Principal-to-principal promotional services for a foreign recipient are not intermediary services; refund denial without recovery proceedings is unsustainable.

Promotional and marketing support services performed on a principal-to-principal basis for an overseas recipient were not intermediary services where the appellant acted as an independent contractor, had no authority to bind the foreign entity, and merely rendered services on its own account; the services were therefore treated as export of services. Refund of accumulated credit under Rule 5 could not be denied in isolation on the ground that the underlying services were allegedly non-export or wrongly classified, because the department was first required to pursue proper demand or recovery proceedings if it disputed the tax character of the services. The refund denial was unsustainable and the assessee's claim was restored with consequential relief.

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Issues: (i) Whether the appellant's promotional and marketing support services to the overseas entity were intermediary services or services rendered on its own account, so as to qualify as export of services; (ii) Whether refund of accumulated credit under Rule 5 could be denied in the absence of separate proceedings for recovery or demand.

Issue (i): Whether the appellant's promotional and marketing support services to the overseas entity were intermediary services or services rendered on its own account, so as to qualify as export of services.

Analysis: The service agreement showed two contracting parties, with the appellant acting as an independent contractor on a principal-to-principal basis. The appellant was engaged to perform promotional and marketing support services for the overseas entity and had no authority to bind it, accept orders in its own name, or act as its agent. The absence of a tripartite arrangement, the contractual stipulation that the appellant was not an agent, and the fact that subcontracting was undertaken under the appellant's responsibility all pointed away from intermediary status. The definition of intermediary under the place of provision rules contemplates a person who merely arranges or facilitates a main service between two or more persons, not a person who performs the main service on its own account. The CBIC circulars and the cited precedents were treated as supporting the view that such promotional services to a foreign company do not, by themselves, become intermediary services merely because they involve interaction with third parties or follow guidelines of the foreign recipient.

Conclusion: The services were held not to be intermediary services and were treated as export of services.

Issue (ii): Whether refund of accumulated credit under Rule 5 could be denied in the absence of separate proceedings for recovery or demand.

Analysis: The refund claim was made under Rule 5 with the prescribed notification, which governs refund of accumulated credit subject to conditions and procedure. If the department's case was that the underlying services were not export of services or that credit had been wrongly taken, the proper course was to initiate proceedings for demand or recovery under the applicable recovery provision. In the absence of any such proceedings, the department could not reject the refund by taking a contrary stand in the refund proceedings alone. The burden to substantiate allegations against the assessee remained on the department.

Conclusion: The refund could not be denied on that basis and the denial was unsustainable.

Final Conclusion: The impugned order was set aside and the assessee's refund claim was restored with consequential relief in accordance with law.

Ratio Decidendi: A person performing promotional or support services on a principal-to-principal basis for a foreign recipient is not an intermediary merely because the services assist the foreign recipient's business, and a refund under the accumulated credit scheme cannot be denied in isolation without the department first pursuing the proper recovery mechanism where it disputes the tax character of the services.

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