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TMI Blog2023 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... ted September 20, 2021 issued by the Central Board of Indirect Taxes and Customs regarding the scope of intermediary , also emphasizes that an intermediary essentially arranges or facilitates another supply (the main supply ) between two or more other persons and, does not himself provide the main supply. It also clarifies that in cases where a person supplies the main supply either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of intermediary . There are no illegality in the order dated March 02, 2020 passed by the Commissioner (Appeals) - appeal of Revenue dismissed. - Service Tax Appeal No. 50774 of 2020 - FINAL ORDER NO. 50160/2023 - Dated:- 2-2-2023 - MR. DILIP GUPTA, PRESIDENT AND MS. HEMAMBIKA R PRIYA, MEMBER (TECHNICAL) Shri Harshwardhan, Authorised Representative of the Appellant Shri Sparsh Bhargava, Advocate for the Respondent ORDER This appeal has been filed by the Department to assail the order dated March 02, 2020 passed by the Principal Commissioner of CGST Central Excise, Delhi South [the Commissioner (Appeals)], by which the appeal filed by the Department to assail that part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Service Tax Rules 1994 [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 merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification. 5. As noticed above rule 6A of the 1994 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led, 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. 12. 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 processing. Thus, 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. For the purpose of this rule, an intermediary in respect of goods (commission agent i.e a buying or selling agent) is excluded by definition. In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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 separation of value , it states that the value of 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 provides that the service provided by the intermediary on behalf of the principal are clearly identifiable and example of a travel agent, a tour operator, stock broker, commission agent and a recovery agent have been given. 15. The agreements executed between the respondent and E Y, UK would, therefore, have to be examined to determine whether the respondent is an intermediary . It needs to be noted that the respondent is an Indian branch office of E Y, UK and was set up to provide professional services to the E Y entities located outside India. The relevant portion of the three service Agreements are as follows : S.No. Service Agreement dated O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Young Ltd., UK, is the service provider in India. Further, export invoices have been issued by the claimant and as per copies of FIRCs and Bank Accounts remittances being received by the claimant invoices; I find that said export services provided by the claimant are taxable services falls under the category of Management or Business Consultant Service and also Export of Service as per Rule 6A(1) of Service Tax Rules, 1994 as discussed below: (a) As mentioned above the claimant is registered in India under the Companies Act, 1956. They also got registered under the Service Tax Laws in India with the Service Tax Commissionerate, Delhi. Thus the provider of service is located in the taxable territory. (b) The recipients of service namely M/s Ernst Young LLP, USA, M/s Ernst Young LLP, UK etc. are separate companies under the laws of their countries and are thus located outside India. (c) The provisioned service namely Management or Business Consultant Service is not a service specified in Section 66D of the Finance Act, 1994. (d) The place of provision of the provisioned services falls under Rule 3 the Place of Provisions of Service Rules, 2012 according to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort the finding of the Adjudicating Authority that the appellant EYL have provided the said service on their own account. As such, Rule 2(1) of Place of provision of Service Rules, 2012 is not attracted in this case. Accordingly, the appeal filed by the Revenue is dismissible. 19. As noted above, an intermediary is a person who arranges or facilitates provision of the main service between two or more persons. The respondent is not involved in the arrangement or facilitation of the supply of service. In fact, the respondent had entered into agreement with E Y, UK for providing services on a principal to principal basis. Both the Assistant Commissioner and the Commissioner (Appeals) have recorded a finding that services provided by the respondent qualify for export service since it is providing services to E Y, UK which is located outside India and is receiving convertible foreign exchange for such services. 20. In this connection, it may be pertinent to refer to the decision of the Delhi High Court in Verizon Communication India Pvt. Ltd. versus Asstt. Commr., S.T. Delhi-III [2018 (8) G.S.T.L. 32 (Del.)]. It is seen from a perusal of the aforesaid judgment that Verizon India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: For the services that fall under category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase used outside India is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III service [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India... 23. The summary of the conclusions noted by the Delhi High Court are as follows:- 54. To summaries the conclusions: (i) It made no difference that Verizon India may have provided telecommunication service and not business support services since to qualify as export of service both had to satisfy the same criteria. (ii) The provision of telecommunication services by Verizon India during the period January, 2011 till 1st July, 2012 complied with the two conditions stipulated under Rule 3(1)(iii) of the ESR to be considered as export of service . In other words, the payment for the service was received by Verizon India in convertible foreign e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules. The relevant portion of the decision is reproduced below: 30. xxxxxxxxxx Further, we find that the Hon ble Delhi High Court has held, that its findings applied to post-Negative List also i.e. from July, 2012 onwards, as held by the Hon ble High Court in its aforementioned judgment particularly in para-54 (supra). Further, admitted facts are that the appellants have provided output services and raised invoices on principal to principal basis. The appellant has not been acting as intermediary between another service provider and Verizon US. This fact is also supported from the fact that the appellant has raised their bills for the services provided on the basis of cost plus 11% mark-up . As the services have been provided by the appellant under contract with Verizon US, who are located outside India and have raised their invoices, for such services and have received the remittance in convertible foreign exchange, the appellant satisfies all the conditions, as specified under Rule 6A of Service Tax Rules, 1994, inserted w.e.f. 1-7-2012. xxxxxxxxxxxx 31. From perusal of the aforementioned ruling, it is evident that the services of the appellant to Verizon US do not mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not an intermediary service. The supplier of main service may decide to outsource the supply of main service, either fully or partly, to one or more sub- contractors. Such sub-contractor provides the main supply, either fully or a part thereof and does not merely arrange or facilitate the main supply between the principal supplier and his customers and therefore clearly not an intermediary. xxxxxxxxxxx 6. What we have gathered from the perusal of the agreement as well as submission of the learned Counsel is that the Support Services in relation to creation of clients account is limited to the performing of services on HLX systems and that too as a backend process. It is the specific case of the appellants that HLX does not have any clients in India. Maintenance, support or troubleshooting function, if any, the appellant is required to perform on requisition from HLX in order to ensure seamless access of services which means there is no requirement of any interaction, whatsoever with the clients of HLX and for performing all these services on behalf of HLX, the appellant receives a pre-agreed consideration from HLX in convertible foreign exchange. Commission is being paid to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. An intermediary essentially arranges or facilitates another supply (the main supply ) between two or more other persons and, does not himself provide the main supply. 3.2 Two distinct supplies : As discussed above, there are two distinct supplies in case of provision of intermediary services; (1) Main supply, between the two principals, which can be a supply of goods or services or securities; (2) Ancillary supply, which is the service of facilitating or arranging the main supply between the two principals. This ancillary supply is supply of intermediary service and is clearly identifiable and distinguished from the main supply. A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service. 3.3 Intermediary service provider to have the character of an agent, broker or any other similar person : The definition of intermediary itself provides that intermediary service provider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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