2020 (1) TMI 429 - AT - Service Tax

Refund of unutilized CENVAT Credit - Rule 5 of CCR - business of software trading - Export of services - place of provisions rules - intermediary services - the place of provision of services for an intermediary would be the location of the service provider. According to the Revenue, since the service provider is located in India, the provision of service by the respondent would not be export of services . HELD THAT - In the present case, not only does the agreement specifically mentions that there is no relationship of principal and an agent between Microsoft and the respondent but it is also clear from the agreement that the respondent is free to sell the product at any price to the customer, though the price to be paid by the respondent to Microsoft is fixed. The agreement also provides that payment has to be made to Microsoft even if the customer does not pay the respondent. This is, therefore, a case where the respondent provides the service or supplies the good on his own account. The Assistant Commissioner, while rejecting the refund claim, of the respondent has, however, observed that nature of provision of service of the repondent is arranging and facilitating procuring main services and transmitting the same to their overseas customers and so it would be in the nature of intermediary service. In coming to this conclusion, the Assistant Commissioner noticed that the purchase orders received by the respondent from the overseas customers were being passed on to the Microsoft and that the invoices issued by the Microsoft reveal that they have mentioned the name of the end-user customer in the specific column provided for the purpose - The conclusions drawn by the Assistant Commissioner are not correct. It cannot be doubted that two separate transactions had taken place. On the basis of the purchase orders placed by the overseas customers, the respondent purchased the software license from Microsoft for which it made payments to Microsoft. The tax invoice of Microsoft is billed to the respondent. The address of the Indian affiliate of end customer is shown to be in India. The Respondent receives the payment from the overseas customers. The payment made to Microsoft is independent of any payment received by the respondent from the overseas customers. There is, therefore, no error in the finding recorded by the Commissioner (Appeals) that the respondent is not an intermediary . The Commissioner (Appeals) may not have referred to the invoices, but he has referred to the balance sheet of the respondent. The invoices do not indicate that the respondent would be an intermediary . In fact they only support the case of the respondent that it is not an intermediary . The Channel Agreement has been taken into consideration by the Commissioner (Appeals) and therefore, the Appellant is not correct in contending that it has not been taken into consideration - In such a situation, when service is provided by the respondent on its own account, the respondent cannot be called an intermediary . Thus, the provision of service provided by the respondent has to be treated as export of service under Rule 6A of the 1994 Rules. The two reasons pressed by the Appellant for not treating it as export of service cannot be accepted. Rule 9(c) provides that in the case of intermediary services , the place of provision shall be the location of the service provider. This Rule would not be applicable as the respondent is not an intermediary. Refund is to be allowed - appeal dismissed - decided against Revenue.

Issues Involved:

1. Refund of unutilized CENVAT Credit of input services used for output services.
2. Determination of whether the respondent's services qualify as 'export services.'
3. Classification of services provided by the respondent as 'intermediary services.'
4. Compliance with Rule 6A of the Service Tax Rules, 1994.
5. Consideration of the relationship between the respondent and Microsoft under the Channel Agreement.

Issue-wise Detailed Analysis:

1. Refund of Unutilized CENVAT Credit:

The respondent filed six claims amounting to ?36.67 crores for the refund of unutilized CENVAT Credit of input services used for output services. Five claims were allowed by the Assistant Commissioner, while the sixth was rejected. The Revenue challenged the allowed claims, and the respondent challenged the rejected claim. The Tribunal directed the Commissioner (Appeals) to pass a reasoned order, which resulted in the dismissal of Revenue's appeals and the allowance of the respondent's appeal.

2. Qualification as 'Export Services':

The respondent is engaged in supplying software to customers both within and outside India. The software is procured from outside India, and service tax is paid on it, claimed as CENVAT Credit. The substantial exports resulted in unutilized CENVAT Credit, leading to the refund claims. The Commissioner (Appeals) concluded that the services provided by the respondent qualify as 'export services' under Rule 6A of the Service Tax Rules, 1994, as the services were provided to customers located outside India, and payment was received in convertible foreign exchange.

3. Classification as 'Intermediary Services':

The Assistant Commissioner rejected the sixth claim, classifying the respondent's services as 'intermediary services' under Rule 2(f) of the Place of Provision of Services Rules, 2012. However, the Commissioner (Appeals) found that the respondent purchased software from Microsoft and sold it on its own account, not as an intermediary. The Tribunal upheld this finding, stating that the respondent independently negotiated prices and bore the risk of payment, indicating that the respondent was not an intermediary.

4. Compliance with Rule 6A of the Service Tax Rules, 1994:

The Commissioner (Appeals) and the Tribunal found that the respondent met all conditions under Rule 6A, including that the provider and recipient of services were not merely establishments of a distinct person. The Tribunal noted that the Revenue did not provide evidence to substantiate claims that the respondent had branch offices outside India.

5. Relationship under the Channel Agreement:

The Microsoft Channel Agreement granted the respondent the right to resell Microsoft licenses. The agreement specified that the respondent had complete discretion to negotiate prices and payment terms with customers, independent of Microsoft. The Tribunal concluded that the respondent acted on its own account, not as an agent or intermediary, as evidenced by the balance sheet and the terms of the Channel Agreement.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the respondent's services qualify as 'export services,' and the refund of unutilized CENVAT Credit was justified. The respondent was not classified as an intermediary, and the services provided were on their own account, meeting all conditions under Rule 6A of the Service Tax Rules, 1994.

← Previous Next →