2023 (3) TMI 8 - AT - Service Tax

Tribunal confirms respondent not intermediary, eligible for refund under CENVAT Credit Rules

The Tribunal upheld the Commissioner (Appeals) decision, confirming that the respondent was not considered an intermediary under Rule 2(f) of the Place of ... Intermediary - place of provision of service - export of services under rule 6A - refund of CENVAT credit under rule 5 - principal to principal supply vs intermediaryIntermediary - interpretation of definition of 'intermediary' - principal to principal supply vs intermediary - Whether the respondent furnished 'intermediary' services within the meaning of rule 2(f) of the Place of Provision of Service Rules, 2012. - HELD THAT: - The Tribunal upheld the factual and legal finding that the respondent did not act as an intermediary. The definition of 'intermediary' requires arranging or facilitating a main supply between two or more persons and excludes a person who provides the main service on his own account. The agreements and documentary material show that the respondent, an Indian branch of E&Y, UK, provided services on a principal to principal basis to E&Y, UK rather than arranging or facilitating a supply between third parties. The Revenue placed no material to show that the respondent acted as an agent arranging the main supply; both the adjudicating authority and the Commissioner (Appeals) found that the respondent provided the main service on its own account. The Tribunal relied on the explanatory communication, judicial authorities and subsequent tribunal/circular clarifications that an intermediary requires at least three parties and two distinct supplies, and that subcontracting or principal-to-principal provision does not constitute intermediary service. On those findings, rule 9(c) was not attracted. [Paras 18, 19, 24]The respondent is not an 'intermediary' under rule 2(f) and rule 9(c) of the Place of Provision of Service Rules, 2012 does not apply.Place of provision of service - export of services under rule 6A - refund of CENVAT credit under rule 5 - Whether the services provided by the respondent qualify as 'export of service' and consequently entitle it to refund of unutilised input service credit under rule 5 of the CENVAT Credit Rules, 2004 read with rule 6A of the Service Tax Rules, 1994 and Place of Provision of Service Rules, 2012. - HELD THAT: - Having held that the respondent was not an intermediary and provided the main service on its own account to a recipient located outside India, the Tribunal accepted the concurrent findings that the place of provision is the location of the recipient under rule 3 and that the conditions of rule 6A were satisfied (provider in taxable territory, recipient outside India, place of provision outside India, and receipt of payment in convertible foreign exchange). The Tribunal referred to and applied relevant judicial precedents and tribunal decisions holding that services rendered under contract on a principal-to-principal basis to an overseas principal, invoiced to that principal and paid in foreign exchange, qualify as export of services and the provider is entitled to refund under rule 5. The Tribunal found no illegality in the Commissioner (Appeals) order allowing refund to the extent granted and dismissed the Revenue's challenge. [Paras 17, 19, 23, 24, 30]The services qualify as 'export of service' under rule 6A and the respondent is entitled to refund of unutilised input service credit under rule 5 as held by the Commissioner (Appeals).Final Conclusion: The Department's appeal is dismissed; the order of the Commissioner (Appeals) holding that the respondent is not an intermediary and is entitled to refund under the CENVAT Credit Rules is upheld. Issues Involved:1. Determination of whether the respondent qualifies as an 'intermediary' under Rule 2(f) of the Place of Provision of Service Rules, 2012.2. Eligibility of the respondent for a refund under Rule 5 of the CENVAT Credit Rules, 2004 for the export of 'Management or Business Consultant Service' to Ernst & Young, UK.Issue-wise Detailed Analysis:1. Determination of whether the respondent qualifies as an 'intermediary' under Rule 2(f) of the Place of Provision of Service Rules, 2012:The primary issue revolves around whether the respondent qualifies as an 'intermediary' under Rule 2(f) of the Place of Provision of Service Rules, 2012. As per Rule 2(f), an 'intermediary' is defined as a broker, an agent, or any other person who arranges or facilitates the provision of a service between two or more persons but does not include a person who provides the main service on his own account.The Department contended that the respondent was an intermediary, thus the place of provision of service would be the location of the service provider under Rule 9(c) of the 2012 Rules. However, the respondent argued that they provided services on their own account, making the place of provision the location of the recipient of the service as per Rule 3 of the 2012 Rules.The agreements between the respondent and Ernst & Young, UK were examined. These agreements indicated that the respondent provided professional services directly to Ernst & Young, UK on a principal-to-principal basis. The Assistant Commissioner and the Commissioner (Appeals) both found that the services provided by the respondent did not qualify as intermediary services but were provided on their own account.The Tribunal referred to the definition and guiding principles of an intermediary as clarified by the Department of Revenue's communication dated March 16, 2012. The communication emphasized that an intermediary cannot alter the nature or value of the service and must facilitate the main service between two parties. The Tribunal concluded that the respondent was not involved in arranging or facilitating the service between two parties but was providing the service directly to Ernst & Young, UK.2. Eligibility of the respondent for a refund under Rule 5 of the CENVAT Credit Rules, 2004:The respondent claimed a refund under Rule 5 of the CENVAT Credit Rules, 2004, which allows a service provider who exports services without payment of service tax to claim a refund of unutilized input service credit. The relevant portion of Rule 5 and the definition of 'export service' under Rule 6A of the Service Tax Rules, 1994 were considered.The Assistant Commissioner, in the order dated July 31, 2018, noted that the respondent satisfied all conditions for export of services under Rule 6A(1) of the Service Tax Rules, 1994. The services were provided to entities located outside India, payments were received in convertible foreign exchange, and the services were not intermediary services.The Commissioner (Appeals) upheld this finding, noting that the respondent provided services on their own account and not as an intermediary. The Tribunal referred to the Delhi High Court's decision in Verizon Communication India Pvt. Ltd. vs. Asstt. Commr., S.T. Delhi-III, which held that services provided on a principal-to-principal basis to a recipient outside India qualify as export of services, even if the services are used within India.The Tribunal also referred to the Circular dated September 20, 2021, issued by the Central Board of Indirect Taxes and Customs, which clarified that an intermediary must arrange or facilitate the main supply between two parties and does not provide the main supply themselves. The Circular emphasized that subcontracting for a service is not considered intermediary service.Based on these findings, the Tribunal concluded that the respondent was not an intermediary and was eligible for the refund under Rule 5 of the CENVAT Credit Rules, 2004. The appeal filed by the department was dismissed.Conclusion:The Tribunal upheld the order of the Commissioner (Appeals), confirming that the respondent was not an intermediary and was entitled to the refund claimed under Rule 5 of the CENVAT Credit Rules, 2004. The appeal filed by the department was dismissed.