The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT) in the light of the decision of the High Court of Madras has decided that the amounts which have been retained as a brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving back foreign currency should be treated as receipts for export in foreign currency. So the demand for service tax on such amounts is not sustainable.
The assessee, Bharat Re-insurance Brokers Pvt. Ltd. is a reinsurance broker and he arranges reinsurance for the Indian company with the overseas insurers by identifying the insurer and negotiating with them, is not in dispute. It is also not in dispute that the brokerage is received for this service from the overseas insurers. There is no doubt that the services of the appellant are beneficial both to the Indian insurance company and the foreign reinsurer as the former gets the benefit of reinsurance and the latter gets the business of reinsurance.
The question, in this case, is whether the service is being provided to the Indian company who hires them or the foreign company with whom a deal is finally reached.
This is significant because if the service is being rendered to an Indian company for which money is being paid in Indian Rupees, the question of export of service does not arise. On the other hand, if the service is being rendered to the foreign company, for which brokerage is being received in Indian Rupees, the second question which arises is whether the amount should be considered as having been received in convertible foreign currency or in Indian Rupees. No doubt, the appellant is receiving money in Indian Rupees. Instead of remitting the entire amount to the overseas reinsurer in convertible foreign exchange and receiving his brokerage in convertible foreign exchange, he is deducting the brokerage and is only remitting the net amount to the overseas reinsurer.
“We find that the transactions in the present appeal are similar to the transactions in the case of Suprasesh General Insurance Services & Brokers Pvt. Ltd. inasmuch as the appellant was hired by the Indian Insurance company for identifying proper reinsurers and negotiating deals with them and have received from the Indian insurance company the entire amount due to the overseas reinsurers, out of which they have deducted their brokerage and remitted the rest to the overseas insurance company,” the tribunal noted.
The tribunal consists of a Judicial Member Ashok Jindal and Technical Member P. Venkata Suba Rao in the light of the decision of the High Court of Madras has decided that the amounts which have been retained as a brokerage in Indian Rupees by deducting instead of remitting the entire amount abroad and receiving back foreign currency should be treated as receipts for export in foreign currency. So the demand for service tax on such amounts is not sustainable.