TaxTMI 
TaxTMI 
2024 (4) TMI 73
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware Development". The Appellant was working at three different places namely, (i) SDF B-13, 14 & 15, 3rd Floor, Noida Special Economic Zone, Dadri Road, Phase-II, Noida, (ii) Unit No.153 & 154, 1st Floor, SDF-V, Santacruz Electronics Export Processing Zone, SEZ Andheri (E), Mumbai and (iii) 702, 7th Floor Skylark Building, 60, Nehru Place, New Delhi and was holding Centralized Service Tax registration No. AAACI7597RSD002 dated 12/05/2016. The Appellant was engaged in software development activities and was availing CENVAT credit under CENVAT Credit Rules, 2004 in respect of service tax paid on input services received. 3. The Officers of Central Tax, Audit Commissionerate, Noida had conducted audit of the records of the Appellant for the period from April, 2013 to June, 2017 during June,18, July,18 & September,18 and observed that in Balance Sheets for 2013-14 to 2016-17, income on two points was shown, (i) from sale of licence and (ii) from sale of services. It was further observed that in the said Balance sheets, under the head of "other expenses and "expenditure in foreign currency", expenses incurred were shown to be Rs.10,18,89,711/-, Rs.8,93,82,836/-, Rs.9,50,98,590/- and Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation No.40/2012-ST dated 20.06.12, would be available as "Business Auxiliary Services" rendered by the Appellant were not Authorised Operation as per Approval letter issued by the SEZ. 7. On the basis of above audit observation, Show Cause Notice dated 23.10.18 was issued to the Appellant for demand of service tax of Rs.6,66,50,976/- on the services carried out by IVP-US and BACS in US and other parts of the world on behalf of the Appellant during the period April, 2013 to June, 17 along with interest and penalty under reverse charge mechanism, treating such services under the category of "Business Auxiliary Service". The case was adjudicated and demand was confirmed along with interest and penalties imposed. Hence the present appeal before this Tribunal. 8. Shri Abhinav Kalra C.A. represented the case on behalf the Appellant and contended that IVP US and BACS had been working as intermediaries and they had been providing intermediary services. They were engaged in Marketing Support Services on account of the Appellant to overseas customers. Citing the definition of "Intermediary Service" as provided under Rule 2(f) of the Place of Provision of Services Rules, 2012 (in short "th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation issued on intermediary in "An Education Guide ("Guidance Note")" on June 20, 2012 issued by the Central Board of Excise and Customs. He emphasized that where a service was capable of being classified under two or more categories, the more specific classification would prevail. It was argued that the definition of "Intermediary" specifically excluded a person who provided the main service or supplies the goods on his account. IVP US and BACS were not having any control over the provision of the main service nor can alter any terms between IVP India and their clients. Reliance was placed on the decision of Excel Point Systems (India) Private Limited Vs Commissioner of ST Bangalore, 2018 (10) G.S.T.L. 254 (Tri. - Bang.). He also referred to the decision of the Tribunal in the matter of Samarth Sevabhavi Trust vs. Commissioner of Central Excise, Aurangabad. In Royal Western India Turf Club Ltd. Vs Commissioner of Service Tax, Mumbai-I, the Tribunal set aside the Order in Original which confirmed the demand on the basis of wrong classification of service. 10. On the issue of non-inclusion of services like identification and prediction of market trends in US, to analyse customer n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iting (here in after in consolidation referred to as "Marketing Support Services"). (b) The IVP US has the requisite skilled employees who are capable of providing Marketing Support Services. (c) Subject to terms and conditions set forth herein, the parties hereto agree that IVP US will allocate specific personnel /employees as listed in the Appendis-1 and as may be modified in writing from time to time to provide Marketing Support Services in US. The IVP US shall use its best efforts to support the IVP India to identify and predict market trends in US, analyse customer needs on regular basis and pass on suggestion to incorporate updated modules of software, improve customer relations, facilitate the information flow between the IVP India and its customers and facilitate closure and execution of assignments / project for IVP for filling gap between customer and the IVP India. (d) The price which IVP India shall pay to the IVP US for Marketing Support Services shall be equal to the IVP US"s cost plus appropriate mark up at arm"s length as per the bench marking provided by global transfer pricing consultants. (e) Cost in para 2.1.1 means all direct and indirect costs attr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tc shall be reimbursed by IVP. From the above it appears that the BACS was hired to facilitate the Appellant to enhance its sale of products globally by providing above specified services. 16. We find that the demand of service tax was raised treating the said specified services as Business Auxiliary Service. With effect from 01.07.12, under "negative list" era when all services were made taxable except those which were enumerated in negative list, there was no definition of "Business Auxiliary Service". However, there was definition of "Business Auxiliary Service" in the Finance Act, 1994 during pre-negative list era, under section 65(105)(zzb) of the Finance Act, 1994. It was defined as:- "Business Auxiliary Service" means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to promotion or marketing of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y services. It is found that "Intermediary" was defined under rule 2(f) of the Place of Provisions of Services Rules, 2012 as a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the "main" service) or a supply of goods, between two or more persons, but does not include a person who provides the main service on his account. Above definition reveals that intermediary involves three or more persons - i. Provider of service, ii. Principal on whose behalf service is rendered or supply of goods is made and iii. Persons (customers of principal) who actually received services. It is also important to note that in case provision of service was made by a person is in his own account to his customers, it cannot be termed as an intermediary. The words "arranges or facilitates" the provision of services or supply of goods, between two or more persons, is the crux of the definition of intermediary. Legal meaning of "facilitate", as per Merriam Webster Dictionary, is i) to make something easier, ii) to help something run more smoothly and effectively. Here in the present case, IVP US and BACS help IVP Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmediary for another person, as identified by the guiding principles outlined above, this rule will apply. v) 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" The above discussion makes it clear as to what kind of services would fall in the category of "Intermediary Services". The scope of intermediary services can be summarized as under:- 1. Minimum of Three Parties: Intermediary does not carry out the main supply himself but arranges or facilitates the main supply of goods and services between two or more persons. The arrangement requires a minimum of three parties, two of them transacting in the main supply of goods and services and one arranging or facilitating the main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. 2. Two distinct supplies: There are two set of supplies- a. Main supply, of goods or services, between two principals, which can be a supply of goods or services or securities; b. Ancillary supply, is the service of facilitating or arranging the main supply of goods or services between th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....BACS were working as an Agent of the Appellant. All the elements required for qualifying "intermediary" were present in the above agreement. IVP US AND BACS could not alter the nature or value of main service, value of intermediary services was clearly identifiable and the services provided by intermediary were clearly identifiable. There were three persons involved in the above deal, i.e., the Appellant, Clients of the Appellant and IVP US OR BACS. In view of the above discussion we are of the considered view that services provided by IVP US and BACS were of the category of "intermediary services". Reference is made to the decision of the CESTAT in the case Excel Point Systems (India) Pvt. Ltd. [2018 (10) G.S.T.L. 254 (T) where the party was engaged providing project support services, consulting services, marketing on product, technical support services, providing advice, clarification and technical assistance to customers on behalf of the group company located outside India and payment received in convertible foreign exchange. The party in the said matter contested that he was providing services in nature of Business Auxiliary. The Ld. First appellate authority however, held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assenger transportation service. Rule 12 defines place of provision of services provided on board a conveyance. In the present case services for which demand was raised were intermediary services. In accordance with Rule 9 of the POP Rules, place of provision of service of intermediary service was location of service provider. Service providers in the instant case were located in USA. Hence, place of provision of service was USA. As both the service provider and service recipient were located in non-taxable area, service tax demanded in this case is not sustainable. 19. The Ld. Pr. Commissioner while confirming demand had given his findings as under:- " In the present case, IVP US and BACS had not arranged or facilitated services rendered by IVP India rather they had provided marketing support services such as to identify and predict market trends in US, analyse customer needs on regular basis and pass on suggestion to incorporate updated modules of software, improve customer relations, facilitate the information flow between the IVP India and its customers and facilitate closure and execution of assignments / project for IVP for filling gap between customer and the IVP India.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or the Appellant. In this case service tax was payable under reverse charge mechanism under notification No.30/12-ST dated 20.06.12 by the service recipient and the same was available for taking back in the form of Cenvat Credit. Thus, there was no gain to the government exchequer in that case. It is a case of revenue neutrality. We find that the issue of the applicability of revenue neutrality in the circumstances of charging service tax under reverse charge mechanism has been settled in catena of judgments. In the case of Jet Airways India Ltd. [2016-TIOL-2072-CESTAT-MUM], the Tribunal considered the issue of revenue neutrality where service tax was required to pay under reverse charge mechanism as service provider was foreign based firm. The Tribunal held that as the appellant could have availed CENVAT credit of the service tax paid on reverse charge mechanism, hence, a revenue neutral situation arises wherein appellant pays the tax and takes the credit and accordingly set aside the tax demand interest thereon and penalties. In the case of Jain Irrigation System Ltd. [2015 (40) S.T.R. 572 (T)] the Tribunal holds that revenue neutral situation comes about when credit is available....