Appellant Not an Intermediary Under Rule 2(f) of Place of Provision of Services Rules, Appeal Allowed

The CESTAT Bangalore held that the appellant could not be classified as an intermediary under Rule 2(f) of the Place of Provision of Services Rules, 2012, despite the agency agreement with its holding company. The Tribunal found no evidence that the appellant acted as an intermediary facilitating supply between multiple parties, as required. The cost-plus fee arrangement and contractual clauses did not establish intermediary services. Consequently, the demand based on this classification was unsustainable. Since the appeal succeeded on merits, the extended period of limitation issue was rendered irrelevant. The impugned order was set aside and the appeal allowed.

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ISSUES:

Whether the activity carried out qualifies as export of service or taxable intermediary service under Rule 2(f) of the Place of Provision of Services Rules, 2012.Whether the appellant acted as an intermediary by arranging or facilitating the supply of goods or services between the holding company and third parties.Whether the appellant's service falls under the definition of intermediary service as per Section 65B(44) of the Finance Act, 1994 and related Board Circulars.Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 can be invoked in absence of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax.Whether reliance on the terms "agent" or "intermediary" in the agreement conclusively establishes the appellant's status as an intermediary.

RULINGS / HOLDINGS:

The appellant's activity is not an intermediary service but qualifies as an export of service because the appellant acts on a principal-to-principal basis and does not provide the main service on behalf of the holding company.The mere use of the term "intermediary" or "agent" in the agreement is insufficient to establish the appellant as an intermediary without evidence that the appellant had power to conclude contracts or acted as an agent; the appellant is not authorized to conclude contracts on behalf of the holding company.The essential feature of intermediary service is that the intermediary "arranges or facilitates a provision of service or a supply of goods" between two or more persons but "does not include a person who provides the main service or supplies the goods on his account."The extended period of limitation under Section 73(1) cannot be invoked absent fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax; mere failure to declare export of services in returns does not constitute suppression with intent to evade tax.Cost plus fee arrangement for marketing and support services does not constitute intermediary service as it has no bearing on the sale of goods by the holding company.

RATIONALE:

The Court applied the definition of "intermediary" under Section 65B(44) of the Finance Act, 1994 and the Place of Provision of Services Rules, 2012, emphasizing that an intermediary "arranges or facilitates" supply but does not provide the main service.The Court relied on authoritative interpretations including the Education Guide on intermediary services, Board Circular No.159/15/2021-GST dated 20.09.2021, and relevant case law emphasizing substance over form in agency relationships (Supreme Court decisions on principal-agent distinction and interpretation of contractual terms).The Court referred to precedent holding that the contractual label of "agent" or "intermediary" is not decisive; the actual rights and obligations under the agreement and conduct of parties must be examined to determine the true nature of the relationship.The Court distinguished the appellant's role from that of an intermediary by noting absence of authority to conclude contracts and the appellant providing services on its own account rather than facilitating a third-party supply.The Court declined to uphold invocation of extended limitation period in absence of evidence of intent to evade tax, relying on statutory provisions and judicial precedents that require such intent for extended limitation to apply.The decision aligns with recent tribunal rulings holding that marketing and support services rendered on a cost plus fee basis do not constitute intermediary services when the provider acts as principal service provider.

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