2024 (10) TMI 147 - AT - Service Tax

Classification of services - export of services or not - services provided by Grant Thornton, India to develop the Grant Thornton brand name - payment received by the respondent towards reimbursement of Brand Development Expenses is business auxiliary service or not - intermediary services or not. HELD THAT - The relevant clauses of the Cost Reimbursement Agreement do not indicate that Grant Thornton, India was to act as an intermediary . The activities undertaken by Grant Thornton, India are for promoting the brand name of Grant Thornton in India. Grant Thornton in India had to provides services on its own account and merely because Grant Thornton, India outsourced certain services would not mean that it became an intermediary . The transaction would, therefore, not be covered by rule 9 of the 2012 Rules. Under rule 3 of the 2012 Rules, which would be applicable in the present case, the place of provision of service shall be the location of the recipient of service. The recipient of service is Grant Thornton, London, which is outside India. There is no dispute that the payment for the services had been received by Grant Thornton, India in covertable foreign currency. Thus, the conditions set out in rule 6A of the Service Tax Rules 1994 stand satisfied. Thus, there can be no manner of doubt that the services provided by Grant Thornton, India to Grant Thornton, London would be export of services . This issue was examined by the Tribunal in M/S SUNRISE IMMIGRATION CONSULTANTS PRIVATE LIMITED VERSUS CCE ST, CHANDIGARH 2018 (5) TMI 1417 - CESTAT CHANDIGARH . The Tribunal considered whether the assessee would be an intermediary with reference to the services provided to universities, colleges and banks and whether any service tax could be levied. The observations of the Tribunal are 'As the appellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks. In that circumstances, the appellant cannot be called as intermediary.' The definition of intermediary services in section 2(13) of the Integrated Goods and Service Tax Act, 2017 is pari-materia with the definition of intermediary services in rule 2 (f) of the 2012 Rules. The meaning of intermediary services has been considered by the Punjab and Haryana High Court in GENPACT INDIA PVT. LTD. VERSUS UNION OF INDIA AND OTHERS 2022 (11) TMI 743 - PUNJAB AND HARYANA HIGH COURT . The issue that arose for consideration before the High Court was whether the services rendered by the petitioner under the agreement could be treated as intermediary services under the provisions of the IGST Act and it was held that 'The circular after making a reference to the definition of intermediary both under Rule 2(f) of the Place of Provision of Service Rules, 2012 and under Section 2(13) of the IGST Act clearly states that there is broadly no change in the scope of intermediary services in the GST regime vis-a-vis the service tax regime except addition of supply of securities in the definition of intermediary in the GST law.' The Delhi High Court in M/S. ERNST AND YOUNG LIMITED VERSUS ADDITIONAL COMMISSIONER, CGST APPEALS -II, DELHI AND ANR. 2023 (3) TMI 1117 - DELHI HIGH COURT also considered whether the services claimed were actually exported and convertible foreign exchange was received by the party in lieu of the said export of services. The observations of the High Court are 'the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of export of services as defined under Section 2(6) of the IGST Act.' The aforesaid discussion leads to the inevitable conclusion that Grant Thornton, India is not an intermediary and that the services provided by it to Grant Thornton, London are export of services . The impugned order dated 29.03.2018 passed by the Commissioner dropping the proceedings initiated against Grant Thornton, India by the show cause notice dated 21.10.2015 does not, therefore, suffer from any infirmity - The appeal is, accordingly, dismissed.

Summary

Issues Involved:
1. Classification of services under "Business Auxiliary Services" (BAS) for the period up to 30.06.2012.
2. Qualification of services as "export of services" under the Export of Service Rules, 2005 for the period up to 30.06.2012.
3. Classification of services as "Intermediary Services" for the period from 01.07.2012.
4. Qualification of services as "export of services" under the Place of Provision of Service Rules, 2012 for the period from 01.07.2012.

Detailed Analysis:

1. Classification of Services under "Business Auxiliary Services" (BAS) for the Period up to 30.06.2012:
The Commissioner examined Clause 2 of the Cost Reimbursement Agreement, which detailed the activities undertaken by the Assessee for the development of the "Grant Thornton" brand name in India. The Commissioner found that these activities, which included increasing market support capacities and building brand awareness, were developmental and promotional in nature. The Commissioner concluded that these activities did not fall under sub-clauses (i) & (vi) of section 65(19) of the Finance Act, which defines BAS. The Commissioner stated, "As the production of any goods is not involved in the instant case, the question of coverage of the above activities under the said clause (i) is not tenable."

2. Qualification of Services as "Export of Services" under the Export of Service Rules, 2005 for the Period up to 30.06.2012:
The Commissioner noted that BAS was a category (iii) service, which required that services be provided in relation to business or commerce to a recipient outside India and payment for such services be received in convertible foreign currency. The Commissioner observed that the condition "and used outside India" was omitted from the Export of Services Rules effective 27.02.2010, which resolved previous litigations. The Commissioner affirmed that the payment was received in foreign currency, satisfying the conditions for export of services, stating, "Thus, I find that the conditions necessary for claiming export have been satisfied in the instant case."

3. Classification of Services as "Intermediary Services" for the Period from 01.07.2012:
The Commissioner analyzed the definition of "intermediary" under the Place of Provision of Service Rules, 2012, which includes a broker or agent who arranges or facilitates the provision of a service between two or more persons but excludes a person who provides the main service on his account. The Commissioner found no indication in the agreement that the Assessee was to act as an intermediary. The Commissioner stated, "Since the Noticee has to provide the service on its own account, I find that they are not covered under the definition of intermediary."

4. Qualification of Services as "Export of Services" under the Place of Provision of Service Rules, 2012 for the Period from 01.07.2012:
The Commissioner applied Rule 3 of the Place of Provision of Service Rules, 2012, which states that the place of provision of service shall be the location of the service recipient. The Commissioner noted that Grant Thornton, London, the recipient of the service, was located outside India, and the payment was received in convertible foreign currency. The Commissioner concluded that the services provided by the Assessee qualified as export of services, stating, "Accordingly, I find the all the conditions required under Rule 6A of the Service Tax Rules, 1994 are satisfied in this case."

Tribunal's Analysis and Conclusion:
The Tribunal upheld the Commissioner's order, rejecting the department's contention that the services rendered post 01.07.2012 were intermediary services. The Tribunal referenced multiple judicial precedents, including Sunrise Immigration Consultants Private Limited vs. Commissioner of Central Excise and Service Tax, Chandigarh and Genpact India Pvt. Ltd. vs. Union of India, which clarified the definition and scope of intermediary services. The Tribunal concluded that Grant Thornton, India was not an intermediary and that the services provided were export of services, stating, "The services provided by it to Grant Thornton, London are 'export of services'."

Final Order:
The Tribunal dismissed the department's appeal and upheld the Commissioner's order dated 29.03.2018, which dropped the proceedings initiated against Grant Thornton, India. The cross-objection filed by the respondent was disposed of accordingly.