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2023 (2) TMI 938 - Commissioner - Service TaxNature of activity - Intermediary Service or Export of Service - place of provision of services - seeking recovery alongwith interest and penalty - Business Auxiliary Service - Information Technology Software Service - wilful suppression of facts or not - provisions of Rule 6A of Service Tax Rules 1994, Rule 9 of Place of Provision of Service Rules 2012 read with Section 68 of the Finance Act, 1994, Rule 6 of the Service Tax Rules,1994 and section 174(2) of CGST Act, 2017 - extended period of limitation. HELD THAT - The Noticee nowhere has been mentioned as an agent or broker of M/s Ensim Corporation in the said Agreement. As per the said Agreement the noticee is to provide customized software services, quality testing, other technical and support services and consulting services to Ensim Corporation, USA. Hence, the main service provided by the Noticee is that of software development and other technical and consultancy services, on their own account to the foreign entity pursuant to the Agreement - the main service of Ensim Corporation, USA is to provide platform services including cloud and hosting services to their customers to which the Noticee does not have any access or relation. The Noticee is providing services to Ensim Corporation only, strictly in accordance with the Agreement and not on behalf of them. Even when specific consulting services are requested by Ensim Corporation in relation to its specific third-party customers, the recipient of such services remains the parent company who reimburses the Noticee, in terms of the said Agreement and no consideration is extended to the noticeee by any third party customers. There are no record or evidences suggesting that, the Noticee receives any work order or request for support from third party customers directly. Such third parties raise their technological issues with Ensim Corporation, which then, in terms of the said Agreement, requests the Noticee to provide technological support in relation to the software developed and supplied by the Noticee to Ensim Corporation, USA. In the instant case, the obligation of the Noticee is to provide customized software services to Ensim Corporation, USA along with other support as required including technical and consulting services on their own account to Ensim Corporation and not to third parties on their behalf. All third-party transactions of Ensim Corporation, USA are independent of the transaction with the Noticee - in the absence of the specific obligation towards facilitation of supply of services to the customers of the foreign entity, it is found that the Noticee cannot be treated as an 'intermediary'. The place of provision of the Noticee's services should be determined in terms of the default Rule 3 of the Place of Provision of Services Rules, 2012 (POPS Rules) instead of Rule 9 as the services rendered by the Noticee do not qualify as 'intermediary services' and consequently do not fall under Rule 9(c) or any other specific rule of the POPS Rules. There is no specific provision under Rules 4 to 12 of the POPS Rules, which cover the present transaction between the Noticee and Ensim Corporation, USA. Therefore, the place of provision of such services has to be determined in terms of the general rule under Rule 3 - in the instant case the service recipient is Ensim Corporation, USA, which is located outside the taxable territory of India, accordingly, the place of provision of the services is also outside the territory of India. The services provided by the Noticee are, therefore, not chargeable to Service Tax since they are not provided in taxable territory. As the services rendered by the noticee in the instant case satisfy all the conditions as laid down in Rule 6A of the Service Tax Rules, 1994, the services provided by the noticee qualify as 'export of services'. In the case between M/S. EVALUESERVE. COM PVT. LTD. VERSUS CST, GURGAON 2018 (3) TMI 1430 - CESTAT CHANDIGARH wherein it has been held that the appellant has themselves provided the services to their client as the main service provider on principal to principal basis, therefore, the activity undertaken by the appellant do not qualify as 'intermediary' as defined in Rule 2(f) of Place of Provision of Services Rules, 2012. In the case between AMD INDIA PVT. LTD. VERSUS CST, BANGALORE 2017 (12) TMI 772 - CESTAT BANGALORE , it was held that the Information Technology Software Services (ITSS), Information Technology Enabled Services (ITES) provided by appellant does not fall under 'intermediary services' and thus the concerned services falls within the definition of export. In the case between ANALOG DEVICES INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL TAX, BENGALURU EAST 2018 (4) TMI 301 - CESTAT BANGALORE wherein it has been held that the appellant are not rendering the intermediary service and they are rendering consulting engineer services and BAS and hence fall under definition of export. Thus, the services rendered by the notice to M/s Ensim Corporation, USA in the instant case qualify as 'export of services' as the services satisfies all the conditions of Rule 6A of the Service Tax Rules, 1994 - there is no contravention on the part of the noticee and the demanded amount in respect of the instant 2 (two) show cause notices are liable to be dropped. As there is no demand, there is no question of charging interest and imposition of penalty - the entire proceedings initiated by issuance of Show Cause cum Demand Notices is dropped. Application disposed off.
Issues Involved:
1. Whether the services provided by the noticee are "Intermediary Service" or "Export of Service". 2. The applicability of extended period of limitation. 3. The imposition of interest and penalty. Issue-wise Detailed Analysis: 1. Whether the services provided by the noticee are "Intermediary Service" or "Export of Service": The Show Cause Notices (SCNs) were issued alleging that M/s Ensim India Private Limited (the noticee) provided intermediary services to M/s Ensim Corporation, USA, and thus, the place of provision of such services should be the location of the service provider (India), making the services taxable. The noticee argued that they provided software development and consulting services on their own account and not as an intermediary. The judgment analyzed the agreement between the noticee and Ensim Corporation, USA, and concluded that the noticee provided services directly to Ensim Corporation, USA, and not to third-party customers. The agreement did not establish the noticee as an agent or broker of Ensim Corporation, USA. The services provided by the noticee were independent and on a principal-to-principal basis. The noticee was remunerated based on the cost incurred plus a margin, not as a commission for intermediary services. The judgment referred to several case laws and Advance Rulings, including M/s Evalueserve.Com Pvt. Ltd. vs. CST, Gurgaon, AMD India Pvt. Ltd. vs. CST, Bangalore, and others, which supported the view that similar services provided on their own account do not qualify as intermediary services. The judgment concluded that the services provided by the noticee qualified as 'export of services' under Rule 6A of the Service Tax Rules, 1994, as all conditions for export of services were satisfied: - The service provider (noticee) was located in India. - The service recipient (Ensim Corporation, USA) was located outside India. - The services were not in the negative list. - Payment was received in convertible foreign exchange. - The service provider and recipient were distinct legal entities. 2. Applicability of Extended Period of Limitation: The SCNs invoked the extended period of limitation alleging suppression of facts. The noticee argued that there was no willful misstatement or suppression of facts as all relevant information was disclosed during the audit and in their ST-3 returns. The judgment found that there was no positive act of suppression or intention to evade tax by the noticee. The demand was based on information available in the noticee's records and returns. The judgment referred to several Supreme Court decisions, including M/s Anand Nishikawa Co Ltd v. Commissioner of Central Excise, Meerut, which held that mere failure to declare does not amount to willful suppression. The judgment concluded that the invocation of the extended period of limitation was not justified. 3. Imposition of Interest and Penalty: Since the services provided by the noticee were held to be export of services and not intermediary services, there was no service tax liability. Consequently, the imposition of interest and penalty was not warranted. The judgment emphasized that penalties are not imposable when there is no intention to evade tax and when the demand itself is not sustainable. The noticee acted in good faith and under a bona fide belief that their services were not taxable. Order: The judgment ordered the dropping of the entire proceedings initiated by the issuance of the two Show Cause cum Demand Notices against M/s Ensim India Private Limited.
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