2021 (12) TMI 481 - AT - Service Tax

Refund of unutilized CENVAT Credit - Intermediary Services - Rule 9 of the Place of Provision Rules, 2012 - export of services as per Rule 6A of the Service Tax Rules, 1994 - transfer pricing (Softex Form, Transfer Pricing Documents, Form 3 CB, and other related documents and information) - HELD THAT - A person to be said to be intermediary, there should be two distinct services and three persons involved. The intermediary should be the person who is facilitating the provision between the other two persons. While considering the issue on the ground of intermediary services both the authorities have at no stage identified the three persons, and have solely relied upon certain analysis, transfer pricing document prepared by EY, in respect of appellants. Interestingly Commissioner (Appeal) observes I agree that transfer pricing is sometimes a means adopted by companies to reduce its tax liability. OECD in its report on Developing Capacity in BEPS and Transfer Pricing - TASK FORCE ON TAX DEVELOPMENT WORK ON BEPS AND TRANSFER PRICING has stated that In Transfer pricing rules raise the question as to whether an arm s length price has been set between the producing, intermediary and selling companies , however he too do not speaks of the relevance of this document for determination of the issue of intermediary services under consideration. The authorized representative has vehemently argued stating that Commissioner (Appeal) has not considered the refund claim and issue on merits and have remanded back the matter to be decided by the original authority for consideration of issue. From the perusal of the decisions which have been referred by the authorized representative, we find that the decisions, were in the case where the appeals have been dismissed by the Commissioner (Appeal) on the ground of limitation or for failure to comply with the requirements of pre-deposit. However from the observations reproduced from the order of Adjudicating Authority and Commissioner (Appeal), it is quite evident that the only issue under consideration by both the authorities was in respect of the intermediary services . Appellant has filed this appeal challenging the impugned order claiming that the services provided by them do not qualify as intermediary services . To dispel the fears expressed by the learned Authorized Representative, it is made clear that the impugned order and allowing the appeal vis a vis the issue in respect of the intermediary services only. Our order should not be construed as allowing the refund claims made by the appellant, which are completely in the jurisdiction of the jurisdictional Assistant/ Deputy Commissioner and need to be examined and decided by him. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the services provided by the appellant qualify as "Intermediary Services" under Rule 9 of the Place of Provision Rules, 2012.
2. Whether the refund claims filed by the appellant under Rule 5 of the CENVAT Credit Rules, 2004 are valid.

Detailed Analysis:

1. Qualification as "Intermediary Services":
The primary contention was whether the services provided by the appellant qualify as "Intermediary Services" under Rule 9 of the Place of Provision Rules, 2012. The adjudicating authority initially rejected the refund claims by categorizing the services as "Intermediary Services," thus placing the location of the service provider within the taxable territory, disqualifying them as export services under Rule 6A of the Service Tax Rules, 1994.

The appellant argued that the services provided were on their own account and did not involve facilitation or procurement of goods or services for their group entities. They cited the Orange Business Solutions Pvt. Ltd. case, where similar services were not considered intermediary services. The appellant provided various back-office support services and IT and ITeS to overseas group entities, receiving consideration in convertible foreign exchange, which should qualify as export services.

The tribunal noted that for a service to be considered intermediary, there should be three parties involved, and the intermediary should facilitate the provision of services between the other two parties. The tribunal found that the appellant provided services directly to their group entities without involving a third party, thus not meeting the criteria for intermediary services. The tribunal also referenced the CESTAT decision in the Orange Business Solutions Pvt. Ltd. case and a circular issued by the Board, which clarified the characteristics of intermediary services.

2. Validity of Refund Claims:
The refund claims were filed under Rule 5 of the CENVAT Credit Rules, 2004, which allows for the refund of accumulated credit in respect of goods and services exported under bond or undertaking. The adjudicating authority misdirected itself by considering the nature of the output services to determine the eligibility of the refund claim, instead of focusing on the refund mechanism under Rule 5.

The tribunal referenced the case of Evonik Energy Services, which held that reclassification of services in a refund claim is incorrect. The tribunal further noted that if the revenue authorities believed the services did not qualify as export services, they should have initiated proceedings to demand service tax, which was not done in this case.

The tribunal emphasized that the refund claims should be examined and decided by the jurisdictional Assistant/Deputy Commissioner without reclassifying the nature of the services provided. The tribunal set aside the impugned order, allowing the appeal concerning the intermediary services issue but clarified that the refund claims themselves need to be examined and decided by the jurisdictional authority.

Conclusion:
The tribunal concluded that the services provided by the appellant do not qualify as "Intermediary Services" and set aside the impugned order. However, the refund claims should be examined and decided by the jurisdictional Assistant/Deputy Commissioner. The tribunal's decision should not be construed as automatically allowing the refund claims.