TaxTMI 
TaxTMI 
2024 (10) TMI 147
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....d the "Note on Brand Development Activities" submitted by Grant Thornton, India, it appears that the services provided by Grant Thornton, India to develop the "Grant Thornton" brand name would not be 'export of services' under the Export of Service Rules, 2005 [Export of Service Rules] and the payment received by the respondent towards reimbursement of "Brand Development Expenses" would be covered under "business auxiliary service" [BAS] made taxable under section 65 (105)(zzb) of the Finance Act, 1994 [the Finance Act]. Further, with effect from 01.07.2012 "Brand development and other services" would be covered under section 66B of the Finance Act and would not be covered under the Negative List of services nor would any exemption be available under the Notification dated 20.06.2012. The show cause notice further alleges that Grant Thornton, India acted as an "intermediary". 3. The respondent filed a detailed reply to the show cause notice and denied the allegations made therein. 4. The Commissioner accepted the contention of the respondent and dropped the proceedings initiated by the show cause notice. Grant Thornton, India has been referred to as 'Assessee/Noticee and Gran....
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....he period upto 30.06.2012 and the other for the period from 01.07.2012. 7. In regard to the period upto 30.06.2012, the Commissioner examined the definition of BAS under section 65(19) of the Finance Act and observed: "For the period upto 30.06.2012 24.1 I find that as per clause 2 of the agreement which has been relied upon in the SCN, the Noticee is to take all necessary steps for development of "Grant Thorton" brand name in India, whether directly or indirectly by securing resources and funding initiatives. xxxxxxxxxx 24.2 I am not able to understand as to how the above activities are covered under sub-clauses (i) & (vi) ibid. As the production of any goods is not involved in the instant case, the question of coverage of the above activities under the said clause (i) is not tenable. Further, the Noticee has been entrusted with the activity of brand promotion. How such brand promotion would be covered under clause (vi) is also beyond comprehension. 25. Further, even if the proposal in the SCN regarding the classification were to be accepted, the impugned services would not be taxable as the same would be export of service in the lig....
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.... are not covered under the definition of intermediary. 34. As regards outsourcing of the services, I find that it is a common and well recognized practice in service industry that part of the activities may be outsourced. For example, for brand promotion advertisement in print or electronic media may be required and services of the respect ve service providers may be required for the same. Just because such services have been outsourced, the Noticee would not become an intermediary. 35. Further limiting of the reimbursement indicates the quantum of the consideration. The service recipient has clearly indicated that the consideration cannot exceed the ceiling and thus the expense for brand promotion shall be done within the limit prescribed in the agreement. 36. Thus, I find that the transactions in the instant case are not governed by Rule 9 of the Place of provision of Service Rules, 2012 (POPS) as alleged in the SCN. Rather, the default rule viz Rule 3 of the POPS would apply in the instant case according to which the place of provision of service shall be the location of the service recipient, which, in the instant case, is outside India. Further, ther....
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....es with registered number 05523714 whose registered office is at 338 Euston Road, 7th Floor, Regents Place, London NW1 3BG, UK ("GT International"), Whereas: xxxxxxxxx (B) The Parties have discussed and agreed that in order to develop the "Grant Thornton" brand name in India, GTAPL shall take all necessary steps, and accordingly, the parties agree and acknowledge that in order to develop the "Grant Thornton" brand name in India, GTAPL would incur certain expenses which it would otherwise have not incurred. (c) GTI has agreed to reimburse such expenses incurred by GTAPL, in accordance with the terms and conditions contained in this Agreement. 2. Reimbursement for Expenses Incurred 2.1 The parties agree that GTAPL shall take all necessary steps for development of the "Grant Thornton" brand name in India (whether directly or indirectly), by securing resources and funding initiatives including but not limited to:- 2.1.1 increasing markets & industries support capacities, including building a Privately Held Business focus and campaigns to build GT/GTI brand awareness; 2.1.2 increase capabilities of client service su....
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....mphasis supplied) 12. A perusal of the aforesaid Cost Reimbursement Agreement would show that in order to develop the Grant Thornton brand name in India, Grant Thornton, India had to take all necessary steps and the expenses incurred would have to be reimbursed by Grant Thornton, London subject to a limit of US$ 1,000,000 per annum. 13. For the period w.e.f. 01.07.2012, for which the dispute has been raised by the department, the two issues that will arise for consideration are: (i) Whether the services would be classifiable as 'intermediary' services; and (ii) Whether the services qualify as 'export of service' under the 2012 Rules. 14. 'Intermediary' has been defined in clause 2(f) of the 2012 Rules as follows: "2(f) "intermediary" means 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 or supplies the goods on his account." 15. The relevant clauses of the Cost Reimbursement Agreement do not indicate that Grant Thornton, India....
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....ellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks. In that circumstances, the appellant cannot be called as intermediary." (emphasis supplied) 18. 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 meaning of 'intermediary services' has been considered by the Punjab and Haryana High Court in Genpact India Pvt. Ltd. vs. Union of India [2023 (68) GSTL 3 (P&H)]. The issue that arose for consideration before the High Court was whether the services rendered by the petitioner under the agreement could be treated as 'intermediary services' under the provisions of the IGST Act. The observations of the High Court are as follows: "28. As per definition of "intermediary" under Section 2(13) of the IGST Act the following three conditions must be satisfied for a person to qualify as an "intermediary"; - 29. First, the relationship between the parties must be that of a principal-agency relationship. Second, the person must be involved in arrangement or facilitat....
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....dly no change in the scope of "intermediary" services in the GST regime vis-a-vis the service tax regime except addition of supply of securities in the definition of "intermediary" in the GST law." (emphasis supplied) 19. The Delhi High Court in Ernst and Young vs. Additional Commissioner, CGST, Delhi [2023 (73) GSTL 161] also considered whether the services claimed were actually exported and convertible foreign exchange was received by the party in lieu of the said export of services. The observations of the High Court are as follows: "33. In terms of sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In terms of clause (b) of sub-section (8) of Section 13 of the IGST Act, the place of supply of intermediary services is the location of the supplier of services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing intermediary services. As discussed above, the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner....
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.... and the benefit of service rendered by the appellant also accrued outside India, coupled with the fact that the appellant received the payment against the services in convertible foreign exchange and the appellant and the recipient of service are independent legal identities and are not merely establishment of distinct person. It is thus evident that the appellant met the criteria under Rule 6A(1) of the ST Rules and therefore being "export of service" was not amenable to service tax. 17. We may now consider the stand of the department that the services rendered by the appellant has to be treated as "intermediary services" defined under Rule 2(f) of the Rules, 2012. From the definition of "intermediary services", we find that activity between two parties cannot be considered as an intermediate service as intermediary essentially arranges or facilitates the main supply between two or more persons, which is not the case here. Further, the definition of intermediary service excludes any person who has provided the service on their own account. Here from the facts, it is evident that the appellant has provided the service on his own account to the recipient of service, i.e. t....