "It needs no elaborate reasoning to conclude that the Circular issued by the Board cannot be termed as a Notification."
For starters, the AAR observed that the power to issue notifications has been conferred on the Central Government only, and that of issuing circulars is conferred on the Board. "The Legislature chose to prescribe only notifications and not circulars in Section 96C(2)(d) of the Finance Act, 1994," the Authority said, shattering a support that Jason depended on.
As a result, the AAR was of the view that the questions raised by Jason were not covered under Section 96C(2), which meant that the posers simply didn't fall within the ambit of the Authority. "Thus, the stage of pronouncing an advance ruling is not reached in the instant case," reads the order, before adding, "the application is rejected".
A case of wrong call that kept the `golden fleece' of AAR remedy beyond Jason's reach.
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