Student recruitment services to foreign universities held export of services; intermediary place-of-supply under Section 13(2) IGST Act

HC dismissed the Revenue's appeal, upholding the impugned order in favour of the assessee. It held that the respondent's student-recruitment and allied services, rendered to foreign universities for commission in foreign exchange, constitute export of services under the applicable regime. Relying on the distinction between a supplier of main services and an "intermediary," the HC clarified that even intermediary services are now governed by the general place-of-supply rule under Section 13(2) of the IGST Act, making the recipient's location determinative. Consequently, the earlier approach deeming the supplier's location as the place of supply for intermediaries was rejected, and the service tax demand was not sustainable.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the services provided by the respondent to foreign universities constitute "intermediary" services under Rule 2(f) of the Place of Provision of Services Rules, 2012, or qualify as "export of services" under Rule 6A of the Service Tax Rules, 1994.

(2) Consequent upon the above, whether Rule 9(c) of the Place of Provision of Services Rules, 2012, is correctly invoked so as to treat the place of provision as India and levy service tax.

(3) Whether the show cause notice dated 17 December 2015 was barred by limitation.

(4) Whether any substantial question of law arises so as to warrant interference with the order of the Tribunal in an appeal under Section 35G of the Central Excise Act, 1944.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1) & (2): Characterisation of services as "intermediary" or "export of services"; applicability of Rule 9(c) POPS Rules

Legal framework discussed

(a) Rule 2(f) of the Place of Provision of Services Rules, 2012 defining "intermediary" as a broker, agent or any other person who arranges or facilitates provision of a main service or supply of goods between two or more persons, but excluding a person who provides the main service or supplies goods on his own account.

(b) Rule 6A(1) of the Service Tax Rules, 1994 prescribing the conditions when provision of any service is treated as "export of service", including: (i) provider located in taxable territory, (ii) recipient located outside India, (iii) service not in the negative list, (iv) place of provision outside India, (v) payment received in convertible foreign exchange, and (vi) provider and recipient not merely establishments of a distinct person.

(c) Rule 9(c) of the Place of Provision of Services Rules, 2012 deeming the place of provision of "intermediary services" to be the location of the service provider.

Interpretation and reasoning

(1) The Court noted that the respondent entered into agreements with a large number of foreign universities/institutions to arrange and facilitate recruitment of students as an education agent, and received commission in convertible foreign exchange from such foreign universities. The respondent did not charge any consideration from Indian students.

(2) The Adjudicating Authority had held the respondent to be an "intermediary" on the basis that it was advertising and promoting educational services of foreign universities and facilitating student recruitment, and, applying Rule 9(c) read with Rule 6A, concluded there was no export of services.

(3) The Tribunal, after examining the agreements and the nature of activities, found: (i) contracts existed only between the respondent and foreign universities; (ii) consideration was paid by foreign universities in foreign exchange; (iii) Indian students did not have any contractual relationship with the respondent for the impugned services; and (iv) Indian students were merely beneficiaries/users, and not service recipients. It, therefore, concluded that the respondent's services amounted to export of services and not intermediary services.

(4) The Court referred to and relied upon its earlier decisions and other binding precedents under the IGST and service tax regimes, noting that the definition of "intermediary" in Rule 2(f) POPS Rules is in pari materia with Section 2(13) of the IGST Act and that the corresponding place-of-supply rules are similar:

  (i) In Ernst & Young Ltd., it was held that an intermediary merely "arranges or facilitates" supply between two or more persons and that a person who supplies services on his own account to the recipient is not an intermediary. A service provider rendering services directly to its foreign client, without arranging any supply from a third party, cannot be treated as an intermediary.

  (ii) In Verizon Communication India Pvt. Ltd., the Court held that the "recipient" of service is determined by (a) the contract, (b) who has the contractual right to receive the services, and (c) who is liable to pay for them. Users or persons affected by the service are not thereby recipients. The destination of services is to be determined by the place of consumption and the locus of the contractual recipient paying for the service.

  (iii) The CESTAT's Larger Bench decision in Paul Merchants Ltd. was approved, affirming that the service recipient is the person on whose instructions the services are provided, who pays for them, and whose need is satisfied, and that as long as the party abroad derives benefit from services performed in India, the services qualify as export.

  (iv) In K.C. Overseas Education Pvt. Ltd., the Bombay High Court, following Ernst & Young Ltd. and the CBIC circular, held that education consultants providing services to foreign universities, paid by such universities in foreign exchange, were not intermediaries and were entitled to export benefits. The Supreme Court dismissed the challenge against that decision, taking note of its own judgment in Vodafone India Ltd. and dismissal of SLP in Blackberry India Pvt. Ltd..

  (v) In Krishna Consultancy (CESTAT, Mumbai), student guidance/consultancy entities under similar arrangements with foreign universities were held not to be intermediaries; their services were characterised as export services.

(5) The Court observed that the Tribunal's approach in the present case was consistent with the above line of authority, including Verizon Communication India Pvt. Ltd., in treating foreign universities as the recipients of the service, since: (i) they entered into the contracts; (ii) they were liable to pay consideration; and (iii) the services were rendered for promotion and publicity of their educational programmes among Indian students.

(6) The Court also noticed that in Global Opportunities, similar educational support/recruitment services were held to be export of services, not intermediary services, after considering the same statutory framework and case law. The Court further noted that the GST Council had recommended omission of Section 13(8)(b) of the IGST Act, thereby aligning the place of supply for intermediary services with Section 13(2) (location of recipient), to remove confusion and enable export benefits, indicating the consistent policy and interpretative trend.

(7) On these authorities and the factual matrix, the Court agreed with the Tribunal's conclusion that the respondent was not arranging or facilitating a supply between two independent parties while remaining outside that transaction, but was itself providing the main service to its foreign university clients on its own account.

(8) Consequently, the pre-condition for invoking Rule 9(c) POPS Rules (that the service be "intermediary services") was not satisfied. Therefore, the deeming rule fixing place of provision at the location of the service provider was inapplicable.

Conclusions

(a) The respondent's activities under agreements with foreign universities do not fall within the definition of "intermediary" in Rule 2(f) of the Place of Provision of Services Rules, 2012.

(b) The foreign universities are the "recipients" of the services; Indian students are only users/beneficiaries and not recipients.

(c) All conditions of Rule 6A of the Service Tax Rules, 1994 for "export of services" stand satisfied in respect of the impugned services.

(d) Rule 9(c) of the Place of Provision of Services Rules, 2012 is wrongly invoked; the services in question are export of services and fall outside the ambit of service tax.

(e) The Tribunal was correct in holding that no service tax was payable on the foreign consultancy/commission earned from foreign universities.

Issue (3): Limitation - validity of the show cause notice

Interpretation and reasoning

(1) The Adjudicating Authority had held that the show cause notice dated 17 December 2015 was within limitation under Section 73 of the Finance Act, 1994.

(2) The Tribunal, having found that the respondent's services were export of services and not intermediary services, further held that the show cause notice was "barred by time".

(3) The Court, having accepted the Tribunal's characterisation of the services and its legal view on taxability, noted that the Tribunal had also held the show cause notice to be time-barred and, viewing the impugned order as a whole, found no ground to interfere.

Conclusions

(a) The Tribunal's finding that the show cause notice was barred by limitation stands affirmed by the Court.

(b) No legal error was shown in the Tribunal's conclusion on limitation warranting interference.

Issue (4): Existence of substantial question of law under Section 35G

Interpretation and reasoning

(1) The appeal was preferred under Section 35G of the Central Excise Act, 1944, which requires that a "substantial question of law" arise from the Tribunal's order.

(2) The Court noted that the Tribunal's view on the nature of the respondent's services, the identification of service recipient, and the export-of-services characterisation was in line with consistent judicial precedent from the same Court, another High Court, CESTAT decisions, and the Supreme Court's approvals/dismissals of SLPs in related matters.

(3) In light of this settled position on "intermediary" and "export of services", and the Tribunal's conformity with it, the Court held that no substantial question of law arose for consideration.

Conclusions

(a) The appeal does not give rise to any substantial question of law under Section 35G of the Central Excise Act, 1944.

(b) The Tribunal's order, holding that the services were not intermediary services, that they constituted export of services, that Rule 9(c) POPS Rules was inapplicable, and that the show cause notice was time-barred, does not warrant interference.

(c) The appeal is dismissed.

---