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TMI Blog2024 (10) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) Shri Rajeev Kapoor, Authorized Representative of the Department Shri Shubham Madan, Chartered Accountant and Ms. Anchal Shrivastava, Advocate for the Respondent ORDER The department has filed this appeal to assail the order dated 29.03.2018 passed by the Commissioner dropping the proceedings initiated against M/s Grant Thornton Advisory Private Limited [the Respondent] by the show cause notice dated 21.10.2015 issued for the period 2010-2011 to 2014-15. 2. The said show cause notice alleges that on scrutiny of the Cost Reimbursement Agreement executed between Grant Thornton Advisory Private Limited, India [Grant Thornton, India] and Grant Thornton International Limited, London [Grant Thornton, London] and the Note on Brand Development Activities submitted by Grant Thornton, India, it appears that the services provided by Grant Thornton, India to develop the Grant Thornton brand name would not be export of services under the Export of Service Rules, 2005 [Export of Service Rules] and the payment received by the respondent towards reimbursement of Brand Development Expenses would be covered under business auxiliary service [BAS] made taxable under section 65 (105)(zzb) of the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctions- Professional Standards, Risk Management, HR/ talent development Training; developing / improving of physical infrastructure, financial control environment technology infrastructure etc. 23.3 Hence, essentially speaking, the activities undertaken by the Assessee are basically developmental and promotional activities being undertaken with the sole intent and purpose to develop and promote the brand name of Grant Thornton in India. (emphasis supplied) 6. The Commissioner, thereafter, divided the period involved in the show cause notice into two parts: one for the period upto 30.06.2012 and the other for the period from 01.07.2012. 7. In regard to the period upto 30.06.2012, the Commissioner examined the definition of BAS under section 65(19) of the Finance Act and observed: For the period upto 30.06.2012 24.1 I find that as per clause 2 of the agreement which has been relied upon in the SCN, the Noticee is to take all necessary steps for development of Grant Thorton brand name in India, whether directly or indirectly by securing resources and funding initiatives. xxxxxxxxxx 24.2 I am not able to understand as to how the above activities are covered under sub-clauses (i) (vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut does not include a person who provides the main service on his account, 33. I find that there is nothing in the agreement in the instant case which suggests that the Noticee was to act as an intermediary as defined under law. They have been entrusted with the responsibility of the brand promotion which can be done by them either directly or indirectly. Since, the Noticee has to provide the service on its own account, I find that they are not covered under the definition of intermediary. 34. As regards outsourcing of the services, I find that it is a common and well recognized practice in service industry that part of the activities may be outsourced. For example, for brand promotion advertisement in print or electronic media may be required and services of the respect ve service providers may be required for the same. Just because such services have been outsourced, the Noticee would not become an intermediary. 35. Further limiting of the reimbursement indicates the quantum of the consideration. The service recipient has clearly indicated that the consideration cannot exceed the ceiling and thus the expense for brand promotion shall be done within the limit prescribed in the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Limited, a private limited company incorporated under the laws of India with corporate identity number U74110DL2001PTC111284 whose registered office is at L 41 Connaught Circus, New Delhi 110001, India ( GTAPL ); xxxxxxxxxxx (3) Grant Thornton International Limited, a private company limited by guarantee incorporated under the laws of England and Wales with registered number 05523714 whose registered office is at 338 Euston Road, 7th Floor, Regents Place, London NW1 3BG, UK ( GT International ), Whereas: xxxxxxxxx (B) The Parties have discussed and agreed that in order to develop the Grant Thornton brand name in India, GTAPL shall take all necessary steps, and accordingly, the parties agree and acknowledge that in order to develop the Grant Thornton brand name in India, GTAPL would incur certain expenses which it would otherwise have not incurred. (c) GTI has agreed to reimburse such expenses incurred by GTAPL, in accordance with the terms and conditions contained in this Agreement. 2. Reimbursement for Expenses Incurred 2.1 The parties agree that GTAPL shall take all necessary steps for development of the Grant Thornton brand name in India (whether directly or indirectly), b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development activities described above may be varied from time to time, so long as they are appropriate to the needs of the business and in accordance with GTI strategy. (emphasis supplied) 12. A perusal of the aforesaid Cost Reimbursement Agreement would show that in order to develop the Grant Thornton brand name in India, Grant Thornton, India had to take all necessary steps and the expenses incurred would have to be reimbursed by Grant Thornton, London subject to a limit of US$ 1,000,000 per annum. 13. For the period w.e.f. 01.07.2012, for which the dispute has been raised by the department, the two issues that will arise for consideration are: (i) Whether the services would be classifiable as intermediary services; and (ii) Whether the services qualify as export of service under the 2012 Rules. 14. Intermediary has been defined in clause 2(f) of the 2012 Rules as follows: 2(f) 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 good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is not the main service provided by the mainservice providers namely banks/university. 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. (emphasis supplied) 18. 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. vs. Union of India [ 2023 (68) GSTL 3 (P H)] . 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. The observations of the High Court are as follows: 28. As per definition of intermediary under Section 2(13) of the IGST Act the following three conditions must be satisfied for a person to qualify as an intermediary ; - 29. First, the relationship between the parties must be that of a principal-agency relationship. Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oadly 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. (emphasis supplied) 19. The Delhi High Court in Ernst and Young vs. Additional Commissioner, CGST, Delhi [ 2023 (73) GSTL 161] 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 as follows: 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India, coupled with the fact that the appellant received the payment against the services in convertible foreign exchange and the appellant and the recipient of service are independent legal identities and are not merely establishment of distinct person. It is thus evident that the appellant met the criteria under Rule 6A(1) of the ST Rules and therefore being export of service was not amenable to service tax. 17 . We may now consider the stand of the department that the services rendered by the appellant has to be treated as intermediary services defined under Rule 2(f) of the Rules, 2012. From the definition of intermediary services , we find that activity between two parties cannot be considered as an intermediate service as intermediary essentially arranges or facilitates the main supply between two or more persons, which is not the case here. Further, the definition of intermediary service excludes any person who has provided the service on their own account. Here from the facts, it is evident that the appellant has provided the service on his own account to the recipient of service, i.e. the foreign university placed beyond the taxable territory of India. Referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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