2023 (5) TMI 300 - AT - Service Tax

Refund of unutilized CENVAT credit - Export of services - intermediary service - place of provision of service - to be decided under Rule 3 or Rule 8 9 of Place of Provision of Services Rules, 2012 or not - HELD THAT - A plain reading of the definition of intermediary as defined under Rule 2(f) of Place of Provision of Services Rules, 2012, makes it clear that to attract the said definition there should be two or more persons besides the service provider. In other words an intermediary is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus necessary that the arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (main supply) and one arranging or facilitating the said main supply. Therefore, an activity between only two parties cannot be considered as an intermediary service. Sub-contracting for a service is also not an intermediary service. The supplier of main service may decide to outsource the supply of main service, either fully or partly, to one or more sub-contractors. Such sub-contractor provides the main supply, either fully or a part thereof and does not merely arrange or facilitate the main supply between the principal supplier and his customers and therefore clearly not an intermediary. Who is an intermediary and what is intermediary service has been clarified by Central Board of Indirect Taxes and Customs (CBIC) vide Guidance Note dated 20.06.2012 and under GST regime also a clarification has been issued by CBIC on 20.09.2021 both of which are in line with the discussions made hereinabove about intermediary . On perusal of the agreements as well as submission of the learned Chartered Accountant for appellants, it is found that the Product development Services in relation to creation of new generic drug is limited to the performing of various services by the appellant on Formulation development, Bio-Chemical research, Bio-study research, Bio-equivalent study, clinical study and Active Pharmaceutical Ingredient (API) development as detailed in the agreement dated 02.02.2008 and 10.8.2012, and that too as a backend process - There is nothing on record to show that the appellant is liasioning or acting as intermediary between the foreign service recipient and any other person. Therefore, the finding of the Commissioner (Appeal) that the appellants are an intermediary is misplaced. In view of the facts involved herein, it is found that the appellants cannot be termed as an intermediary and their services provided to Foreign Service recipient cannot be termed as intermediary services . If the Revenue is not in agreement with the claims of the appellants and if, according to Revenue, the services in issue do not fall within the ambit of export of service then the Revenue ought to have initiated the proceedings against the appellants for demanding the Service Tax in respect of taxable service provided by the appellants. Admittedly no such proceedings have been initiated by the Revenue as borne out from the records of the case and therefore in a way Revenue itself has allowed this taxable service provided by appellants as export of service. There are force in the submission of learned Chartered Accountant about applicability of Rule 3 of Place of Provision of Services Rules, 2012 which provides that generally the place of provision of service is the location of service recipient. Since in the instant case the location of service receiver having its principal place of business at England, UK therefore the place of provision of service is outside India and hence the services provided in this issue qualify as export of services in terms of Rule 6A of Service Tax Rules, 1994. The impugned order of Commissioner (Appeals) denying refund of CENVAT credit on impugned services are not sustainable in law and therefore the appeals filed by the appellants deserve to be allowed - Appeal allowed.

Summary

Issues Involved:
1. Eligibility for refund of unutilized CENVAT credit under Rule 5 of the Cenvat Credit Rules, 2004.
2. Determination of the place of provision of service under Rule 3 or Rule 8 & 9 of the Place of Provision of Services Rules, 2012.
3. Classification of services as intermediary services.
4. Compliance with the principles of natural justice.

Summary:

1. Eligibility for Refund of Unutilized CENVAT Credit:
The appellants, M/s Watson Pharma Private Limited, filed for refunds of unutilized CENVAT credit under Rule 5 of the Cenvat Credit Rules, 2004, arguing that they exported services without payment of service tax and could not utilize the CENVAT credit on inputs or input services used in providing these services. The Original Adjudicating Authority sanctioned the refund, finding that the appellants met all conditions specified in Rule 5 of the CENVAT Credit Rules, 2004, and Rule 6A(1)(f) of the Service Tax Rules, 1994.

2. Determination of Place of Provision of Service:
The Commissioner (Appeals) concluded that the services provided by the appellants to the foreign service recipient could not be treated as export of services under Rule 6A(1) of the Service Tax Rules, 1994. The Commissioner (Appeals) determined that the place of provision of service was the location of the service provider in India, under Rule 9 of the Place of Provision of Services Rules, 2012, and thus denied the refund claims.

3. Classification of Services as Intermediary Services:
The Commissioner (Appeals) classified the services provided by the appellants as intermediary services, arguing that the appellants were working as agents of the foreign service recipient and that the intellectual property rights created in India made the services intermediary in nature. However, the Tribunal found that the appellants provided the main services themselves and did not act as intermediaries, as defined under Rule 2(f) of the Place of Provision of Services Rules, 2012.

4. Compliance with Principles of Natural Justice:
The Tribunal noted that the Commissioner (Appeals) made the classification of services as intermediary services without giving the appellants reasonable opportunity for personal hearing or notice. This was deemed a violation of the principles of natural justice. The Tribunal also found that the Commissioner (Appeals) went beyond the scope of the show cause notice and the grounds of appeal preferred by the department.

Conclusion:
The Tribunal set aside the impugned order of the Commissioner (Appeals) and allowed the appeals of the appellants with consequential relief, concluding that the services provided by the appellants qualify as export of services under Rule 6A of the Service Tax Rules, 1994, and that the appellants are eligible for the refund of CENVAT credit.