2023 (3) TMI 8 - AT - Service Tax

Refund of the unutilized input service credit of input services - intermediary services or not - export of Management or Business Consultant Service - place of provision of services. According to the department, since the service provider i.e. the respondent is an intermediary, the place of provision of service by the respondent would be the location of the service provider under rule 9(c) of the 2012 Rules - According to the respondent, the place of provision of service shall be the location of the recipient of service as provided under rule 3 of the 2012 Rules. HELD THAT - It would also be appropriate to refer to the decision of the Tribunal in M/S VERIZON INDIA PVT. LIMITED VERSUS COMMISSIONER OF SERVICE TAX 2019 (8) TMI 384 - CESTAT NEW DELHI . The Tribunal held that as the appellant had provided services under a contract to Verizon US which was located outside India and had raised invoices for such services and received remittance in foreign exchange, the appellant would satisfy the conditions set out in rule 6A of the 1994 Rules. Circular dated September 20, 2021 issued by the Central Board of Indirect Taxes and Customs regarding the scope of intermediary , also emphasizes that an intermediary essentially arranges or facilitates another supply (the main supply ) between two or more other persons and, does not himself provide the main supply. It also clarifies that in cases where a person supplies the main supply either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of intermediary . There are no illegality in the order dated March 02, 2020 passed by the Commissioner (Appeals) - appeal of Revenue dismissed.

Issues Involved:
1. Determination of whether the respondent qualifies as an "intermediary" under Rule 2(f) of the Place of Provision of Service Rules, 2012.
2. Eligibility of the respondent for a refund under Rule 5 of the CENVAT Credit Rules, 2004 for the export of "Management or Business Consultant Service" to Ernst & Young, UK.

Issue-wise Detailed Analysis:

1. Determination of whether the respondent qualifies as an "intermediary" under Rule 2(f) of the Place of Provision of Service Rules, 2012:

The primary issue revolves around whether the respondent qualifies as an "intermediary" under Rule 2(f) of the Place of Provision of Service Rules, 2012. As per Rule 2(f), an "intermediary" is defined as a broker, an agent, or any other person who arranges or facilitates the provision of a service between two or more persons but does not include a person who provides the main service on his own account.

The Department contended that the respondent was an intermediary, thus the place of provision of service would be the location of the service provider under Rule 9(c) of the 2012 Rules. However, the respondent argued that they provided services on their own account, making the place of provision the location of the recipient of the service as per Rule 3 of the 2012 Rules.

The agreements between the respondent and Ernst & Young, UK were examined. These agreements indicated that the respondent provided professional services directly to Ernst & Young, UK on a principal-to-principal basis. The Assistant Commissioner and the Commissioner (Appeals) both found that the services provided by the respondent did not qualify as intermediary services but were provided on their own account.

The Tribunal referred to the definition and guiding principles of an intermediary as clarified by the Department of Revenue's communication dated March 16, 2012. The communication emphasized that an intermediary cannot alter the nature or value of the service and must facilitate the main service between two parties. The Tribunal concluded that the respondent was not involved in arranging or facilitating the service between two parties but was providing the service directly to Ernst & Young, UK.

2. Eligibility of the respondent for a refund under Rule 5 of the CENVAT Credit Rules, 2004:

The respondent claimed a refund under Rule 5 of the CENVAT Credit Rules, 2004, which allows a service provider who exports services without payment of service tax to claim a refund of unutilized input service credit. The relevant portion of Rule 5 and the definition of "export service" under Rule 6A of the Service Tax Rules, 1994 were considered.

The Assistant Commissioner, in the order dated July 31, 2018, noted that the respondent satisfied all conditions for export of services under Rule 6A(1) of the Service Tax Rules, 1994. The services were provided to entities located outside India, payments were received in convertible foreign exchange, and the services were not intermediary services.

The Commissioner (Appeals) upheld this finding, noting that the respondent provided services on their own account and not as an intermediary. The Tribunal referred to the Delhi High Court's decision in Verizon Communication India Pvt. Ltd. vs. Asstt. Commr., S.T. Delhi-III, which held that services provided on a principal-to-principal basis to a recipient outside India qualify as export of services, even if the services are used within India.

The Tribunal also referred to the Circular dated September 20, 2021, issued by the Central Board of Indirect Taxes and Customs, which clarified that an intermediary must arrange or facilitate the main supply between two parties and does not provide the main supply themselves. The Circular emphasized that subcontracting for a service is not considered intermediary service.

Based on these findings, the Tribunal concluded that the respondent was not an intermediary and was eligible for the refund under Rule 5 of the CENVAT Credit Rules, 2004. The appeal filed by the department was dismissed.

Conclusion:

The Tribunal upheld the order of the Commissioner (Appeals), confirming that the respondent was not an intermediary and was entitled to the refund claimed under Rule 5 of the CENVAT Credit Rules, 2004. The appeal filed by the department was dismissed.

← Previous Next →