2025 (1) TMI 1205 - AT - Service Tax

Appellant cannot be classified as intermediary without tripartite agreement for buyer identification services

Commissioner, Central Tax, Noida Versus M/s U.V. Graphics Technologies Pvt. Ltd.

CESTAT Allahabad dismissed Revenue's appeal regarding classification of services as intermediary services. The tribunal held that appellant could not be ... Classification of services - intermediary services or not - applicability of Rule 9 of Place of Provision of Service Rules, 2012 - denial of benefit of export of service - HELD THAT:- The arrangement between the Respondent and their overseas clients and Indian buyers of the goods are not in dispute. All the facts as stated clearly points out that there is only a by-party agreement with regards to the identification and introduction of prospective buyers for their foreign clients. There are no tripartite agreement. Mumbai Bench has in case of IDEX INDIA PVT. LTD. VERSUS COMMISSIONER OF CGST, MUMBAI EAST [2023 (2) TMI 482 - CESTAT MUMBAI] has held that 'The supplier of main service may decide to outsource the supply of 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 not an intermediary. Who is an 'intermediary' and what is ‘intermediary service’ has been clarified by Central Board of Indirect Taxes and Customs (C.B.I. & C.) vide Guidance Note dated 20-6-2012 and under GST regime also a clarification has been issued by C.B.I. & C. on 20-9-2021 both of which are in line with the discussions made hereinabove about ‘intermediary’. In view of the facts involved herein the appellant cannot be termed as an ‘intermediary.’' In case of M/S. CUBE HIGHWAYS AND TRANSPORTATION ASSETS ADVISOR PRIVATE LIMITED VERSUS ASSISTANT COMMISSIONER CGST DIVISION & ORS. [2023 (8) TMI 980 - DELHI HIGH COURT], Hon’ble Delhi High Court observed that 'implicit in the concept of an ‘Intermediary’ that there are three parties, namely, the supplier of principal service; the recipient of the principal service and an intermediary facilitating or arranging the said supply. Where a party renders advisory or consultancy services on its own account and does not merely arrange it from another supplier or facilitate such supply, there are only two entities, namely, service provider and the service recipient. In such a case, rendering of consultancy services cannot be considered as ‘Intermediary Services’ or services as an ‘Intermediary’.' Conclusion - An intermediary requires a tripartite arrangement, which was absent in this case. The Respondents provided services directly to their overseas clients, not facilitating a supply between two parties. The services provided on one's own account do not constitute intermediary services. In absence of any such tripartite agreement there are no merits in the appeal filed by the Revenue - appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issue in this case was whether the services provided by the Respondents to their overseas clients constituted 'intermediary services' under Rule 9 of the Place of Provision of Service Rules, 2012, thereby making the services taxable in India and denying the benefit of export of services. The determination hinged on whether the Respondents acted as intermediaries or provided services on their own account.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involved the Place of Provision of Service Rules, 2012, specifically Rule 2(f) defining 'intermediary' and Rule 9 concerning the place of provision for intermediary services. An intermediary is defined as a broker, agent, or any person who arranges or facilitates a provision of a service or supply of goods between two or more persons but does not include a person who provides the main service or supplies the goods on their account. The Court also referenced the Education Guide and precedents like IDEX India Pvt. Ltd and Cube Highways And Transportation Assets Advisor Pvt. Ltd., which clarified the necessity of a tripartite agreement for intermediary services.Court's Interpretation and ReasoningThe Tribunal interpreted the term 'intermediary' by emphasizing the requirement of a tripartite agreement involving the supplier, receiver, and intermediary. The Respondents' role was limited to identifying potential buyers for their overseas clients, with no involvement in the actual transaction between the overseas supplier and Indian buyers. The Tribunal found that the Respondents provided services on their own account, which fell outside the definition of intermediary services.Key Evidence and FindingsThe Tribunal noted the agreement between the Respondents and their overseas clients, which outlined the Respondents' role in identifying potential buyers and promoting the client's brand in India. The Respondents did not alter the terms of sale, enter into commitments on behalf of the overseas clients, or hold the title to the goods. The evidence showed a bilateral relationship between the Respondents and their clients, without a third-party arrangement.Application of Law to FactsApplying the legal definition of an intermediary, the Tribunal found that the Respondents did not facilitate a supply between two parties but provided services directly to their overseas clients. The absence of a tripartite agreement meant the services could not be classified as intermediary services. Consequently, the services qualified as export of services, as the place of provision was outside India.Treatment of Competing ArgumentsThe Revenue argued that the Respondents acted as intermediaries by facilitating the sale of goods between overseas clients and Indian buyers. However, the Tribunal rejected this argument, emphasizing the lack of a tripartite agreement and the Respondents' provision of services on their own account. The Tribunal referenced the Education Guide and previous case law, which supported the Respondents' position.ConclusionsThe Tribunal concluded that the Respondents did not qualify as intermediaries under the Place of Provision of Service Rules, 2012. The services provided were on a principal-to-principal basis, qualifying as export of services. Therefore, the Tribunal upheld the decisions of the Original Authority and the First Appellate Authority, dismissing the Revenue's appeal.SIGNIFICANT HOLDINGSThe Tribunal held that an intermediary requires a tripartite arrangement, which was absent in this case. The Respondents provided services directly to their overseas clients, not facilitating a supply between two parties. The Tribunal emphasized that services provided on one's own account do not constitute intermediary services.In line with precedents, the Tribunal reiterated that the definition of intermediary necessitates involvement in a supply between two other parties. The absence of such an arrangement in this case meant the Respondents' services were not taxable in India under the intermediary rules.The Tribunal's final determination was to dismiss the Revenue's appeal, affirming that the services in question were export of services and not intermediary services.