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2024 (4) TMI 73 - CESTAT ALLAHABADClassification of services - appellant is registered SEZ unit under the Special Economic Zone Act, 2005 for carrying out authorized operations namely Software Development - Agreements with IVP-US and BACS - IVP-US had provided services for identification and prediction of market trends in US - Business Auxiliary Service or intermediary services - reverse charge mechanism - place of provision of services - revenue neutrality - period April, 2013 to June, 17 - interest and penalty - HELD THAT:- The terms and conditions of agreement indicate that IVP US AND 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. Reference is made to the decision of the CESTAT in the case M/S. EXCELPOINT SYSTEMS (INDIA) PVT. LTD. VERSUS CST, BANGALORE [2017 (10) TMI 806 - CESTAT BANGALORE] 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. It is seen that demand was raised and subsequently confirmed under reverse charge mechanism treating the place of provision of services within taxable territory. Under the Place of Provisions of Services Rules, 2012 (POP Rules), place of provisions of services were specified for different services - 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. The demand in the instant case pertains to April,13 to June,17 when the definition provided under section 65 was not in existence. The classification of service on the basis of a non-existing provision is bad in law. With effect from 01.07.12, all services except services mentioned in negative list were made taxable. Contrary to that, definition of “intermediary” was available even after 01.07.12 and nature of impugned services were within four corners of intermediary services. Thus the observation of the Pr. Commissioner is not sustainable and liable to be set aside. It is also important to note that the Appellant was a SEZ unit and was availing Cenvat credit of taxes paid on its input services. Services which were provided by IVP US/UK were input services for 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. Once demand is not sustainable, interest and penalty under Section 78 would not be imposable. The impugned order is set aside - appeal allowed.
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