9911796707
TMI Blog2023 (3) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Vasant Kunj (hereafter 'the Adjudicating Authority') were rejected. 2. The petitioner had appealed against the impugned orders-in-original passed by the Adjudicating Authority being aggrieved by the rejection of its refund applications for input tax credit (hereafter 'ITC') in respect of export of services for the period from December 2017 to March 2020. The Adjudicating Authority had denied the said applications for refund of ITC on the premise that the petitioner is an 'intermediary' and thus, the place of services is located in India, where the petitioner's place of business is located and not where recipient of services is located. 3. The petitioner has the statutory right to appeal the decision of the Appellate Authority before the Goods and Service Tax Appellate Tribunal under Section 112 of the Central Goods and Services Tax Act, 2017 (hereafter 'the Act'). However, the said remedy is unavailable as the Goods and Services Tax Appellate Tribunal has not been constituted as yet. Therefore, this Court considers it apposite to entertain the present petition. Factual Context 4. The petitioner is an Indian Branch Office of M/s Ernst & Young Limited, a company incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding technical review and approval of US income tax returns and other related work products; and knowledge transfer on engagement specific matters to other firms that may be performing professional services for EY US in India; (iii) technical assistance/advice in relation to business tax compliance services under the tax laws of the United States, including technical review and approval of US tax returns and other related work products; and (iv) advice and technical assistance with respect to US audit processes required under appropriate accounting standards, including the review and analysis of the financial data of EY US's audit clients. Accordingly, we agree as follows. 1. E&Y Limited shall provide the Services in accordance with all applicable professional standards, as well as all of the requirements imposed upon member firms of Ernst & Young Global Limited in the conduct of professionals services under the "Ernst & Young" name. 2 EY US shall pay E&Y Limited an arms' length fee for the Services, provided, that, if it is determined that such fee is not in accordance with the arms' length principles, then the parties shall negotiate and modify it at least annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use notices dated 02.01.2020, 13.04.2020 and 23.04.2021 corresponding to the three refund applications filed by the petitioner. Each of the said show cause notices indicated the reasons for proposing to reject the refund applications in similar words as set out below: "Sr.No. Description i) How the Output services are treated as Export of Services. Accordingly, kindly explain the nature of Output Services and provide copy of Agreement with overseas client along with annexure/schedule and copy of export invoices. ii) How the input services have nexus with the provision of exported services and how they have been utilized for provision of the same. Accordingly, kindly explain the nature of input services and their nexus & utilization with the provision of exported services." 13. The petitioner responded to the said show cause notices, inter alia, explaining that the petitioner was involved in providing "business advisory services and technical assistance" (hereafter 'the Services') in relation to tax compliance and other matters. The petitioner states that the Services are in the nature of management consultancy/professional consultancy services. According to the petitioner, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those services. The Adjudicating Authority proceeded on the basis that the Services provided by the petitioner were intermediary services and since the petitioner was located in India, the place of supply of the Services was not the location of the recipients of the Services but the petitioner's location in India. The Adjudicating Authority also referred to the letter dated 04.04.2008 issued by the Reserve Bank of India granting Ernst & Young Limited the permission to establish a Branch Office in India and noted that the activities that could be carried out by the Branch Office in India included "representing the parent company in India and acting as buying/selling agent in India". It further noted that in terms of the service agreements, overseas EY Entities had retained the petitioner (Indian Branch of Ernst & Young Limited) to provide professional services in India. In view of the above, the Adjudicating Authority held that the petitioner "is engaged in rendering professional or consultancy services, promoting technical or financial collaboration between Indian companies and parent or overseas group companies, representing the parent company in India and acting as buying/sellin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the service agreement constitutes services as an 'intermediary'. 19. The term 'intermediary' is defined under Section 2(13) of the IGST Act. "intermediary" means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;" 20. A plain reading of the aforesaid definition makes it amply clear that an intermediary merely "arranges or facilitates" supply of goods or services or both between two or more persons. Thus, it is obvious that a person who supplies the goods or services is not an intermediary. The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier. In the present case, there is no dispute that the petitioner does not arrange or facilitate services to EY entities from third parties; it renders services to them. The petitioner had not arranged the said supply from any third party. 21. It is important to note that the Adjudicating Authority had also accepted that the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely clarifies that the definition is not to be read in an expansive manner and would not include a person who supplies goods, services or securities on his own account. There may be services, which may entail outsourcing some constituent part to a third party. But that would not be construed as intermediary services, if the service provider provides services to the recipient on his own account as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services. 24. Thus, even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of 'intermediary' under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party. 25. The assumption that the petitioner has acted as a buying and selling agent, is without any basis. The Adjudicating Authority had referred to the letter dated 04.04.2008 issued by RBI permitting E&Y Limited to open a branch office in India (that is establishing the petitioner) and further clarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such goods or services or both or securities on his own account." 2.2 The concept of 'intermediary' was borrowed in GST from the Service Tax Regime. The definition of 'intermediary' in the Service Tax law as given in Rule 2(f) of Place of Provision of Service Rules, 2012 issued vide Notification No. 28/2012-S.T., dated 20-06-2012 was as follows: "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 two or more persons, but does not include a person who provides the main service or supplies the goods on his own account." 3. Primary Requirements for Intermediary services The concept of intermediary services, as defined above, requires some basic prerequisites, which are discussed below: 3.1 Minimum of Three Parties: By definition, an intermediary is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus a natural corollary that the arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply cannot be covered under the scope of intermediary". xxx xxx xxx" 29. Concededly, the services rendered by the petitioner to EY Entities, prior to roll out of the GST regime, was considered as 'export of services'. The petitioner prevailed before the concerned service tax authorities in establishing that the professional services rendered by it cannot be considered as services as an 'intermediary'. It is also material to note that the petitioner's application for refund of ITC for the period after March 2020 has also been accepted by the Adjudicating Authority. Thus, the petitioner has been denied ITC only for the period from December 2017 to March 2020; it has been allowed CENVAT credit for the period covered under the service tax regime as well as ITC for the period after March 2020. 30. It is also relevant to refer to Section 2(6) of the IGST Act, which defines the expression 'export of services'. Section 2(6) of the IGST Act is set out below: "export of services" means the supply of any service when,- (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1934 (2 of 1934); (c) "financial institution" shall have the same meaning as assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (d) "non-banking financial company" means,-- (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or (iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may, with the previous approval of the Central Government and by notification in the Official Gazette, specify." 33. In terms of Sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In terms of Clause (b) of Sub-section (8) of Section 13 of the IGST Act, the place of supply of intermediary services is the location of the supplier of services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing intermediary services. As discussed above, the Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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