2023 (3) TMI 9 - AT - Service Tax

Tribunal upholds decision on intermediary status, grants refund for export services.

The Tribunal affirmed the Commissioner (Appeals)'s decision that the respondent was not an intermediary and was entitled to a refund for exporting ... Intermediary - place of provision of service - export of services - refund of CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004 - place of provision determined under the Place of Provision of Services Rules, 2012 (Rule 3 and Rule 9) - export of services under Rule 6A of the Service Tax Rules, 1994Intermediary - place of provision of service - export of services - refund of CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004 - Whether the respondent provided 'intermediary' services or exported services on its own account and was therefore entitled to refund of unutilised input service credit under rule 5. - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals) finding that the respondent was not an 'intermediary' but a principal service provider that supplied information technology/telecommunication services to Jindal Films America LLC on a principal-to-principal basis (paras. 16, 17). The agreements showed JPFL undertook to provide and be responsible for the services specified in the statement of work and to receive full payment for output services; the respondent also paid for input services it used (para. 15, 16(iii)). The fact that the respondent utilized input services or sub-contracted aspects of performance does not convert the main supply into an intermediary service: the definition of 'intermediary' requires arranging or facilitating a main supply between two other parties and not supplying the main service on one's own account (paras. 11-14, 26). The Tribunal applied Rule 3 (place of provision = location of recipient) and the carve-out in Rule 9(c) for intermediaries, concluding Rule 9(c) did not apply because the respondent did not act as intermediary (paras. 5-9, 11-14, 17). Precedents including the Delhi High Court decision in Verizon Communications India Pvt. Ltd. and Tribunal rulings (Verizon, Comparex, Singtel, Black Rock) were held to be squarely applicable: they support that where a service provider contracts with and invoices a foreign recipient and receives payment in convertible foreign exchange, and provides the main service on its own account, the transaction qualifies as export of services under Rule 6A and is eligible for refund under rule 5 (paras. 18-23, 23-27). The Board/Central Board guidance and Circulars emphasize that intermediary services require at least three parties and two distinct supplies and exclude supplies made on principal-to-principal basis; this interpretation reinforced the conclusion that the respondent was not an intermediary (paras. 12-14, 26). Applying these legal principles to the material facts, the Tribunal found no error in the Commissioner (Appeals) order granting refund and dismissed the department's appeals (paras. 16(iii), 22, 28-29). [Paras 16, 17, 22, 28, 29]The respondent was not an intermediary but a principal exporter of services and was entitled to refund of CENVAT credit under rule 5; the departmental appeals are dismissed.Final Conclusion: The Tribunal dismissed the department's appeals, upholding the Commissioner (Appeals) that the respondent supplied the main services on its own account to a foreign recipient and was entitled to the refund of unutilised input service credit under rule 5 of the CENVAT Credit Rules, 2004. Issues Involved:1. Whether the respondent is entitled to a refund under Rule 5 of the CENVAT Credit Rules 2004.2. Whether the respondent qualifies as an 'intermediary' under Rule 2(f) of the Place of Provision of Service Rules 2012.Detailed Analysis:1. Entitlement to Refund under Rule 5 of the CENVAT Credit Rules 2004:The respondent filed refund claims for unutilized input service credit of input services used to export information technology software services to Jindal LLC in New York, USA. The Commissioner (Appeals) upheld the refund claims, referencing 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 CENVAT credit. The Commissioner (Appeals) relied on the Delhi High Court's judgment in Verizon Communication India Pvt. Ltd. vs Asstt. Commr. S. T., Delhi-III, which established that services provided to a foreign entity and paid for in foreign exchange qualify as export services.2. Qualification as an 'Intermediary' under Rule 2(f) of the Place of Provision of Service Rules 2012:The department argued that the respondent acted as an intermediary, thus the place of provision of service should be the location of the service provider under Rule 9(c) of the 2012 Rules. However, the Commissioner (Appeals) found that the respondent provided services on its own account and was not an intermediary. The definition of 'intermediary' under Rule 2(f) includes brokers or agents who facilitate services between two or more persons but excludes those providing the main service on their own account.The Commissioner (Appeals) examined the agreements between the respondent and Jindal LLC, concluding that the respondent provided services directly and was responsible for implementation, scope, costs, and resources under the contracts. The services provided were related to SAP software, and the respondent used input services from other providers, paying applicable service tax and claiming rebates accordingly.The Commissioner (Appeals) noted that the respondent received full payment for the exported services in foreign exchange, reinforcing that the respondent acted as the main service provider and not as an intermediary. This conclusion was supported by the Delhi High Court's decision in Verizon Communication India Pvt. Ltd., which clarified that providing services to a foreign entity and receiving payment in foreign exchange qualifies as export, irrespective of the use of local service providers.The Tribunal also referenced its decision in Verizon India Pvt. Ltd. vs Commissioner of Service Tax, Delhi, which held that services provided under a contract to a foreign entity, invoiced and paid in foreign exchange, satisfy the conditions for export of services under Rule 6A of the Service Tax Rules 1994.Further support was drawn from the Chandigarh Bench's decision in M/s. Black Rock Service India Private Limited vs. Commissioner of CGST, which emphasized that an intermediary must facilitate a service between two other parties and not provide the main service itself. The Tribunal also cited the Principal Commissioner, CGST Delhi South Commissionerate vs Comparex India Pvt. Ltd. and Commissioner of Central Tax, Central Excise & Service Tax vs M/s Singtel Global India Private Limited, which reinforced that providing services on a principal-to-principal basis does not qualify as intermediary services.A Circular dated September 20, 2021, issued by the Central Board of Indirect Taxes and Customs, clarified that an intermediary arranges or facilitates a supply between two parties and does not provide the main supply itself. This Circular further supported the view that the respondent was not an intermediary.Conclusion:The Tribunal found no illegality in the Commissioner (Appeals)'s order, affirming that the respondent was not an intermediary and was entitled to the refund for export of services. Both appeals filed by the department were dismissed.