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TMI Blog2020 (1) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... on his own account. The Assistant Commissioner, while rejecting the refund claim, of the respondent has, however, observed that nature of provision of service of the repondent is arranging and facilitating procuring main services and transmitting the same to their overseas customers and so it would be in the nature of intermediary service. In coming to this conclusion, the Assistant Commissioner noticed that the purchase orders received by the respondent from the overseas customers were being passed on to the Microsoft and that the invoices issued by the Microsoft reveal that they have mentioned the name of the end-user customer in the specific column provided for the purpose - The conclusions drawn by the Assistant Commissioner are not correct. It cannot be doubted that two separate transactions had taken place. On the basis of the purchase orders placed by the overseas customers, the respondent purchased the software license from Microsoft for which it made payments to Microsoft. The tax invoice of Microsoft is billed to the respondent. The address of the Indian affiliate of end customer is shown to be in India. The Respondent receives the payment from the overseas customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Limited, New Delhi(the respondent) amounting to ₹ 36.67 crores for refund of the unutilized CENVAT Credit of input services used for output services. Out of the aforesaid six refund claims, five refund claims were allowed by the Assistant Commissioner, Service Tax, New Delhi [ Assistant Commissioner ], by five separate orders passed by a particular officer, but the sixth refund claim was rejected by a separate order passed by a different officer. The Revenue felt aggrieved by the five orders allowing the refund claims and filed two appeals bearing No s. 233 of 2017 and 240 of 2017. These two appeals were dismissed by order dated 11 January 2018 bearing no. 118 passed by the Commissioner (Appeals). The respondent also filed an appeal to assail the sixth order passed by the Assistant Commissioner rejecting the refund claim. This Appeal was allowed by the Commissioner by order dated 19 September 2018 bearing no. 265. Feeling aggrieved by the aforesaid two orders, the Revenue filed two appeals before this Tribunal, being Appeal No. 51144 of 2018 (against the order dated 19 September 2018 bearing No. 265) and Appeal No. 51279 of 2018 (against the order dated 11 January 2018 bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Jan 2015 to March 2015 ₹ 2.90 Cr 24.05.2017 Allowed 4. Oct 2014 to Dec 2014 ₹ 2.89 Cr 24.05.2017 Allowed 5. Jan 2016 to March 2016 ₹ 5.01 Cr 09.06.2017 Allowed 6. July 2016 to June 2017 ₹ 19.60 Cr 26.07.2018 Rejected Total ₹ 36.67 crores 4. As noticed above, the Revenue had filed one appeal to assail the orders at serial no s. 1,2,3 and 4 of the aforesaid chart and one appeal to assail the order a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices for export services ; (vi) In all the cases, the recipients of service are located outside India and so the provisions of Rule 6A (1) of the Service Tax Rules 1994 [ 1994 Rules ] stands satisfied in the case of the assessee and the service provided by the assessee would be export service ; and (vii) The party is, therefore, entitled to refund of CENVAT Credit. REASONS FOR REJECTING THE SIXTH CLAIM: (i) The Assessee is procuring branded/ packaged and customized software as per the requirements and purchase orders received from overseas customers. The nature of the provision of service in arranging and facilitating procurement of main services and transporting the same to the overseas domestic clients is, therefore, intermediary as defined in Rule 2(f) of the 2012 Rules; (ii) The sale of software is usually coupled with a condition of acceptance of software license agreement, which gives the buyer the right to use the software, subject to certain terms and conditions contained in the agreement. Thus, on purchasing the software, the buyer becomes the licensee and not the owner of the software and Microsoft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f service tax, full service tax is payable on the invoice value, whereas when the question of refund arises, the assessee is not eligible for refund as it has provided intermediary service. (iii) Even otherwise as per Rule 2(f) of the 2012 Rules, intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account. In the instant case, the assessee himself purchases the software from Microsoft and sells it tailor made, or in a customized condition to customers. This fact is also evident from one of the audited Balance Sheets of the assessee wherein it has mentioned that it had purchased the softwares valuing ₹ 383.10 Crores and sold the softwares at ₹ 416.47 Crores. These figures, as well as other figures mentioned in the Balance Sheet, prove beyond any doubt that the assessee has first, purchased the software from Microsoft and then re-sold it as per the requirements of customers. Thus, it has provided the service on its own account and wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as export service and so the respondent would not be entitled to refund of CENVAT Credit; and (iii) The order of the Commissioner (Appeals) records that the contention of the Revenue is based on the premise that the assessee had acted as an intermediary without adverting to the license agreement and the invoices which were two crucial evidences to examine this issue. 9. Shri Priyojeet Chatterjee, learned Counsel appearing for the respondent has, however, defended the impugned order and has made the following submissions: (i) The respondent is engaged in the business of supply of software on a principal to principal basis. Software is supplied to customers located within India as well as outside India. Revenue has not disputed the transaction of supply of software to customers in India on which the respondent has paid service tax under the taxable category of Information Technology Service . The dispute is only with regard to the classification of services rendered by the respondent to foreign customers. The respondent cannot be termed as an intermediary since in purchase and sale of software licenses it is providing services on its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd by notification in the Official Gazette: Refund amount=( Export turnover of goods+ Export turnover of services) x Net CENVAT credit /Total turnover Xxxxx xxxxx xxxx Explanation 1: For the purpose of this rule,- (1) export service means a service which is provided as per rule 6A of the Service Tax Rules, 1994. 12. Since export service means a service which is provided as per rule 6A of the 1994 Rules, the said rule is reproduced: 6A. Export of services.- (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account. 17. Thus, the place of provision of services for an intermediary would be the location of the service provider. According to the Revenue, since the service provider is located in India, the provision of service by the respondent would not be export of services . It is, therefore, necessary to determine whether the respondent provides an intermediary service. 18. The concept of intermediary was introduced in the 2012 Rules. The communication dated 16 March 2012 by the Department of Revenue (Tax Research Unit) dealing with the Union Budget 2012 deals with intermediary services and is as follows: 3.7.7 What are Intermediary Services ? An intermediary is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or supplies the goods on his own account. The communication dated 16 March 2012 referred to above, also clarifies that an intermediary service is involved with two supplies at any one time namely: (i) the supply between principal and the third party; (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. It also provides that in order to determine whether a person is acting as an intermediary or not, three factors namely nature and value, suppression of value and identity and title have to be examined. In regard to the nature and value , it provides that an intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Regarding suppression of value , it provides that the value of a service provided by an intermediary is invariably identifiable from the main supply of service that he is arranging. Generally, the amount charged by an agent from his principal is referred to as Commission . In regard to identity and title , it pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es). Each Customer will designate a reseller for itself and its affiliates on a Customer Agreement. Company may submit revision to its Customer orders. Microsoft may require detailed back-up for any order revision. Additional details regarding order revisions are outlined in the applicable Program Guide. -------- d. Non-exclusive . This Agreement is non-exclusive. Company is free to license, use, recommend, or support non-Microsoft software or services. Microsoft can provide any Licensed Offerings directly to Customers. Microsoft also can authorize other companies to do so. Microsoft may provide Licensed Offerings under different licensing programs. Microsoft may withdraw at any time any licensing program, including the channel programs described in any Program Designation Form or Program Guide. ------- 6 Ordering, Reporting and Fulfilment. ------- e. Credit Worthiness and Collection Guidelines . Company will decide whether or not to extend credit to its Customers. Company will use commercially reasonable efforts to ensure each Customer is credit worthy before it submits a Customer Agreement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable partnership laws to refer to a legal partnership entity) or joint venture. Company and Microsoft do not have any agency, franchise or fiduciary relationship. For this section, Microsoft includes Microsoft s Affiliates. [ emphasis supplied ] 21. It would be seen from the Channel Agreement that the respondent has been granted a right to resell Microsoft license to its customers. The respondent can collect orders and receive payments from its customers. Clause 7(b) provides that the respondent would have complete discretion to negotiate and set pricing and payment terms and conditions with its customers and that the negotiations of such terms will not subject to review or approval by Microsoft in any way. Clause 8 (a) provides that payment by the respondent to Microsoft is not dependent on receipt of payments from the customers even if a customer is insolvent and that if the respondent fails to make payment by due date, Microsoft can take action specified in the said clause. Clause 20 (e) provides that the respondent and Microsoft are not a partnership or joint venture and that the respondent and the Microsoft do not have any agency, franchise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principal on his own responsibility. In Ex parte White, In re Nevil(1871)6 Ch.397 T and Co. were in the habit of sending goods for sale to N who was a partner in the firm of N Co., but received these goods on his private account. The course of dealing between T Co. and N was that the goods were accompanied by a price list. N sold the goods on what terms he pleased, and each month sent to T Co., an account of the goods he had sold, debiting himself with the prices named for them in the price list, and at the expiration of another month he paid the amount in cash without any regard to the prices at which he had sold the goods, or the length of credit he had given. On these facts it was held by the Court of Appeal in Chancery that though both the parties might look upon the business as an agency, N did not, in fact, sell the goods as agent of T Co., but on his own account, upon the terms of his paying T Co. for them at a fixed rate if he sold them, and the moneys he received for them were therefore his own moneys, which T Co., had no right to follow. 11. A similar principle has been expressed in W. T. Lamb and Sons v. Goring Brick Company, Ltd. [1932] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them, to sell them at any price that he thinks fit after they have been so manipulated, and is still only liable to pay for them at a price fixed beforehand, without any reference to the price at which he sold them, it is impossible to say that the produce of the goods so sold was the money of the consignors, or that the relation of principal and agent exists-Ex parte White, In re Nevill (1871). 6 Ch. 397-A purchaser has not to account to his vendor-; his only duty is to pay him; and all the other rights and duties which exist between principal, and agent do not exist between vendor and purchaser-Ex parte Bright, In re Smith (1879) 10 Ch. Div. 566; Ex parte White, In re Nevill-(1871) 6 Ch. 397-. 12. For the reasons already given we are of the opinion that the defendants were purchasers of the plaintiffs goods under the several contracts and not his agents for sale and the view taken by the High Court on this aspect of the case is not correct and must be overruled. [ emphasis supplied ] 24. In the present case, not only does the agreement specifically mentions that there is no relationship of principal and an agent between Microsoft and the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent of any payment received by the respondent from the overseas customers. There is, therefore, no error in the finding recorded by the Commissioner (Appeals) that the respondent is not an intermediary . 28. The Commissioner (Appeals) may not have referred to the invoices, but he has referred to the balance sheet of the respondent. The invoices do not indicate that the respondent would be an intermediary . In fact they only support the case of the respondent that it is not an intermediary . The Channel Agreement has been taken into consideration by the Commissioner (Appeals) and therefore, the Appellant is not correct in contending that it has not been taken into consideration. 29. In such a situation, when service is provided by the respondent on its own account, the respondent cannot be called an intermediary . 30. The Appellant is also not justified in asserting that Microsoft India is a licensor and the end customers is the licensor merely because the software is coupled with a condition regarding acceptance of the software license. As noticed above, the license itself has been purchased by the respondent and then sold to the end cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the Revenue. Six refund claims had been filed by the respondent and these were decided by six separate orders. Five refund claims were allowed and one was rejected. The Revenue, however, instead of filing five appeals before the Commissioner (Appeals) filed only two appeals. One appeal was in regard to the four refund claims orders mentioned as serial no. 1,2,3 and 4 of the above mentioned chart and one appeal was with regard to the order passed at serial no. 5. The Respondent had also filed one Appeal to assail the order passed on the sixth refund Application. The Commissioner (Appeals) initially decided the two appeals filed by the Revenue by a common order dated 11 January 2018 and the Appeal filed by the respondent by a separate order dated 19 September 2018. However, only two appeals were filed by the Revenue before the Tribunal challenging these two orders. When the Tribunal allowed the Appeal, with a direction to the Commissioner (Appeals) to pass a fresh order, the Commissioner (Appeals) decided all the three appeals by an order dated 12 March 2019. The Revenue thereafter filed only one appeal before the Tribunal. However, since the Appeal has been listed for final ..... X X X X Extracts X X X X X X X X Extracts X X X X
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