Payment processing company wins service tax refund case for export services under Rule 6A

CESTAT Chandigarh held that the appellant payment processing company was eligible for service tax refunds claimed. The tribunal determined that appellant operated on principal-to-principal basis with overseas client, not as intermediary, as no principal-agent relationship existed and appellant did not facilitate main accommodation services between the foreign platform and customers. The appellant provided back office payment processing services which qualified as export of services under Rule 6A of Service Tax Rules, making them eligible for refunds and not liable for service tax. The impugned orders were set aside and appeal was allowed.

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Issues Involved:
1. Determination of whether the appellant is an intermediary.
2. Eligibility of the appellant for the refunds claimed.
3. Sustainability of the demand of service tax.

Issue-wise Detailed Analysis:

1. Determination of whether the appellant is an intermediary:
The primary issue is whether the appellants are intermediaries as per Rule 9(iii) of the POPS Rules, 2012. The definition of "intermediary" under Section 2(f) of the POPS Rules, 2012, and the CBIC Circular No.159/15/2021 dated 20.09.2021 were examined. The tribunal found that the appellants are working on a principal-to-principal basis with Airbnb, Ireland, and PayU. The Master Service Agreement between the appellant and Airbnb, Ireland, and the agreement between the appellant and PayU, indicated that the appellants provide Payment Processing Services and are not involved in facilitating the main service provided by Airbnb to their customers. The tribunal concluded that the appellants do not satisfy the conditions laid down by the Hon'ble Punjab & Haryana High Court in the case of Genpact India Pvt. Ltd., which requires a principal-agent relationship, involvement in arranging or facilitating the main service, and not performing the main service themselves. Therefore, the appellants are not intermediaries.

2. Eligibility of the appellant for the refunds claimed:
The tribunal examined whether the appellants are eligible for the refunds claimed for the periods October 2016 to December 2016, and January 2017 to March 2017. The tribunal noted that the appellants provide services to Airbnb, Ireland, on a principal-to-principal basis and receive remuneration in foreign exchange. The tribunal referred to several cases, including Verizon India Pvt. Ltd., Orange Business Solutions Pvt. Ltd., and Lubrizol Advanced Materials India Pvt. Ltd., which supported the claim that the services provided by the appellants are not intermediary services but are export of services. The tribunal concluded that the appellants satisfy the conditions of Rule 6A of the Service Tax Rules, and therefore, the services rendered by them to Airbnb, Ireland, are to be treated as export of services. Consequently, the appellants are eligible for the refunds claimed.

3. Sustainability of the demand of service tax:
The tribunal examined the demand of service tax amounting to Rs.2,04,15,167/- along with interest and penalties. The tribunal found that the services provided by the appellants are not intermediary services but are export of services. Since the service tax is not payable on export of services, the tribunal concluded that the demand of service tax is not sustainable. The tribunal also noted that there was no fraud or suppression on the part of the appellants, and therefore, the extended period for issuing the show cause notice is not invokable. The tribunal referred to the case of M/s G D Goenka Private Limited, which supported the claim that the show cause notice is barred by time. Consequently, the demand of service tax along with interest and penalties is not sustainable.

Conclusion:
The tribunal concluded that the appellants are not intermediaries and are eligible for the refunds claimed. The demand of service tax along with interest and penalties is not sustainable. Both appeals filed by the appellants are allowed with consequential relief as per law.

(Order pronounced in the open court on 04/09/2024)

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