Services to overseas company not intermediary services under Service Tax Rules, refund claims allowed

CESTAT Bangalore held that services rendered by the appellant to an overseas company did not constitute 'intermediary services' under Service Tax Rules. The tribunal relied on GST circular No.159/13/2021 and precedent from Informatica Business Solutions case to determine that the services fell within Rule 9(c) of POPS Rules 2012, qualifying as export of services. The Commissioner(Appeals) order rejecting refund claims was set aside, and appeals were allowed with consequential relief for accumulated Cenvat credit refund under Rule 5 of Cenvat Credit Rules 2004.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

• Whether the appellant's services rendered to an overseas associated company qualify as "export of services" under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No.27/2012-CE(NT) dated 18.06.2012, entitling them to refund of accumulated Cenvat credit on inputs and input services used for such export.
• Whether the services rendered by the appellant fall within the definition of "intermediary services" as per Rule 2(f) of the Place of Provision of Services Rules, 2012 (POPS Rules, 2012), thereby affecting the place of provision of service and the eligibility for export benefits.
• The proper interpretation of the service agreement between the appellant and the overseas company, particularly whether the appellant acted as an agent/intermediary or as a principal providing services on its own account.
• Whether the place of provision of service is India or outside India, which is determinative of whether the services qualify as export of services under the applicable service tax and GST legal framework.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Refund of Accumulated Cenvat Credit on Export of Services

Legal Framework and Precedents: The refund claims were made under Rule 5 of the Cenvat Credit Rules, 2004, which allows refund of accumulated credit on inputs and input services used for providing taxable services that are exported. The relevant Notification No.27/2012-CE(NT) prescribes the procedure for claiming such refunds. The definition of "export of services" under the Service Tax Rules and the place of provision of services rules is critical to determine eligibility.

Court's Interpretation and Reasoning: The Tribunal examined whether the appellant's services qualify as export of services by applying the criteria under Rule 6A(1) of the Service Tax Rules, 1994 and the provisions of the POPS Rules, 2012. The Tribunal noted that the services were rendered to an overseas associated company, consideration was received in convertible foreign exchange, and the benefit of the services accrued outside India.

Key Evidence and Findings: The service agreement dated 27.09.2011 was scrutinized, which stipulated that the appellant was engaged in canvassing, marketing, and sales support services for the overseas company. The appellant and the overseas company are independent legal entities, and the services were rendered on a principal-to-principal basis. Payment was received in convertible foreign exchange, and the recipient of service was located outside India.

Application of Law to Facts: The Tribunal applied the criteria for export of services, including the location of the recipient, nature of services, and receipt of payment in convertible foreign exchange. It found that the appellant met all conditions under Rule 6A(1) of the Service Tax Rules, 1994, and thus the services qualified as export of services.

Treatment of Competing Arguments: The Revenue's contention was that the services rendered were intermediary services, and hence the place of provision was India, disqualifying the appellant from claiming export benefits. The Tribunal rejected this contention based on the service agreement and legal precedents.

Conclusions: The Tribunal concluded that the appellant was entitled to refund of accumulated Cenvat credit on export of services.

Issue 2: Whether the Services Rendered Are "Intermediary Services"

Legal Framework and Precedents: The definition of "intermediary services" under Rule 2(f) of the POPS Rules, 2012 and Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act) is pivotal. An intermediary is defined as a broker, agent, or any person who arranges or facilitates the provision of a service or supply of goods between two or more persons but does not provide the main service on its own account. The Circular No.159/13/2021-GST dated 20.09.2021 clarifies the concept of intermediary services, borrowing from the POPS Rules, 2012. Various judicial precedents including those from the Tribunal and High Courts were relied upon.

Court's Interpretation and Reasoning: The Tribunal analyzed the service agreement clauses which explicitly stated that the appellant did not have authority to bind the overseas company or conclude contracts on its behalf, and that the appellant was not acting as an agent but on its own account. The Tribunal emphasized that the appellant was not facilitating a supply between two other parties but was providing the main service directly to the overseas company.

Key Evidence and Findings: The Tribunal referred to the Circular No.159/13/2021-GST and several judgments including those of the Punjab and Haryana High Court in Genpact India Pvt. Ltd. vs. Union of India, the Delhi High Court in Ernst and Young vs. Additional Commissioner, and various Tribunal decisions such as Commissioner of Central Tax, Bengaluru East vs. Informatica Business Solutions Pvt. Ltd. These authorities consistently held that a person providing the main service on its own account cannot be treated as an intermediary.

Application of Law to Facts: The Tribunal applied the legal tests for intermediary services and found that the appellant's activities-creating market awareness, sharing client details, and communicating inquiries-were provided on its own account and not as a facilitator or agent. The appellant did not arrange or facilitate a third party's service but directly provided services to the overseas company.

Treatment of Competing Arguments: The Revenue argued that the appellant was an intermediary and hence the place of provision was India under Rule 9(c) of the POPS Rules, 2012. The Tribunal rejected this, relying on the service agreement and legal precedents, holding that the appellant was not an intermediary.

Conclusions: The Tribunal concluded that the services rendered by the appellant do not fall within the definition of intermediary services.

Issue 3: Place of Provision of Services and Its Impact on Export Status

Legal Framework and Precedents: Under Rule 9(c) of the POPS Rules, 2012, place of provision of intermediary services is the location of the service provider. However, for other services, the place of provision is generally the location of the recipient. The IGST Act and various judicial pronouncements have clarified that for export of services, the place of provision must be outside India, the recipient must be located outside India, and payment must be received in convertible foreign exchange.

Court's Interpretation and Reasoning: The Tribunal found that since the appellant's services were not intermediary services, Rule 9(c) did not apply. Instead, the place of provision was the location of the recipient, i.e., outside India. The Tribunal relied on the Delhi High Court's judgment in Ernst and Young and other decisions which held that if the recipient is outside India and the service is provided on the recipient's instructions, the place of provision is outside India.

Key Evidence and Findings: The service agreement and facts showed that the recipient was the overseas company located outside India, the payment was received in convertible foreign exchange, and the benefit of the service accrued outside India.

Application of Law to Facts: The Tribunal applied the legal principles to find that the place of provision was outside India, qualifying the services as export of services under the relevant statutes.

Treatment of Competing Arguments: The Revenue's argument that the place of provision was India due to intermediary nature was rejected, as explained above.

Conclusions: The Tribunal held that the place of provision was outside India and the services qualified as export of services.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning includes the following verbatim excerpts:

"A plain reading of the said services rendered by the appellant to the overseas company, it cannot be construed that the appellant rendered service in the nature of 'intermediary service' if the clarificatory circular issued by the Board bearing No.159/13/2021-GST dated 20.09.2021 is considered though it is issued in the context of GST, but the concept has been borrowed from the definition of Rule 2 of the POPS Rules, 2012."

"The basic requirement to be an intermediary is that there should be at least three parties; an intermediary is someone who arranges or facilitates the supply of goods or services or securities between two or more persons. In other words, there is main supply and the role of the intermediary is to arrange or facilitate another supply between two or more other persons and, does not himself provide the main supply."

"The definition of 'intermediary services' in section 2(13) of the Integrated Goods and Service Tax Act, 2017 is pari-materia with the definition of 'intermediary services' in rule 2 (f) of the 2012 Rules... The scope of an 'intermediary' is to mediate between two parties i.e. the principal service provider (the 3rd party) and the beneficiary (the agents principal) who receives the main service and expressly excludes any person who provides such main service 'on his own account'."

"The services provided by the appellant to overseas entity fall under the scope of Rule 9(c) of the POPS Rules, 2012; hence, not an export of service. Consequently, the impugned order of the Ld. Commissioner(Appeals) to the extent of upholding the rejection of the refund claims... is set aside and the above appeals are allowed with consequential relief, if any, as per law."

Core principles established by the Tribunal include:

• The test for "intermediary services" requires the presence of at least three parties and the intermediary's role as facilitator without providing the main service on its own account.
• Services rendered on principal-to-principal basis, where the service provider performs the main service directly to the overseas recipient, do not qualify as intermediary services.
• The place of provision of services for export purposes is the location of the recipient, provided the recipient is outside India and payment is received in convertible foreign exchange.
• Refund of accumulated Cenvat credit is allowable on export of services meeting the statutory criteria.

Final determinations on each issue are:

• The appellant's services qualify as export of services under Rule 5 of the Cenvat Credit Rules, 2004 and Notification No.27/2012-CE(NT).
• The appellant's services are not intermediary services under the POPS Rules, 2012 or the IGST Act.
• The place of provision of the appellant's services is outside India, satisfying the conditions for export of services.
• The rejection of refund claims by the Revenue and the Commissioner (Appeals) is set aside, and the appeals are allowed with consequential relief.

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