2023 (11) TMI 561 - AT - Service Tax

Export of service - intermediary services - place of provision of services - Rule 6A of the Service Tax Rules, 1994 - HELD THAT - The agreement dated 01.10.2011 entered into between the appellant and its parent company located abroad. The said agreement has provided that the appellant should cater to the requirements such as making customer relations, customer visits, developing relationship with customers, obtaining market intelligence about products, identify potential opportunities for new business etc. for and on behalf of the parent company. On reading of the clauses in the agreement, it transpires that the appellant s scope of work is confined to promoting the parent company in India by way of providing marketing, administrative, technical support services. It is an admitted fact on record that the appellant has not facilitated or assisted the parent company in connection with supply of goods or services. Further, there was no contractual obligation on part of the appellant to ensure the participation of the appellant to provide services or goods between the overseas parent company and any other defined party /customer. Therefore, in the absence of necessary pre-requisites of facilitating actual supply of goods or services between two or more identifiable persons, the transaction made by the appellant should not qualify as an intermediary service, rather, the services rendered by the appellant qualify as business and marketing support service. In the present case, none of the ingredients, itemized in the definition of intermediary service are fulfilled by appellant, inasmuch as it is not a facilitator between the parent company and its customers located in India with regard to either supply of goods or provision of service. The conditions prescribed under sub-rule (1) of Rule 6A of the Service Tax Rules, 1994 have been duly fulfilled by the appellant inasmuch as the service recipient was located outside India, the payment towards provision of service has been received in convertible foreign exchange. Thus, the place of provision of service in this case would be governed by Rule 3 of Place of Provision of Services Rules, 2012. In absence of any documentary evidence that the appellant had acted as an intermediary between the overseas entity and its Indian customer and that the location of the service receiver is in Germany, the transaction in our considered view, should appropriately be considered as the export of service. There are no merits in the impugned order, insofar as it has upheld confirmation of the adjudged demands on the appellants - appeal allowed.

Summary

Issues:
The issues involved in the judgment are whether the appellant is liable to pay service tax as an intermediary between the parent company and its customers in India, and whether the services rendered qualify as business and marketing support services.

Issue 1: Liability as an Intermediary Service Provider

The Anti Evasion Division of Service Tax Department initiated an enquiry against the appellant based on an audit report suggesting that the appellant had recovered amounts from its parent company under the guise of credit notes for providing business support services. The Department concluded that the appellant, during the disputed period, acted as an intermediary between the parent company and its Indian customers, thereby being liable to pay service tax under the Place of Provision of Service Rules, 2012. The adjudication order confirmed a service tax demand along with penalties. On appeal, the Commissioner (Appeals) upheld the demands. However, the Tribunal found that the appellant's scope of work, as per the agreement with the parent company, was limited to providing marketing and administrative support services without facilitating actual supply of goods or services. The Tribunal noted that the appellant did not meet the criteria for an intermediary service as defined by the CBEC circular. As a result, the Tribunal set aside the impugned order, ruling in favor of the appellant.

Issue 2: Determination of Place of Provision of Service

The Tribunal examined the agreement between the appellant and its parent company, which outlined the appellant's responsibilities related to customer relations, market intelligence, and business development in India on behalf of the parent company. The Tribunal observed that the appellant fulfilled the conditions under Rule 6A of the Service Tax Rules, 1994, such as the service recipient being located outside India and receiving payment in convertible foreign exchange. Consequently, the Tribunal determined that the place of provision of service in this case should be governed by Rule 3 of the Place of Provision of Services Rules, 2012. Without evidence of the appellant acting as an intermediary between the overseas entity and its Indian customers, the Tribunal concluded that the transaction should be considered as an export of service. Based on these findings, the Tribunal set aside the confirmation of the adjudged demands and allowed the appeal in favor of the appellant.