2023 (3) TMI 9 - AT - Service Tax

Refund of the unutilized input service credit - intermediary services or not - export of service or not - input services used by the respondent to export information technology software service to Jindal LLC located in New York, USA under the contracts - 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 - An intermediary is a person who arranges or facilitates provision of the main service between two or more persons. The respondent is not involved in the arrangement or facilitation of the supply of service. In fact, the respondent had entered into agreement with Jindal LLC for providing telecommunication services and other services on a principal to principal basis. The telecommunication service and other services provided by the respondent qualify for export service since it is providing services to Jindal LLC which is located outside India and is receiving convertible foreign exchange for such services. The Commissioner (Appeals) relied upon the decision of the Delhi High Court in VERIZON COMMUNICATION INDIA PVT. LTD. VERSUS ASSISTANT COMMISSIONER, SERVICE TAX, DELHI III, DIVISION-XIV ANR. 2017 (9) TMI 632 - DELHI HIGH COURT to hold that the respondent is not an intermediary. It is seen from a perusal of the aforesaid judgment that Verizon India had entered into a Master Supply Agreement with Verizon US for rendering connectivity services for the purpose of data transfer. Verizon US was engaged in the provision of telecommunication services for which it entered into contracts with the customers located globally. Since Verizon US did not have the capacity to provide such services across the globe, it utilized the services of Verizon India to provide connectivity to its customers. The issue, therefore, that arose before the Delhi High Court was whether the telecommunication services provided by Verizon India during the period April 2011 to September 2014 to Verizon US would qualify as export of services . The department believed that the said services would not qualify as export of services . The Delhi High Court noted that in the process of gathering the data from the entities in India for transmission to Verizon US, Verizon India availed services of Indian telecommunication service providers like Vodafone and Airtel. These service providers raised invoices on Verizon India and Verizon India paid these service providers the requisite charges. Verizon India thereafter raised an invoice on Verizon US for the export of services provided by it to Verizon US. Since the recipient of the service (Verizon US) was outside India, Verizon India treated it as an export of service and understood that it was exempted from service tax under the Export of Service Rules 2005. Verizon US, in turn, raised invoices on its customers in the US - The Delhi High Court pointed out that the recipient of services is determined by the contract between the parties and this would depend on who has the contractual right to receive the services and who is responsible for the payment for the services provided to the service recipient; there was no privity of contract between Verizon India and the customers of Verizon US; such customers may be the users of the services provided by Verizon India but were not its recipients; Verizon India may have been using the services of a local telecom operator but that would not mean that the services to Verizon US were being rendered in India; and the place of provision of such service to Verizon US remains outside India. The Commissioner (Appeals) correctly appreciated the position in the impugned order in holding that the respondent was not an intermediary and was involved in export of service to Jindal LLC. Circular dated September 20, 2021 issued by the Central Board of Indirect Taxes and Customs 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 July 14, 2018 passed by the Commissioner - appeal of Revenue dismissed.

Summary

Issues Involved:
1. Whether the respondent is entitled to a refund under Rule 5 of the CENVAT Credit Rules 2004.
2. Whether the respondent qualifies as an "intermediary" under Rule 2(f) of the Place of Provision of Service Rules 2012.

Detailed Analysis:

1. Entitlement to Refund under Rule 5 of the CENVAT Credit Rules 2004:
The respondent filed refund claims for unutilized input service credit of input services used to export information technology software services to Jindal LLC in New York, USA. The Commissioner (Appeals) upheld the refund claims, referencing 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 CENVAT credit. The Commissioner (Appeals) relied on the Delhi High Court's judgment in Verizon Communication India Pvt. Ltd. vs Asstt. Commr. S. T., Delhi-III, which established that services provided to a foreign entity and paid for in foreign exchange qualify as export services.

2. Qualification as an "Intermediary" under Rule 2(f) of the Place of Provision of Service Rules 2012:
The department argued that the respondent acted as an intermediary, thus the place of provision of service should be the location of the service provider under Rule 9(c) of the 2012 Rules. However, the Commissioner (Appeals) found that the respondent provided services on its own account and was not an intermediary. The definition of "intermediary" under Rule 2(f) includes brokers or agents who facilitate services between two or more persons but excludes those providing the main service on their own account.

The Commissioner (Appeals) examined the agreements between the respondent and Jindal LLC, concluding that the respondent provided services directly and was responsible for implementation, scope, costs, and resources under the contracts. The services provided were related to SAP software, and the respondent used input services from other providers, paying applicable service tax and claiming rebates accordingly.

The Commissioner (Appeals) noted that the respondent received full payment for the exported services in foreign exchange, reinforcing that the respondent acted as the main service provider and not as an intermediary. This conclusion was supported by the Delhi High Court's decision in Verizon Communication India Pvt. Ltd., which clarified that providing services to a foreign entity and receiving payment in foreign exchange qualifies as export, irrespective of the use of local service providers.

The Tribunal also referenced its decision in Verizon India Pvt. Ltd. vs Commissioner of Service Tax, Delhi, which held that services provided under a contract to a foreign entity, invoiced and paid in foreign exchange, satisfy the conditions for export of services under Rule 6A of the Service Tax Rules 1994.

Further support was drawn from the Chandigarh Bench's decision in M/s. Black Rock Service India Private Limited vs. Commissioner of CGST, which emphasized that an intermediary must facilitate a service between two other parties and not provide the main service itself. The Tribunal also cited the Principal Commissioner, CGST Delhi South Commissionerate vs Comparex India Pvt. Ltd. and Commissioner of Central Tax, Central Excise & Service Tax vs M/s Singtel Global India Private Limited, which reinforced that providing services on a principal-to-principal basis does not qualify as intermediary services.

A Circular dated September 20, 2021, issued by the Central Board of Indirect Taxes and Customs, clarified that an intermediary arranges or facilitates a supply between two parties and does not provide the main supply itself. This Circular further supported the view that the respondent was not an intermediary.

Conclusion:
The Tribunal found no illegality in the Commissioner (Appeals)'s order, affirming that the respondent was not an intermediary and was entitled to the refund for export of services. Both appeals filed by the department were dismissed.