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TMI Blog2023 (2) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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. - ORDER (ORIGINAL) No. 03/COMMR/BOL/2022-23 - - - Dated:- 20-12-2022 - D. B. Arora, Commissioner Subject: Central Excise case proceedings in terms of Show Cause Notice No(s). (1) 02/Pr. Commr/Ensim/DGP Audit/2019-20 dated 22.04.2019, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hundred and Twenty Five) only on the taxable value of Rs.16,69,78,164/- during the Financial year 2016-17 by way of wilful suppression of material facts with intent to evade payment of service tax which is recoverable in terms of proviso to Section 73(1) of the Finance Act, 1994 and along with interest as per Section 75 of the said Act and penalty in terms of Section 78(1) of the Finance Act,1994 read with Section 174(2) of CGST Act, 2017. 2.1.2 During scrutiny of Financial documents under EA 2000 for the year 2016-17, it is observed from the ST-3 returns that the assessee have exported software service amounting to Rs.10,87,03,264/-only but on scrutiny of the relevant bills issued during the period 2016-17, the total bill raised towards export of services amounting to Rs.16,69,78,164/- and the same amount mentioned in the balance sheet as revenue from operation. It is also seen that all invoices issued to Ensim Corporation, USA and claimed it as Export of Service in the ST-3 return during the above period. In this context, the basic criteria of export of service under Rule 6A of Service Tax Rules 1994 should be fulfilled which interalia provides that:- Rule 6A :- Export o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per agreement. Therefore it appears that assessee is providing services only on behalf of their parent company in USA which is just merely the distinct person. Therefore the services provided on behalf of them does not qualify the condition as mentioned in Rule 6A of Service Tax Rules 1994 as amended. From the above, it appears that the they have provided that taxable services to Ensim Corporation USA valued to Rs.16,69,78,725/- during the financial year 2016-17 which attract the amount of service tax Rs.2,50,46,725/- (15 % on the value of Rs.16,69,78,725/-) along with applicable interest and penalty as per Section 66B of the Finance Act,1994. 2.1.3 On perusal of the agreement made with M/s Ensim Corporation, USA (Marked as Exihibit-l) it appears that M/s. Ensim Corporation, USA have engaged the said assessee as a developer on nonexclusive basis to perform such service on an as needed basis for the benefit of the service recipient as mentioned in Para 3.1 3.2 of the agreement. Further in para 3.2 of the agreement also provides that the parties may specify the agreed scope of services with respect to any internal cloud marketplace, R D project or third party customers through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing raised Rate (man hour/man month) No. of man hours/man months used Amount (USD) Payment towards the following work assignments during the period of November 2016 as per the contract:- a) R D Services for Product Development, documentation, maintenance quality assurance testing of Ensim b) .. c) .. d) .. f) products g) Consulting services Ensim products and customers November 2016 16720 Man- Hours 225644 2.1.8 From the above bills, it transpires that the said assessee raised the bill In relation to services provided to M/S. Ensim Corporation, USA as monthly fee in Man Hours basis for their working establishment in India. But the said assessee actually works as an intermediary for providing services to different clients/persons as directed and on behalf of Ensim Corporation, USA from India which is taxable territory. But, the said assessee charged a monthly remuneration on man hour basis for their establishment cost in India which appears that the said assessee did not provide specific se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intermediary's service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by 'an agent from his principal is referred to as 'commission . Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable. Hence, from the analysis of the definition of 'intermediary' read with the aforementioned Guidance Note, the following points emerge: 1. An intermediary arranges or facilitates a provision of a 'main service' between two more persons; 2. An intermediary is involved with two supplies at any one time: (i) the supply between the principal and the third party; and (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged; 3. An intermediary cannot alter the nature or value of service, the supply of which he facilitates on behalf of his principal, although the principal may authorize to negotiate a different price under intimation to the principal. 4. The consideration for an intermediary's serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instant case and the said assessee provided services to third party on behalf of their parent company M/s. Ensim Corporation, USA only. Further for performing such services the said assessee will get reimbursement amount as mention in Para 4.1(a) (b) of the agreement as well as reimbursement of statutory taxes as mention in Para 4.4 of the agreement made between them and their parent Company M/s. Ensim Corporation, USA. Further all the rights related to copyright and ownership shall be owned exclusively by M/s. Ensim Corporation, USA worldwide as mentioned in para 5.1 of agreement. Hence, it appears from the above facts that their claim regarding providing services to their own account appears not correct. 2.1.15 From the above, it appears that the said assessee have provided the taxable services valued to Rs. 16,69,78,164/- during the Financial year 2016-17 which attract the amount of service tax Rs. 2,50,46,725/- (15% on the value of Rs. 16,69,78,164/-) and the said assessee is liable to pay the same along with applicable interest and penalty in terms of proviso to Section 73(1) , Section 75 and Section 78 of Finance Act. 2.2 LEGAL PROVISIONS 2.2.1 Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contravention of any of the provisions of this Chapter or of the rules made there under with the intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded. 2.2.5 Rule 6 of the Service Tax Rules, 1994 - Payment of Service Tax: 1) The service tax shall be paid to the credit of the Central Government - i) By the 6th day of the month, if the duty is deposited electronically through internet banking; ii) By the 5th day of the month, in any other case, immediately following the calendar month in which the service is deemed to be provided as per the rules framed in this regard Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the submission made by the said noticee and after considering all aspects, I am of the opinion that the instant show cause notice deserves to be issued . 2.5 From the above, it appears that the said assessee have provided the taxable services valued to Rs. 16,69,78,164/- during the Financial year 2016-17 but did not discharge the service tax liability amounting to Rs. 2,50,46,725/-(15% on the value of Rs. 16,69,78,164/-).Therefore the same should be liable to be recovered along with applicable interest and penalty in terms of proviso to Section 73(1), Section 75 and Section 78 of Finance Act for contravention of the above acts and rules. 2.6 The said assessee was therefore, required to show cause before the Commissioner, Bolpur Commissionerate, Central Goods and Services Tax Central Excise, Nanoor Chandidas Road, Sian, Bolpur, within 30 (thirty) days on receipt of this notice as to why: i) Service Tax of Rs.2,50,46,725/-(Rupees Two Crore Fifty Lakh Forty Six Thousand Seven Hundred and Twenty Five only) (including cess) should not be demanded and recovered from them in terms of proviso to Section 73(1) of the Finance Act, 1994 read with Section 174(2) of the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one another. A. THE SERVICES PROVIDED By THE NOTICEE DO NOT QUALIFY AS 'INTERMEDIARY SERVICES'. B. THE SERVICES PROVIDED BY THE NOTICEE, IN FACT, QUALIFY AS 'EXPORT OF SERVICE'UNDER RULE 6A OF THE SERVICE TAX RULE,1994. C. WITHOUT PREJUDICE TO THE ABOVE, GROSS AMOUNT RECEIVED BY THE NOTICEE SHOULD BE TREATED AS CUM-TAX. D. EXTENDED PERIOD IS NOT INVOKABLE AGAINST THE NOTICEE. E. NO INTEREST IS CHARGEABLE AND NO PENALTY IS IMPOSABLE. A. THE SERVICES PROVIDED BY THE NOTICEE DO NOT QUALIFY AS 'INTERMEDIARY SERVICES A.1 The basis of issuance of the present SCN by the department is that the place of provision of service rendered by the Noticee is not outside India, in terms of Rule 9(c) of POPS Rules. In other words, it has been alleged that the Noticee has provided 'intermediary services' and the place of provision of such services in terms of Rule 9 being the location of service provider (which is in India), the transaction cannot be considered as 'export of service'. Consequently, the Noticee is liable to discharge service tax on the consideration received from Ensim Corporation, USA as 'intermediary' under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Noticee submits that such an ingredient is absent from the transaction in the present case. A.8 The definition further refers to 'any other person'. The term 'any other person' is preceded by specific terms 'broker and 'agent'. A broker or agent, as already noted, works on behalf of its principal. Use of such specific words in the definition followed by general words, i.e. 'any other person , invites the application of principle of 'ejusdem generis ', ' Ejusdem generis ' literally means of the same kind'. It means that where a law lists specific classes of persons or things and then refers to them in general, the general statements shall be interpreted and understood to only apply to the same kind of persons or things specifically listed. A.9 Reliance is placed on the decision in the case of Siddeshwari Cotton Mills (P) Ltd. v. Union of India and Anr. reported at 1989 (39) E.L.T. 498 (S.C.), wherein the Supreme Court while determining the applicability of principle of Ejusdem Generis, the Hon ble Supreme Court held that- The preceding words in the statutory provision which, under this particular rule of construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout material alteration or further processing. Thus, an intermediary is involved with two supplies at anyone time: (i) the supply between the principal and the third party; and (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. For the purpose of this rule, an intermediary in respect of goods (such as a commission agent i.e. a buying or selling agent, or a stockbroker) is excluded by definition . Also excluded from this sub rule is a person who arranges or facilitates a provision of a service (referred to in the rules as the main but provides the main service on his own account. In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered :- Nature and value: 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. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal to principal basis. The Noticee submits that it neither acts in the capacity of a broker or agent or any such similar person between Ensim Corporation and its customers. A.16 In this regard, it is pertinent to refer to the Article 3.1 of the Master Service Agreement entered into between the Noticee and M/s Ensim Corporation, relevant portion whereof is reproduced hereunder: The relationship of the Parties established by this Agreement is that of independent contractors. Nothing in this Agreement shall be construed to: (i) give either Party the power to direct and control the day-to-day activities of the other Party; or, (i) constitute the Parties as partners, joint venturers, principal and agent, employer and employee, co-owners or participants in a joint undertaking. Further, nothing contained in this Agreement shall be construed to allow Developer on behalf of Service Recipient; (ii) make or give any agreement, statement, representation, warranty or other commitment; (iii) negotiate or enter into, amend, terminate any contract or otherwise incur any liability or obligation, express or implied; or (iv) transfer, release or waive any rights, titles or interests. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomer and not provide the main service on its own account. The same has been clarified by the Education Guide as well. A.20 Accordingly, the services provided by Ensim Corporation to their clients and the services provided by the Noticee to them are two distinct identifiable services and represent the respective (main services' provided by the two parties on their own account. Thus, the department has erroneously alleged that the reimbursement amount is received by the Noticee for services rendered to third party customers as directed by the parent company, on their behalf. A.21 In an intermediary transaction, there are three parties involved and all parties are aware of the respective roles to be played. The principal appoints an intermediary, who deals with clients of the principal in its capacity of an intermediary. The Noticee submits that the essential ingredients for a transaction to qualify as 'intermediary service' is that the Noticee must be contractually obligated to facilitate or arrange the supply of service between Ensim Corporation, USA and its customers and such obligation must be clearly born out of the understanding in the Agreement. A.22 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent, principal to principal transaction and not in the nature of intermediary services. A.26 It is humbly submitted that reading only one part of the agreement to defeat the intention of the whole agreement is not tenable. It is a settled position of law that an agreement has to be read as a whole to advance the intention of the contracting parties. Therefore, the Department by relying on the mere mention of third parties in a specific clause cannot negate the intention with which the parties have entered into the present agreement or the various other services that the Noticee is mandated to undertake. Such services are clearly on their own account and not on behalf of Ensim Corporation, USA, such as software development service, R D services and technical and consultancy services. A.27 The Noticee places reliance in this regard on the judgment of Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai, 2007 (6) STR 3 SC, wherein the Hon'ble Supreme Court observed as follows- 76. In construing a contract, the terms and conditions thereof are to be read as a whole. A contract must be construed keeping in view the intention of the parties. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical and commercial materials. This is because the Representative Office is under duty to provide all materials to the appellants being their overseas representative. A.29 Thus, the Noticee humbly submits that the demand of service tax in the present SCN is not based on a correct interpretation of the legal provisions read with the terms of the agreement and therefore, cannot be sustained. The intention of the Noticee and Ensim Corporation, USA is clearly set out in the Agreement and it is to provide software and consultancy services to the latter in return for a consideration which is based on the operating cost along with some additional remuneration. The intention of parties is not for the Noticee to function as an intermediary for the parent company and neither represent them nor provide services on their behalf. This can also be observed from a careful perusal of the agreement in question wherein articles 3.1 (as reproduced above) and 7 clearly states that the developer i.e. the Noticee is not allowed to make any representations or warranties on behalf of their service recipient i.e. Ensim Corporation, USA. Thus, any other interpretation would result in infringement of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same has been followed, then such an allegation is legally unsustainable. A.32 Further, the allegation in the present SCN that the clause in the Agreement providing for rights and ownership including copyright in software, to vest with Ensim Corporation, USA also being indicative of the Noticee not providing services on their own account, is bereft of any commercial logic and also legally untenable. In fact, this clause clearly indicates that the software development services are provided by the Noticee to the parent company on their own account. On receipt of consideration for the software from Ensim Corporation, all the rights, titles etc. in such software shall vest with Ensim Corporation. Similarly, the Noticee submits that the reimbursement of taxes paid by the Noticee does not reflect on whether or not the services in question are provided by them on their own account. As submitted, the services provided by the Noticee are the main services provided by them to the service recipient and thus, they are not acting as an intermediary for the facilitation of services between Ensim Corporation, USA and their customers. A.33 It is submitted that where the supplier of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Hon'ble Authority for Advance Ruling In Re: GoDaddy India Web Services Private Limited, [2016 (46) STR 806 (AAR)], wherein it was held as under: 10. The definition of intermediary as envisaged under Rule 2(f) of POPS does not include a person who provides the main service on his own account. In the present case, applicant is providing main service, i.e., business support services to GoDaddy US and on his own account. Therefore, applicant is not an intermediary and the service provided by him is not intermediary service. Further, during arguments, applicant drew our attention to one of the illustration given under Paragraph 5.9.6 of the Education Guide, 2012 issued by CB.E. C Relevant portion is extracted as under; Similarly, persons such as call centers, who provide services to their clients by dealing with the customers of the client on the client's behalf, but actually provided these services on their own account', will not be categorized as intermediaries. Applicant relying on above paragraph submitted that call centers, by dealing with customers of their clients, on client's behalf, are providing service to their client on their own acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, it cannot be said that the appellant has provided intermediary service and should be governed under the provisions of Rule 9 of the rules. A.38 In light of the above, the Noticee humbly submits that it does not qualify as 'intermediary' and thus, Rule 9(c) of the POPS Rules is not applicable to the present case. The place of provision of the Noticee is services should. therefore, be determined in terms of the default Rule 3 of the POPS Rules. A.39 In view of the aforesaid, it is humbly submitted that 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. The Rule is extracted below for ease of reference- RULE 3. Place of provision generally. - The place of provision of a service shall be the location of the recipient of service: Thus, the place of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable territory and the recipient of service. i.e. Ensim Corporation, USA is located outside India; ii) the service rendered by the Noticee is not a service specified in the Section 66D of the Finance Act, 1994, iii) the payment for such service has been received by the Noticee in convertible foreign exchange i.e. in terms of US Dollars as evidenced by the FIRC enclosed; B.4 Further, since the Noticee is a distinct entity incorporated under the provisions of the Companies Act, 1956 they cannot be treated as mere establishment of a distinct person in the taxable territory and therefore, the relevant condition under Rule 6A(f) of the Rules also stands satisfied. B.5 As submitted in the previous paragraphs, the services rendered by the Noticee do not qualify as 'intermediary services' since they are provided by the Noticee on their own account to Ensim Corporation, USA on principal to principal basis which can also be observed from the Master Service Agreement. The place of provision is determinable under Rule 3 of the POPS Rules, which is outside India in the present case. Hence, the services provided by the Noticee qualify as 'export of services' as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y established that the service recipient under the contract is Ensim Corporation, USA. The Noticee reiterates that no service is rendered by the Noticee to the third parties directly or on behalf of Ensim Corporation, USA. The Noticee also submits that the agreement clearly lays down the payment terms whereby the consideration for the services is meant to flow from Ensim Corporation, USA to the Noticee, not for providing 'intermediary services' but for providing the main services i.e. software development service, technical, consultancy and other support services on their own account. It has also been submitted with documentary evidence that the above consideration is received by them in convertible foreign exchange and therefore, there is no doubt that the services rendered by them qualify as 'export of service' in terms of Rule 6A of the Rules. Accordingly, no service tax is leviable on the present transaction. The Noticee and Ensim Corporation. USA are distinct legal entities in the eves of law and not mere establishments of a distinct person. B.9 The SCN alleges that as per the Balance Sheet of the Noticee, Ensim Corporation, USA is the majority sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re merely establishments of a distinct person. On the contrary, it establishes their separate legal existence in terms of Company laws. B.12 Thus, it is submitted that the service provider in the present case i.e. the Noticee and the service recipient i.e. Ensim Corporation, USA are not merely establishments of a distinct person in terms of the condition under sub-clause (f) of Rule 6A of the Rules. Therefore, the services rendered by the Noticee under the agreement qualify as 'export of service' since all the conditions referred to in Rule 6A are satisfied. Accordingly, the same are not chargeable to service tax in India. B.13 In light of the above also, the Noticee humbly submits that the demand proposed vide the present SCN is unsustainable and liable to be dropped. C. WITHOUT PREJUDICE TO THE ABOVE, GROSS AMOUNT RECEIVED BY THE NOTICEE SHOULD BE TREATED As CUM-TAX. C.1 Without prejudice to the above submissions, assuming without admitting, in the unlikely event of service tax becoming payable on the transaction, the amount received by the Noticee from Ensim Corporation, USA as alleged aforesaid, cannot be taken as the value of the taxable service as it sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l mis-statement or suppression of facts. All the facts were adequately disclosed by the Noticee to the department at all times. as required. D.2 The Noticee humbly submits that there has been no mala fide intention in its actions or conduct and that the Noticee never suppressed any fact with an intention to evade payment of service tax. The Noticee has always cooperated with the Department during the conduct them. D.3 The present proceedings have been initiated on the basis of information provided during the course of the EA 2000 audit as has been stated in the SCN itself. All the relevant information has been duly recorded in the books of accounts of the Noticee as well as their ST-3 returns and was presented to the Department when called upon to do so during the course of the audit. The Noticee did not have any intention of suppression of material information as can be concluded from the above facts. D.4 In this regard, reliance is placed on the judgment of the Hon'ble Supreme Court in the case of M/s Anand Nishikawa Co Ltd v. Commissioner of Central Excise, Meerut [2005 (188) ELT 149 (SC)], wherein the court held as under: 27. Relying on the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire demand in the present case is based on the information stated in the books of accounts of the Noticee and the SR-3 returns, and therefore, there is no justification for alleging suppression of facts with the intention to evade payment of tax. D.7 In this regard, reliance is placed on the case of CCE v. Chemphar Drugs and Liniments, 1989 (40) ELT 276 (SC), wherein the Hon ble Supreme Court held that for making the demand of duty sustainable beyond the period of six months, it has to be established that the duty was not levied or paid or short-levied or short-paid or erroneously refunded by reasons of either fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. The Hon'ble Court held that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, beyond the period of six months. D.8 Since no such positive act has been shown in the present SCN, against the Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical, the Noticee craves leave to refer to the submissions made in the previous paragraphs, regarding absence of such ingredients, for the sake of brevity. The Noticee humbly submits that the elements such as fraud, suppression of material facts or willful contravention of applicable provisions cannot be imputed on the Noticee as has been demonstrated in the submissions made in the foregoing paragraphs. Therefore, no penalty is imposable under Section 78 of the Finance Act, 1994. Penalty is not imposable when demand is not sustainable E.3 It is respectfully submitted that the proposal for imposition of penalty is not sustainable since the service tax itself is not payable and the Noticee has not contravened any of the provisions of the Act. In the case of Collector of Central Excise v. H.M.M. Limited, 1995 (76) ELT 497 (SC), Hon'ble Supreme Court held that the question of penalty would arise only if the Department is able to sustain the demand. In the case of Commissioner of Central Excise, Aurangabad v. Balakrishna Industries, 2006 (201) ELT 325 (SC), Hon'ble Supreme Court held that penalty is not imposable when differential duty is not payable. Therefore, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e No.12/JC/ST/BOL/19-20 dated 30.10.2019, the noticee vide letter dt. 03.01.2020 submitted another reply to the said SCN reiterating the same points of the previous submission dated 06.06.2019. 3.3 Authorised representative of the noticee also forwarded another submission from e-mail id [email protected] to this office e-mail id [email protected] on 17.02.2021 in respect of above mentioned both the SCNs. 4.0. PERSONAL HEARING 4.1. Hon'ble Commissioner, CGST Central Excise, Bolpur Commissionerate was pleased to grant a single hearing by clubbing the above-mentioned two SCNs for adjudication. Shri Aakash Agarwal, Chartered Accountant (M:9831092555) attended the Personal Hearing through video conferencing (Google Meet)on 19.05.2022at 13.30 hrs. on behalf of the assessee M/s Ensim India Private Limited, Webel IT Park, Phase-Il, Palasdiha, Durgapur, West Bengal-713208. He explained the case in detail and reiterated the contentions made in their defence reply dated 06.06.2019, 18.02.21and 19.05.2022 alongwith copies of relied upon documents/case laws in respect of above mentioned both the SCNs. He further requested that the case may be decided keeping i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that are provided in a non-taxable territory would not be chargeable to Service tax. At this juncture it, therefore, becomes essential to determine the place where the services have been provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided. Intermediary Services: As per Sub-rule (f) of Rule 2 of the place of provisions of Services Rules, 2012, 'Intermediary' 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 2 or more persons but does not include a person who provides the main service Rule 9 of The Place of Provision of Supply Rules, 2012, states that the place of provision of following services shall be the location of the service provider: (a) (b) online information and database access or retrieval services (c) Intermediary services (d) .. In terms of Rule 92 in case of intermediary, following conditions should be met - a. Should arrange or facilitate a service between two persons b. Does not include a person who hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the definition of 'intermediary' read with the aforementioned Guidance Note, the following points emerge: 1. An intermediary arranges or facilitates a provision of a 'main service' between two more persons; 2. An intermediary is involved with two supplies at any one time: (i) the supply between the principal and the third party; and (ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged; 3. An intermediary cannot alter the nature or value of service, the supply of which he facilitates on behalf of his principal, although the principal may authorize to negotiate a different price; 4. The consideration for an intermediary's service is separately identifiable from the main supply of service that he is arranging and is in the nature of fee or commission charged by him; 5. The test of agency must be satisfied between the principal and the agent, i.e., the intermediary. The Guidance note states that the intermediary or the agent must have documentary evidence authorizing him to act on behalf of the provider of the 'main service'; 6. The payment for such services is recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the said Agreement at para 3.1 the following are stated: Engagement as Non-Exclusive Independent Contractor . Service Recipient hereby engages Developer, on a non-exclusive basis, to perform Services, and Developer hereby agrees to perform such Services, on an as needed basis for the benefit of Service Recipient, with the scope of such Services to be agreed to and/or modified from time to time by the Parties as provided in Section 3.2, Nothing in this Agreement shall be construed to limit Service Recipient's ability to contract with any other Person for engineering, research or development or consulting services or to engage in engineering, research or development or consulting activities itself. The relationship of the Parties established by this Agreement is that of independent contractors. Nothing in this Agreement shall be construed to: (i) give either Party the power to direct and control the day-to-day activities of the other Party; or, (ii) constitute the Parties as partners, joint venturers, principal and agent, employer and employee, co-owners or participants in a joint undertaking. Further, nothing contained in this Agreement shall be construed to allow Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat, 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. 5.6.4.2 I find that the services provided by Ensim Corporation, USA to their clients and the services provided by the Noticee to them are two distinct identifiable services and represent the respective 'main services' provided by the two parties on their own account. I do not find any such reimbursement amount received by the Noticee for services rendered to third party customers directly as directed by the parent company, on their behalf. 5.6.4.3 In an intermediary transaction, there are three parties involved and all parties are aware of the respective roles to be played. The principal appoints an intermediary, who deals with clients of the principal in its capacity of an intermediary. The essential ingredients for a transaction to qualify as 'intermediary service' in this case is that the Noticee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not chargeable to Service Tax since they are not provided in taxable territory. 5.8 I find that Rule 6A of the Service Tax Rules, 1994 prescribes the conditions to be fulfilled for a service to be considered as 'export of service'. The provision of the above Rule is reproduced below - RULE 6A. Export of services . - (l) 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 merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act. Hence, in order to qualify as 'export of service' the following conditions must be cumulatively satisfied- The service provider must be located in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rizon India was providing connectivity by way for data transfer service in the form of local access, bandwidth and VPN facilities to the customers of Verizon USA in India. The contention of Verizon India was that the same amounted to export of services since the service recipient was Verizon, USA located in non-taxable territory whereas the Department's case was that the petitioner was providing 'telecommunication services' and that the recipient of the services was the Indian entity, which was the actual user of the services. It was argued by the petitioner's counsel that service tax is a 'destination-based consumption tax' and that there is a distinction between the user of a service and the 'recipient' of a service which has to be determined strictly in accordance with the underlying contract between the two parties. The Hon ble Delhi High Court while deciding the case in favour of the petitioner held that the recipient of a service is determined by reference to (a) who has the contractual right to receive the services; and (b) who is responsible for the payment for the services provided. In the absence of privity of contract between the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient for sake of mere administrative convenience in the nature of travelling charges, boarding or lodging expenses etc., which otherwise would have been incurred by Service recipient, shall not form part of operating expenses. Such expenses shall be recovered by Developer at actual without any Cost Plus Fee. The Developer shall ensure that by the year end, i.e., 12 month period ending on 31st March, the Cost Plus Fee on operating cost for provision of Software Development Services shall be aligned with the arm's length requirements to comply with the Developer's statutory requirements. In case of any deficit or surplus from the agreed arm's length remuneration, the same shall be adjusted through periodic true-up and true-down by way of an invoice or debit/ credit note. 5.9.1 From the above, I find that under the said Agreement, Ensim Corporation, USA is obliged to pay the cost incurred by the Noticee along with an agreed margin for provision of the services under the agreement. However, such payment is not in the nature of a commission and not attributable to specific tasks undertaken by the Noticee on behalf of the foreign entity. It is calculated as a percenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid judicial pronouncement is as under: 11. Ongoing through the agreement placed before us, the appellants are themselves engaged in providing of services to their client and the facilitating their clients for providing those services by third party. In that circumstance, it is to be seen whether the provider of services is covered as intermediary or not. We have gone through the impugned order also. In the impugned order, the Commissioner (Appeals) has fell in error holding that the appellant provided services on behalf of Evalueserve Ltd., Bermuda. In fact, the appellant has provided the services to customers of their Client and having no direct nexus with the customers of their client has been provided by the appellant to their client and nowhere has facilitated or arranged for the services provided to their client by third party. Furthermore, 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 intermediary as defined in Rule 2(f) of Place of Provision of Services Rules, 2012. Similar view was taken by the Advance Rulings Authority o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case. Further I find that in the case of Lenovo India Pvt. Ltd. (supra), this Tribunal has held that promoting sale of goods of foreign client in India being BAS fulfills the conditions under Export of Service Rules, 2005 and qualifies as export of service. 5.10.3 In the case between M/s Analog Devices India Pvt. Ltd. vs. 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. The relevant extract of the said judicial pronouncement is as under: 6. After considering the submissions of both the parties and perusal of records and the judgments relied upon by the assessee, especially the assessee's own case for the previous period, I find that the appellants are not rendering the intermediary service and they are rendering consulting engineering service and BAS and fall in the definition of export of service. After holding that the appellants are not rendering intermediary services, I am of the view that the case needs to be remanded back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh its website was engaged in the business of providing name registration, web hosting, designing and other services. The agreement proposed that the applicant was to assist the customers of the foreign company to make their payments. In terms of the agreement, the foreign company was the only client of the applicant and the services were provided directly by WWD US to their customers. The applicant was providing its services to the foreign company and receiving payments for the same from them. It was held that such service was being provided by the applicant on their own account to the foreign company for a fee equal to their operating costs plus a mark-up of 13% of such costs. Further, since 'intermediary services' do not include services provided on their own account and the service recipient in the case is the foreign company and not the Indian customers, as can be inferred from the receipt of fee from them, the place of provision of the services would be the place of the recipient of the service i.e. WWD US and hence, outside India in terms of Rule 3 of the POPS Rules. Further, the services qualify as export of services under Rule 6A of the Rules because the considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersal Services India Private Limited, 2016 (42) STR 585 (AAR), (ii) GoDaddy India Web Services Private Limited, [2016 (46) STR 806 (AAR)], I find that the services provided by the notice M/s Ensim India Private Limited to M/s Ensim Corporation, USA cannot be treated as Intermediary Service . 7.0 I thus find that 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, as discussed above. 7.1 In view of the above, it is amply clear that 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. 7.2 As there is no demand, there is no question of charging interest and imposition of penalty. 8.0 ORDER 8.1 In view of above discussions and findings, I pass the following order:- (i) I drop the entire proceedings initiated by issuance of Show Cause cum Demand Notices No. (1) 02/Pr. Commr/Ensim/DGP Audit/2019-20 dated 22.04.2019 and (2) 12/JC/ST/BOL/19-20 dated 30.10.2019, both issued against M/s. Ensim India Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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