TaxTMI 
TaxTMI 
2023 (2) TMI 938
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.... wherein it has been prescribed that - In case different show cause notices have been issued on the same issue to same noticee(s) answerable to different adjudicating authorities, Show Cause Notices involving the same issue shall be adjudicated by the adjudicating authority competent to decide the case involving the highest amount of duty, In the instant case, the show cause notice no. 02/Pr.Commr/Ensim/DGP Audit/2019-20 dated 22.04.2019 involves the highest amount of duty and falls under the monetary limit of the undersigned and the other show cause notice is on the same issue for different period in respect of the same assessee. Accordingly, both the show cause notices are taken up for adjudication proceedings in a single order. 2.0 BRIEF FACTS OF THE CASE 2.1.1 Whereas it appears that M/s ENSIM INDIA PRIVATE LIMITED, Webel IT Park, Phase-Il, Palasdiha, Durgapur, West Bengal-713208, holder of Service Tax Registration No. AAACE7989BSD001 (hereinafter referred to as 'the said assessee') for providing taxable service in the category of Business Auxiliary Service and Information Technology Software Service have contravened the provisions of Rule 6A of Service Tax Rule....
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....greement made with Ensim Corporation, USA it appears that they have engaged M/s Ensim India Pvt. Ltd. as a developer on non-exclusive basis to perform such service on an as needed basis for the benefit of the service recipient as mentioned in Para 3.1 & 3.2 of the agreement. Further in para 3.2 of the agreement also provide that" the parties may specify the agreed scope of services with respect to any internal cloud marketplace, R&D project or third party customers through written or electronic development plans ......." From the above conditions of the agreements it transpires interalia that the services rendered by M/s Ensim India Pvt. Ltd. falls within the ambit of "intermediary services" as specified in Rule 2(f) of Place of Provision of services Rules 2012. In addition to that the place of provision for the services provided by them attracts the Rule 9 of Place of Provision of Services Rules 2012 wherein it interalia provides that:- Rule 9-The place of provision of following services shall be the location of the Service provider (a) ............... (b) online information and database access or retrieval services (c) Intermediary services (d).................... From the ....
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....n to that the place of provision for the services provided by the said assessee attracts the Rule 9 of Place of Provision of Services Rules 2012 wherein it interalia provides that:- Rule 9-The place of provision of following services shall be the location of the Service provider (a) .................... (b) online information and database accessor retrieval services (c) Intermediary services (d)............................ 2.1.5 From the above provision of Rule 9 it appears that the place of provision in the instant case is the location of service provider i.e. the taxable territory and thus services rendered by the said assessee appears not to be qualified as export of services as well as the place of provision is Not outside India but exclusively within the taxable territory of union of India. 2.1.6 Further it also transpires from the balance sheet submitted during audit that major share holding (99.46%) is with the M/s. Ensim Corporation, USA which is the only one service recipient from the said service provider as per agreement. Therefore it appears that the said assessee was providing services only on behalf of their parent company in USA which is just ....
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....r designated except for non recoverable VAT/Service Tax. Any applicable taxes, except for non recoverable VAT, must appear instead as separate items, without markup, on the statement from Developer and will be paid to Developer by Service Recipient. 2.1.11 In the logic and technical explanation in Para 5.9.6 of the CBEC's Education Guide, specifies with reference to Rule 9 of POP Rules exclusively that:- What are "Intermediary Services"? Generally, an "intermediary" is a person who arranges or facilitates a supply of goods, or a provision of service, or both, between two persons, without material alteration or further processing. Thus, an intermediary is involved with two supplies at anyone time: i) the supply between the principal and the third party; and ii) the supply of his own service (agency service) to his principal, for which a fee or commission is usually charged. In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered:- Nature and value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may....
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....im Corporation USA. Hence it appears that the said assessee acts like intermediary who arranges or facilitates a provision of service between M/s. Ensim Corporation USA and third party as per their agreement and in lieu of providing services the said assessee received reimbursement amount on cost basis which occurs in provision of the same within Indian taxable territory as per agreement. 2.1.13 The said assessee submitted their reply and contended that "from the factual matrix and documents on record i.e. agreement and invoices, it can be seen that they provide services to Ensim Corporation, USA on their own account and received the whole value of the services in convertible foreign exchange from Ensim Corporation, USA, hence they are excluded from the definition of "Intermediary". 2.1.14 The reply of the said assessee appears not tenable as they claimed the reimbursement amount from M/s. Ensim Corporation, USA on Man hour basis as well as in their agreement it is specifically mention in para 3.2 that "The parties may specify the agreed scope of services with respect to any Internal cloud Market place R&D project or Third Party customer through written or electronic ....
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....aid by such person and in such manner as may be prescribed at the rate specified in Section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider. 2.2.3 Section 75 of the Finance Act,1994 - Interest on delayed payment of service tax: Every person, liable to pay the tax in accordance with the provisions of section 68 rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government with the period prescribed, shall pay simple interest at such rate not below ten per cent and no exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of the tax or any part thereof is delayed. 2.2.4 Section 78 of the Finance Act, 1....
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....r, as the case may be, in which payment is received. 2.3 Applicability of Extended Period of Limitation: Such non-payment of service tax came to the notice of the department during audit and verification of documents for the period 2016-17. Had it not been detected and pointed out by the auditors during the scrutiny of documents, the payment of service tax would have been escaped. Thus in this case, the said notice willfully suppressed and misstated the facts by not reflecting such facts in their relevant documents and that was detected at the time of departmental audit. Hence, suppression of facts with intent to evade duty, is clearly established here and therefore, extended period of limitation is rightly in-vocable in this case. As it is a clear suppression of facts with the intent to evade payment of duty, penalty is imposable upon them in terms of the provisions of Section 78 of Finance Act,1994. Since the said assessee did not submit ST-3 return for the period from April, 2016 to Sept, 2016, hence the relevant date for determining limitation of time for issuing of SCN may be taken as relevant date of submission of ST-3 return for the period April, 2016 to Sept, 2016. 2.4 Th....
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....das Road, Sian, Bolpur, within 30 days from the date of receipt of the notice as to why: i) Service Tax of Rs.86,83,717/-(Rupees Eighty Six Lakh Eighty Three Thousand Seven Hundred and Seventeen only) (S. Tax Rs. 81,04,803/-, S. B.Cess Rs.2,89,457/- and K. K. Cess Rs.2,89,457/-) should not be demanded and recovered from them in terms of proviso to Section 73(1) of the Finance Act, 1994 read with Section 174(2) of the Central Goods and Services Act, 2017. ii) Interest at appropriate rate on the above amount shall not be charged and recovered from the 'said assessee' in terms of section 75 of Chapter V of Finance Act, 1994, read with Section 174(2) of the Central Goods and Services Act, 2017. iii) Penalty should not be imposed and recovered from them under the provisions of 78 of the said Act read with Section 174(2) of the central Goods and Services Act, 2017, for willfully suppressing value of taxable service with the intent to evade payment of Service Tax. 3.0 DEFENCE /WRITTEN SUBMISSION OF THE NOTICEE: 3.1 In response to the Show Cause cum demand Notice No.02/Pr.Commr/Ensim/DGP Audit/2019-20 dated 22.04.2019, the noticee vide letter dt. 06.06.2019 submitted ....
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....he following conditions must be cumulatively satisfied for a service to qualify as an intermediary service: a) The intermediary must be a broker or an agent or similar person. b) The intermediary must facilitate or arrange a provision of service or supply of goods. c) Such facilitation or arranging provision of service/ supply of goods must be between two or more persons. d) The intermediary should not provide the main service on his own account. A.5 The first requirement under the definition is that the person must be a broker or an agent or similar person. The terms 'broker' and 'agent' are not defined in the Finance Act or Rules made thereunder. Therefore, reference is required to be made to definition of 'broker' in the Black's Law Dictionary, 9th Ed. at Page 250, which is as under: "An agent who acts as an intermediary or negotiator especially between prospective buyers and sellers. " A.6 The meaning of the term 'agent', as prescribed in the definition of term under Section 182 of the Indian Contract Act, 1872, is extracted as follows: "An agent is a person employed to do any act for another, or to represent another in dealin....
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....agent. A.11 The Noticee humbly submits that they are not facilitating or arranging a provision of service or supply of goods, as a broker or agent or any similar person so as to be considered as an 'intermediary'. They are simply providing software and consulting services to the foreign company on their own account. A.12 The other conditions under Rule 2(f) of the POPS Rule that such 'person must facilitate or arrange a provision of supply of goods or services between two or more persons' is required to be analysed. It is submitted that it is this activity of facilitating or arranging a supply of goods or services between two or more persons, which brings in the relationship of an agent and makes such agent an 'intermediary'. In such capacity, the person acts on behalf of one of the parties to facilitate or arrange the supply of goods or service to the other party but does not undertake such supply on its own account. A.13 In this regard, reference can also be made to the following passage from the 'Service Tax Education Guide' ('Education Guide') issued by the CBEC on 19.06.2012, which was issued on introduction of negative-list based ....
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....tlined above, this rule will apply. Normally, it is expected that the intermediary or agent would have documentary evidence authorizing him to act on behalf of the provider of the 'main service' " . A.14 Thus, on the basis of the above clarification provided in the Education Guide, the following principles emerge: a) An intermediary is involved in two supplies at the same time: * The provision of main service by the principal to the third party, which is facilitated or arranged by the intermediary, such as negotiation of contractual terms, collection of payment etc., and * His service (as an intermediary) to the principal for a fee or commission. b) The value of intermediary services is separately identifiable from the value of main services, i.e. it is generally based on an agreed percentage of the value of main service. c) The intermediary cannot alter the nature and value of main service and his scope is limited to mere facilitation or arrangement of such main service. The main service is provided by the principal itself on his own account. A.15 In this regard, the Noticee submits that in the present case, they do not act as broker o....
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....tion with its customers. A.18 The obligations of the Noticee under the Agreement and the activities undertaken thereunder are completely independent of the supply of services between Ensim USA and its customer. The Noticee is, thus, providing services to Ensim Corporation only, strictly in accordance with the Agreement and not on behalf of them. Even when specific consulting services are requested by Ensim Corporation in relation to its specific third-party customers, the recipient of such services remains the parent company who reimburses the Noticee, in terms of the agreement and not any third party customers. Even in such situations, the Noticee does not get any work order or request for support from third party customers directly. Such third parties raise their technological issues with Ensim Corporation, which then, in terms of the agreement, requests the Noticee to provide technological support in relation to the software developed and supplied by the Noticee to Ensim Corporation. A.19 Thus, when the main service required by the third-party customer, viz. technological support, is being provided by the Noticee directly to Ensim Corporation, USA, it cannot be s....
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.... The Noticee humbly submits that the present SCN has principally relied on the phrasing of clause 3.2 of the agreement wherein it is allegedly stated that "the parties may specify the agreed scope of services with respect to any internal cloud marketplace, R &D project or third party customers through written or electronic development plans, statement of work, instructions, specifications ... ". A.24 The department has interpreted the above clause of the Agreement to mean that the Agreement mandates the Noticee to facilitate rendering of services to third party customers, and thus, the Noticee has an intermediary relation with the foreign parent company. The Noticee humbly submits that the clause relied upon did not read as alleged by the Department during the relevant period i.e. 2016-17 as can be observed from the said clause as extracted in paragraph 8 of the Statement of Facts. Clause 3.2 of the Agreement did not have any mention of a 'third party' as has been recorded in the SCN, while proposing the present demand on the Noticee for being an 'intermediary'. A.25 Without prejudice to the above, the Noticee humbly submits that the agreement should....
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....ovide technical and commercial materials to the appellant meant that management advice was being provided by them to the appellant. The Hon'ble Tribunal held that the very name of the agreement was 'Representative Office Agreement' and the preamble itself set out the intention of the parties, for the foreign entity to have persons in the UK to represent the appellant before the aforementioned persons. Further, there was a separate 'consultancy agreement' with a separate consideration whereby the foreign entity was to provide strategic planning and consultancy services to the appellant and its subsidiaries and on which the appellant had discharged service tax. Thus, the Hon'ble Tribunal held the service tax demand on the representation fee to be unsustainable and observed as follows- "7. Clause 2 of the agreement mentions about the fees that has to be paid by appellant to M/s. Vedanta. The fees is the consideration for performing its duties as a Representative Office. The fees is fixed as US$20 lakhs. Thus, from the agreement, it is very much clear that the intention of the parties is that appellants is to have Representative Office overseas. The depa....
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....pply of services between Ensim Corporation, USA and its customers. A.31 Thus, where the department has alleged that from the bills raised by the Noticee being on a 'man hour basis' for their services for their 'establishment cost' in India it appears that the Noticee did not provide specific software services, is unsustainable. The Noticee is remunerated by the parent company as per the terms of the agreement. The consideration has two components, one which is the cost incurred by the Noticee in providing the services (i.e. the 'reimbursement amount') under the agreement and second, which is a percentage of the 'operating expenses' incurred in providing the services which is also the reimbursement amount but excluding certain expenses as listed in the relevant clause. The bills are also raised by the Noticee accordingly being the operating cost on a monthly basis however, there is nothing to indicate that they are for the cost of establishment of the Noticee in India instead of providing the services in question. The department has not relied on any evidence whereby it can be conclusively stated that the remuneration received is not attribu....
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....agreement, the foreign company was the only client of the applicant and the services were provided directly by WWD US to their customers. The applicant was providing its services to the foreign company and receiving payments for the same from them. It was held that such service was being provided by the applicant on their own account to the foreign company for a fee equal to their operating costs plus a mark-up of 13% of such costs. Further, since 'intermediary services' do not include services provided on their own account and the service recipient in the case is the foreign company and not the Indian customers, as can be inferred from the receipt of fee from them, the place of provision of the services would be the place of the recipient of the service i.e. WWD US and hence, outside India in terms of Rule 3 of the POPS Rules. Further, the services qualify as export of services under Rule 6A of the Rules because the consideration was to be received in convertible foreign exchange, the service recipient was located abroad and the two parties were not merely establishments of a distinct person in accordance with Explanation 3 to section 65B (44) of the Act. A.35 Appl....
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....services' under Rule 2(f) and the place of provision of the service was within taxable territory and therefore, does not qualify as 'export'. The assessee therein was engaged in promoting goods of the overseas group entities located in non-taxable territory and charging consideration as cost plus markup. The Hon'ble Tribunal held that the said activity did not fall within the category of 'intermediary services' since the assessee was providing the service to the foreign company on a principal to principal basis and therefore, was held not to be an intermediary. The relevant paragraph has been extracted below- "On perusal of the contracts, I find that the service fee charged by the appellant to its overseas group entities for provision of service has no direct nexus with the supply of goods by the overseas group entities to its customers in India. Further, the appellant had provided the service to the overseas entities on principal to principal basis. Thus, the appellant cannot be termed as an intermediary between the overseas entity and the Indian customers. It is an admitted fact on record that the consideration received by the appellant for providing the....
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....9;. The provision of the above Rule is extracted below for ease of reference- "RULE 6A. Export of services. - (l) The provision of any service provided or agreed to be provided shall be treated as export of service when, - (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 3 of clause (44) of section 65B of the Act. " B.2 Thus, in order to qualify as 'export of service' the following conditions must be cumulatively satisfied- * The service provider must be located in India, * The service recipient is located outside India, * The service provided must not be not be in the negative list of services i.e. section 66D of the Act, * The payment for such ser....
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...., wherein Verizon India was providing connectivity by way for data transfer service in the form of locat access, bandwidth and VPN facilities to the customers of Verizon USA in India. The contention of Verizon India was that the same amounted to export of services since the service recipient was Verizon, USA located in non-taxable territory whereas the Department's case was that the petitioner was providing 'telecommunication services' and that the recipient of the services was the Indian entity, which was the actual user of the services. It was argued by the petitioner's counsel that service tax is a 'destination-based consumption tax' and that there is a distinction between the 'user' of a service and the 'recipient' of a service which has to be determined strictly in accordance with the underlying contract between the two parties. The Hon'ble Delhi High Court while deciding the case in favour of the petitioner held that the recipient of a service is determined by reference to (a) who has the contractual right to receive the services; and (b) who is responsible for the payment for the services provided. In the absence of privity of cont....
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....herefore, place of provision of their service should be their location. The Noticee has made elaborate submissions refuting the allegation that the services provided by them are in the capacity of an intermediary. Thus, the conditions laid down in sub-clause (a) to (e) of Rule 6A to qualify as an export of service stand satisfied in the case of the Noticee. The condition laid down under sub-clause (f) of Rule 6A of the Rules is that the service provider and the service recipient must not merely be establishments of a distinct person in terms of Explanation 3(b) to section 65B (44) of the Act. The said explanation reads as follows "Explanation 3. - For the purposes of this Chapter,- (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. " B.11 Thus, an establishment of a person in the taxable territory of India and another establishment of the same person in non-taxable territory are understood to be establishments of a distinct person in terms of the above Explanation. However, the Noticee submits that they are a distinct legal entity having a separate lega....
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....Sangam v. CST, Delhi, 2017 (6) G.S.T.L. 519 (Tri. - Del) C.4 In the present case, service tax has been sought to be levied on the gross amount received by the Noticee without making any adjustments for service tax if payable, included in it. Based on the reasons given above, it is submitted that the manner of computation of tax adopted by the department is incorrect and if at all, the service tax is chargeable on the transaction, the service tax payable must be calculated by treating the consideration received as inclusive of such service tax amount. D. EXTENDED PERIOD CANNOT BE INVOKED AGAINST THE NOTICEE. D.1 The Notice submits that even though the SCN has been issued to them within the normal period of limitation, the department has alleged that extended period is invokable since there was suppression of material facts with the intention to evade payment of service tax. It is submitted that as per Section 73(1) of the Act, an SCN can be issued by the Authorities at any time within thirty months from the relevant date and the present SCN dated 22.04.2019 has been issued within such period. Proviso to Section 73(1) provides that SCN can be issued at any time within 5 y....
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....ty. it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section IIA ot the Act. We are, therefore, of the firm opinion that where facts were known to both the parties, as in the instant case, it was not open to the CEGAT to come to a conclusion that the Appellant was guilty of "suppression of facts" ....." D.5 In this regard, the Noticee also place reliance on the following judgments of the Hon'ble Supreme Court:- * Pahwa Chemicals Ltd. v. CCE, 2005 (189) ELT 257 (SC) * Continental Foundation vs CCE, 2007 (216) ELT 177 (SC) * CCE vs Damnet Chemicals Ltd., 2007 (216) 3 (SC) * Pushpam Pharmaceuticals vs CCE, 1995 (78) ELT 401 (SC) The Department has failed to show any positive act on the part of the Noticee to suppress information. D.6 It is humbly submitted by the Noticee that except making a bald allegation of suppression, the SCN has failed to rely any evidence which shows any positive act wherefrom the same can be concluded. The invocation of extended period of limitation under the proviso to Section 73(1) of the Act has been based only on the allegation that had it not been for the....
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.... rendered to Ensim Corporation, 'USA amounted to export of service since the service recipient was located in non-taxable territory and therefore, service tax was not payable. The position adopted by the Noticee has sound legal basis and is supported by a number of judicial precedents, as relied upon in the grounds above. D.10 In such circumstances, it could not be said that the Noticee suppressed or willfully mis- stated any fact, with the intent to evade service tax. Issue involves interpretation of statutory provisions. D.11 It is submitted that the issue raised in the SCN involves interpretation of complex provisions of the service tax law. The Notice humbly submits that when an issue involves statutory interpretation, suppression cannot be alleged. D.12 Thus, the Noticee humbly submits that extended period of limitation under proviso to Section 73(1) of the Act is not invokable in the present case in the absence of any mala fide intention to suppress material information or evade payment of service tax. Thus, the demand of service tax proposed beyond the period of limitation is liable to be dropped on this ground alone. E. NO INTEREST IS CHARGEABLE AND NO P....
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....he decision of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v The State of Orissa reported in AIR 1970 (SC) 253. Relevant extract in the case of the judgment is reproduced below- "the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so". The above decision of the Apex Court, was followed by the Tribunal in the case of Kellner Pharmaceuticals Ltd. Vs CCE, reported at 1985 (20) ELT 80, and it was held that proceedings under Rule 173Q are quasi-criminal in nature and as there was no intention on the part of the assessee to evade payment of duty, the imposition of penalty cannot be justified. In the present case also, in the absence of intention to evade payment of service tax, no penalty can be imposed on the Not....
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....2/Pr.Commr/Ensim/DGP Audit/2019-20 dated 22.04.2019 involves the highest amount of duty and falls under the monetary limit of the undersigned and the other show cause notice is on the same issue for different period in respect of the same assessee. Accordingly, I am taking up both the show cause notices for adjudication proceedings in a single order. 5.2 I have gone through the records of the case, written submissions of the said assessee as well as their oral submissions made during the course of personal hearing. 5.3 Section 174(2)(e) of the Central Goods and Services Act, 2017 provides that in spite of amendment of the Finance Act, 1994, in terms of Section 173 of the CGST Act, 2017, the investigation, inquiry, verification, assessment proceedings, adjudication and any other legal proceedings under the Finance Act, 1994 are not affected and the said Act shall be enforced as if the same has not been amended or repealed. 5.4 The moot point to be decided in the instant case involving two Show Cause Notices is whether the services provided by the noticee are "Intermediary Service" or "Export of Service". 5.5 As per existing provisions Service tax is payable on all services....
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....iary is involved with two supplies at any one time: 1. The supply between the principal and the third party; and 2. The supply of his own service (agency service) to his principal, for which a fee or commission is usually charged.' In order to determine whether a person is acting as an intermediary or not, the following factors need to be considered:- 1. Nature and Value - An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal. 2. Separation of Value - The value of an intermediary's service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as 'commission". 3. Identify and Title - The service provided by....
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....Corporation, a Delaware corporation, having its principal place of business at 1540 Parkmoor Avenue, Suite D, San Jose, California, U.S.A. 95128 ("Service Recipient"), and Ensim India Private Limited, a private limited company incorporated under the (Indian) Companies Act, 1956, having its registered office at 103-104, Sukhwani Prestige, NDA-Pashan Road, Bawdhan, Pune - 411021, Maharashtra, India ("Developer"). RECITALS A. Service Recipient is engaged in the business of providing proprietary cloud platform technology to its customers. B. Service Recipient desires to engage Developer to assist Service Recipient to meet its internal requirements with respect to software development services as per the specific request and direction of Service Recipient; C. Developer is a subsidiary of Service Recipient that engages in software engineering, quality testing and technical support related to cloud platform technology; D. Developer has also developed and maintains an experienced cloud services development and technical consulting team; E. Service Recipient desires to avail services from Developer to perform: (i) customized software engineering, testing, and related....
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.... whether written or oral, on behalf of Service Recipient." 5.6.4.1 From the above, I find that the Noticee nowhere has been mentioned as an agent or broker of M/s Ensim Corporation in the said Agreement. As per the said Agreement the noticee is to provide customized software services, quality testing, other technical and support services and consulting services to Ensim Corporation, USA. Hence, the main service provided by the Noticee is that of software development and other technical and consultancy services, on their own account to the foreign entity pursuant to the Agreement. I find that the main service of Ensim Corporation, USA is to provide platform services including cloud and hosting services to their customers to which the Noticee does not have any access or relation. I find that the Noticee, in no manner, facilitates the provision of these services by Ensim Corporation with its customers. The Noticee has no function or role to play during the negotiation of contracts between the Ensim Corporation, USA to its customers. The obligations of the Noticee under the Agreement and the activities undertaken thereunder are completely independent of the supply of services between ....
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.... not find any material to suggest that the third party customers of Ensim Corporation, USA directly approach the Noticee for any technological issue against any consideration whatsoever. The Noticee in no case arranges or facilitates such third party for Ensim Corporation, USA. The Noticee is under no obligation to facilitate the supply of services of Ensim Corporation, USA to their customers. Hence, in the absence of the specific obligation towards facilitation of supply of services to the customers of the foreign entity, I find that the Noticee cannot be treated as an 'intermediary'. 5.7 I find that the place of provision of the Noticee l s services should be determined in terms of the default Rule 3 of the Place of Provision of Services Rules, 2012 ('POPS Rules'in short) instead of Rule 9 as the services rendered by the Noticee do not qualify as 'intermediary services' and consequently do not fall under Rule 9(c) or any other specific rule of the POPS Rules. There is no specific provision under Rules 4 to 12 of the POPS Rules, which cover the present transaction between the Noticee and Ensim Corporation, USA. Therefore, the place of provision of su....
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....oticee is not a service specified in the Section 66D of the Finance Act, 1994, iii) the payment for such service has been received by the Noticee in convertible foreign exchange, i.e., in terms of US Dollars as evidenced by the FIRC submitted by the said noticee; 5.8.2 I find that the Noticee is incorporated under the provisions of the Companies Act, 1956 and Ensim Corporation, USA being incorporated in USA, are two distinct persons with separate legal identity with distinct rights and obligations, in the eyes of law. The majority shareholding of Ensim Corporation, USA in the Noticee does not indicate that they are merely establishments of a distinct person. It establishes their separate legal existence in terms of Company laws. Hence, I find that they cannot be treated as mere establishment of a distinct person in the taxable territory and therefore, the relevant condition under Rule 6A(f) of the Service Tax Rules, 1994 also stands satisfied. 5.8.3 I find that the decision of the Hon'ble Tribunal in the case of Autodesk India Pvt. Ltd. v. Commissioner of Service Tax, Delhi, [2019 (20) GSTL 581 (Tri-Del)] relevant to the instant case, wherein the appellant was a wholly owne....
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....s stated that - "Cost Plus Fee. Except as otherwise agreed by the Parties, in addition to the Reimbursement Amount described in Article 5.1(a) above, Service Recipient shall pay Developer hereunder an amount (the "Cost Plus Fee") calculated as a percentage of total 'operating expenses' incurred in provision of Services, which shall be amended and modified as per mutual discussion and considering business reasons and other local statutory requirements of both the Service Recipient and the Developer. The operating expenses (Reimbursement Amount) for the purpose of Cost Plus Fee arrangement shall mean the costs incurred by the Developer in relation to the provision of Software Development Services during the course of its normal operations including depreciation and amortisation expenses relating to the assets used by the Developer, but excluding the following: * interest expense; * provision for unascertained liabilities; * pre-operating expenses; * extra-ordinary expenses; * loss on transfer of assets or investments; * expense on account of income-tax; * other expenses not relating to normal operations of the Developer- and * expenses not incurred for pro....
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....penses' incurred in providing the services which is also the reimbursement amount but excluding certain expenses as listed in the relevant clause. The bills are also raised by the Noticee accordingly being the operating cost on a monthly basis, however, there is nothing to indicate that they are for the cost of establishment of the Noticee in India instead of providing the services in question. Thus, the terms of the agreement clearly prescribe the remuneration receivable by the Noticee. 5.9.3 I also find that the clause in the said Agreement providing for rights and ownership including copyright in software, to vest with Ensim Corporation, USA indicates that the software development services are provided by the Noticee to the parent company on their own account. On receipt of consideration for the software from Ensim Corporation, USA, by the Noticee, all the rights, titles etc. in such software shall vest with Ensim Corporation, USA. 5.10 I find that there are several decided case laws where various judicial forums had declined to accept the department's view of treating similar services (as provided by the Noticee M/s Ensim India Private Limited to M/s Ensim Corpo....
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....ervice Rules, 2012. Therefore, the demands against the appellants are not sustainable. Consequently, refund claim filed by the appellants are admissible." 5.10.2 In the case between AMD India Pvt. Ltd. vs. CST, Bangalore, [2017 (12) TMI 772 - CESTAT Bangalore], it was held that the Information Technology Software Services (ITSS), Information Technology Enabled Services (ITES) provided by appellant does not fall under 'intermediary services' and thus the concerned services falls within the definition of export. The relevant extract of the said judicial pronouncement is as under: "6.1 After considering the submissions of both the parties and perusal of material on record and the judgments relied upon by the appellant, I find that the appellant is a subsidiary of its holding company and is providing services under the Master Services Agreement and the same Master Services Agreement does not provide that the appellant will facilitate or will arrange the purchase and sale on behalf of the AMD entities outside India. Further I also find that the services rendered by the appellant do not fall under the definition of intermediary and it satisfies all the conditions prescribed un....
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....of services rendered by them. Further it is on record that they locate potential customers for the products of the foreign company located abroad. Though the services are provided with respect to buyers in India, the benefit of the same accrued to the company located abroad. It is undisputed that M/s. Analog Devices India Pvt. Ltd., India and the parent company abroad are independent legal entities. They do not render any service to any Indian customers and the benefit is derived by the foreign recipient. Further the Commissioner (Appeals) has also relied upon the decision in the case of ABS India ltd. vs. CST Bangalore [2009(13) STR 65 (Tri. Bang.)] 2008- TIOL-1500-CESTAT-BANG wherein the Tribunal has held that booking of orders for sale of goods manufactured by the subsidiary of the appellant which is located in Singapore was services exported and the appellant was not required to pay service tax. Further the Commissioner (Appeals) has discussed in detail the provisions of Rule 6A of the Service Tax Rules, 1994 to come to a conclusion that the services rendered by the respondent are not intermediary services but an export of services. In view of my discussion abo....
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....ore, applicant is not an "intermediary" and the service provided by him is not intermediary service. Further, during arguments, applicant drew our attention to one of the illustration given under Paragraph 5.9.6 of the Education Guide, 2012 issued by CB.E. &C Relevant portion is extracted as under; Similarly, persons such as call centers, who provide services to their clients by dealing with the customers of the client on the client's behalf, but actually provided these services on their own account', will not be categorized as intermediaries. Applicant relying on above paragraph submitted that call centers, by dealing with customers of their clients, on client's behalf, are providing service to their client on their own account. Similarly, applicant is providing business support service such as marketing and other allied services like oversight of quality of third party customer care centre operated in India and payment processing services, on behalf of GoDaddy US. Therefore, these services provided by the applicant to GoDaddy US cannot be categorized as intermediary or services, as intermediary service. 6.0 In light of the above discussions, relying on the d....