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TMI Blog2024 (10) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner being an intermediary as explained. The consistent stand of the petitioner had been that it was supplying service on a principal to principal basis. The respondents do not rest their decision on a finding that there was a tripartite agreement for the supply of services. Merely because the service was being provided to the holding company, the petitioner would not have been disentitled to a mark-up. In any case, it would clearly not be liable to be classified as an intermediary merely because such a mark-up had been obtained over and above the costs incurred. The impugned Order is set aside - petition allowed. - HON'BLE MR. JUSTICE YASHWANT VARMA AND HON'BLE MR. JUSTICE RAVINDER DUDEJA For the Petitioner Through: Ms. Charanya Lakshmi Kumaran, Mr. Yogendra Aldak, Mr. Kunal Kapoor Mr. Sumit Khadaria, Advs. For the Respondent Through: Mr. R. Ramachandran, Adv. ORDER PER 1. The writ petitioner impugns the Order-in-Appeal dated 22 June 2023 and seeks the framing of a consequential direction for the respondents granting refund in respect of an amount of INR 46,05,196/-. Pursuant to the liberty granted by us on the last occasion, the petitioner has additionally assailed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not merely establishments of a distinct person in accordance with Explanation 1 in section 8; 7. Learned counsel then took us through Section 13 of the IGST Act which determines the place of supply of services and reads thus: 13. Place of supply of services where location of supplier or location of recipient is outside India. (1) The provisions of this section shall apply to determine the place of supply of services where the location of the supplier of services or the location of the recipient of services is outside India. (2) The place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of the recipient of services: Provided that where the location of the recipient of services is not available in the ordinary course of business, the place of supply shall be the location of the supplier of services. (3) The place of supply of the following services shall be the location where the services are actually performed, namely: (a) services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or determined in terms of the contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such other basis as may be prescribed. (8) The place of supply of the following services shall be the location of the supplier of services, namely: (a) services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) intermediary services; (c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month. Explanation . For the purposes of this sub-section, the expression, (a) account means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account; (b) banking company shall have the same meaning as assigned to it under clause (a) of section 45A of the Reserve Bank of India 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-bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents by holding the petitioner to be an intermediary essentially seek to extract the services rendered from the scope of Section 13 (2) and it is in the aforesaid context that they seek to classify the services rendered as falling within the expression intermediary services and which is spoken of in sub-section (8) of Section 13. 9. On our record, we find a sample agreement which had been executed between the petitioner and its holding company. The salient clauses of that agreement are extracted hereunder: (The Service Provider and the Service Recipient are individually also referred to as a Party and collectively as the Parties ). WHEREAS : A. The Service Recipient is a for-profit organization engaged in the business of marketing and further facilitating access to technology and technology enabled solutions in different fields and including all kinds of hardware and software, both in India and overseas to corporates. ( Business ) ( Purpose ); B. The Service Provider is, inter alia, engaged in the business of developing, creating, conceptualizing, generating and accomplishing products and providing, administering, arranging, and transferring services in the field of techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. 2. Service Fees. 2.1 In consideration of the Services rendered by the Service Provider to the Service Recipient, the Service Recipient shall pay the Service Provider, a service fee of an amount equal to all direct and proportionate indirect costs incurred by the Service Provider in provision of Services to the Service Recipient plus a markup at such percentage as may be considered to be at arms' length basis ( Service Fees ). 2.2 Invoices. (a) The Service Provider shall generate and submit invoices to the Service Recipient for payment of Service Fees. The invoice shall clearly state the work or Services performed. The Service Recipient shall be responsible to make payment of Service Fees for a specific period only after the receipt of invoice for such specific period from the Service Provider. All invoices shall be settled within 30 (thirty) days, calculated from the date of invoice. The Service Provider can also be paid advance fee by Service Recipient based on specific requirement. (b) The Service Provider shall provide its invoices to the Service Recipient in SGD/USD/INR denomination. (c) Notwithstanding anything to the contrary contained herein, the Parties may mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) remit the amount of tax withheld to the applicable taxing authority; and (c) deliver to the Service Provider, the original documentation or a certified copy evidencing such remittance of tax withheld, as soon as possible, after making such payment. 3. Roles and obligations of the Service Recipient. 3.1 Facilities and Resources. The Service Recipient shall ensure that the Service Provider has timely access to duly authorized personnel of the Service Recipient. The Service Recipient shall provide all necessary assistance which may be required by the Service Provider for rendition of the Services. 3.2 Limitations of Service Provider. The Parties hereby agree that the scope and nature of responsibilities of the Service Provider shall be limited to performance of Services, as provided in Annexure A. 3.3 The Service Recipient shall be responsible for all representations, facts and opinions that it makes whether in respect to itself, its relationships, its affiliates, its products/services, its actions/omissions and/or its activities. The Service Recipient shall assume all financial and legal liability for the quality, reliability, merchantability and/or accuracy of all such represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrator level without any condition or limitation. 3. The Service Provider may also work in collaboration and coordination with the other consultants to provide expert advice on the development of the total product mix. If and when needed, the Service Provider, at his discretion may bring on other experts and consultants to facilitate certain functions. 4. The Service Provider shall also provide for the following services to the Service Recipient in a form and manner elaborated herein below (as per need basis). (a) Marketing and Sales . The Service Provider shall provide marketing services to the Service Recipient through communication and publicity in relation to Service Recipient's Business to the potential customers and shall be responsible for any sales and provision of services in relation to Service Recipient's Business. (b) Business Development. The Services Provider shall investigate, select and contact prospective clients and business partners for the Business in India. The Service Provider shall also investigate and evaluate the opportunities for the Business to grow and expand in India. (c) Professional Assistance. The Service Provider shall seek, whenever it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e '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; 2.3 From the perusal of the definition of intermediary under IGST Act as well as under Service Tax law, it is evident that there is broadly no change in the scope of intermediary services in the GST regime vis- -vis the Service Tax regime, except addition of supply of securities in the definition of intermediary in the GST Law. 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f main service may decide to outsource the supply of the 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 is not an intermediary. For instance, A and B have entered into a contract as per which A needs to provide a service of, say, Annual Maintenance of tools and machinery to B . A subcontracts a part or whole of it to C . Accordingly, C provides the service of annual maintenance to A as part of such sub-contract, by providing annual maintenance of tools and machinery to the customer of A , i.e. to B on behalf of A . Though C is dealing with the customer of A , but C is providing main supply of Annual Maintenance Service to 'A' on his own account, i.e. on principal to principal basis. In this case, 'A' is providing supply of Annual Maintenance Service to 'B', whereas 'C' is supplying the same service to 'A'. Thus, supply of service by 'C' in this case will not be considered as an intermediary. 3.6 The specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in India. 'Q' contacts 'R', who is in business of providing such insurance claims processing service, and arranges supply of insurance claims processing service by 'R' to 'P'. 'Q' charges P a commission or service charge of 1% of the contract value of insurance claims processing service provided by 'R' to 'P'. In such a case, main supply of insurance claims processing service is between 'P' and 'R', while 'Q' is merely arranging or facilitating the supply of services between 'P' and 'R', and not himself providing the main supply of services. Accordingly, in this case, 'Q' acts as an intermediary as per definition of sub-section (13) of section 2 of the IGST Act. Illustration 4 A is a manufacturer and supplier of computers based in USA and supplies its goods all over the world. As a part of this supply, 'A' is also required to provide customer care service to its customers to address their queries and complains related to the said supply of computers. 'A' decides to outsource the task of providing customer care services to a BPO firm, 'B'. 'B' pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts plus a mark-up at such percentage as may be considered to be at arm s length. According to learned counsel, in the case of consideration received for supply of services to a holding company, there would have been no occasion for a stipulation with respect to mark-up being incorporated in the service agreement. It is this reasoning which also appears to have weighed upon the respondents to deny the writ petitioner the refund that was claimed. 13. We find ourselves unable to sustain the stand as taken by the respondent for the following reasons. As would be apparent from the material which has been placed on the record, the provision of ITS was made by the petitioner while located and situate in India. In view of the aforesaid, it would be sub-section (2) of Section 13 which would apply and the place of supply, consequently, being liable to be viewed to be the location of the recipient of service. 14. As we view Section 2(13), it becomes apparent that an intermediary would be one who arranges or facilitates the supply of goods or services between two or more persons. The sample agreement which has been placed on our record clearly belies the view that was taken by the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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