2025 (5) TMI 157 - AT - Service Tax

Demand of service tax alongwith interest and penalty under the provisions of the Finance Act 1994 Act 1994 - consultancy services - services rendered to foreign universities and foreign group entities constitute export of service or intermediary service - Finance Act 1994 and the Place of Provision of Service Rules 2012 (POPS Rules) - in lieu of the services of arranging/facilitation was chargeable to service tax - powers under Section 66C the Central Government framed the Place of Provisions Service Rules 2012 (POPS Rules) - HELD THAT - It is evident that the services rendered by the appellant is for promotion and marketing of foreign universities among the Indian students. Therefore the foreign universities or group entities are service recipients which are located outside India. The consideration is received by the appellant from the foreign universities or group entities in convertible foreign exchange. In so far as the Indian students are concerned the appellant has no agreement with them and no consideration is received from the Indian students and there cannot be any taxable service without any consideration. Thus the Indian students cannot be termed as service recipients of the services provided by the appellant. Applying Rule 3 of POPS Rules the foreign universities being the service recipient located outside the taxable territory cannot be subjected to service tax on the simple principle as provided in section 66B of the Act that for service tax to be levied in terms of Chapter V of the Act the service has to be provided within the taxable territory. Coming to the next aspect of the services being provided outside the taxable territory where the service provider is in India and the recipient of service is located outside India the Apex Court in All India Federation of Tax Practitioners versus Union of India 2007 (8) TMI 1 - SUPREME COURT observed that in normal parlance it would be export of service . Further it has been settled that the destination has to be decided on the basis of place of consumption and not the place of performance of service as laid down by the Larger Bench in Paul Merchants Ltd versus CCE 2012 (12) TMI 424 - CESTAT DELHI (LB) and affirmed by the High Court of Delhi in Verizon Communication India Pvt Ltd versus Assistant Commissioner ST 2017 (9) TMI 632 - DELHI HIGH COURT Hence we reiterate the conclusion that the appellant satisfies the criteria as per Rule 6A of the Service Tax Rules 1994 and cannot be imposed service tax on the services provided. The Chandigarh Bench in M/s Oceanic Consultants Pvt. Ltd. versus Commissioner Central Excise Service Tax 2024 (8) TMI 399 - CESTAT CHANDIGARH had also considered the Circular No. 159/15/2021-GST dated 20.0 9.2021 which has been issued with reference to the definition of intermediary service under the CGST Act which clarified that in respect of intermediate services there should be a minimum of three parties and two distinct supplies i.e. main supply and ancillary supply. It was also clarified that a person involved in supply of main supply on principal to principal basis to another person cannot be considered as a supplier of intermediary service. The facts of the present case are absolutely identical to the said two decisions and there is no reason to differ from the same. Following the decision of M/s. Arcelor Mittal Projects India Pvt. Ltd. versus Commissioner of Service Tax Mumbai-II 2023 (8) TMI 107 - CESTAT MUMBAI-LB interpreting the provisions of law we hold that the services rendered by the appellant to the foreign university/foreign group entity do not fall under the category of intermediary services and the appellants are eligible for the benefit of export of services . Thus the demand confirmed by the impugned order is unsustainable and is hereby set aside. All the three appeals are accordingly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

- Whether the services rendered by the appellant to foreign universities and foreign group entities constitute "export of service" under the Finance Act, 1994 and the Place of Provision of Service Rules, 2012 (POPS Rules), thereby exempting the appellant from service tax liability.

- Alternatively, whether the appellant's activities amount to "intermediary services" as defined under Rule 2(f) of the POPS Rules, which would render the place of provision of service as India and make the appellant liable to service tax.

- Whether the appellant acts as an independent service provider on principal-to-principal basis or as an agent/broker facilitating services between foreign universities and Indian students.

- The applicability and interpretation of relevant legal provisions, including Section 66B and 66C of the Finance Act, 1994, Rules 3, 6A, 9(c), and 14 of the POPS Rules, and the criteria for export of services.

- The legal effect of agreements between the appellant and foreign universities or foreign group entities, and whether the appellant is subcontracted or acting as an intermediary.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the services rendered by the appellant qualify as "export of service"

Relevant legal framework and precedents: Section 66B of the Finance Act, 1994 levies service tax on services provided in the taxable territory. Section 66C empowers framing of rules to determine the place of provision of services. The POPS Rules, 2012, particularly Rule 3 (general rule) and Rule 6A (export of service), govern the place of provision of services. Rule 3 states the place of provision is the location of the service recipient, while Rule 6A defines export of service as services provided to a person outside India, with payment received in convertible foreign exchange.

Precedents include the CESTAT Chandigarh decision in Sunrise Immigration Consultants P. Ltd. (2018) holding such services as Business Auxiliary Service qualifying as export of service, and the Tribunal's own decision in Medway Educational Consultants (2024), which concluded that services rendered to foreign universities located outside India, paid in foreign exchange, qualify as export of service.

Court's interpretation and reasoning: The Tribunal examined the appellant's agreements with foreign universities and group entities, finding that the appellant provides consultancy and promotional services to foreign universities located outside India. The appellant receives payment in convertible foreign exchange directly from these foreign entities. The Indian students are not service recipients as there is no agreement or consideration from them.

The Tribunal emphasized that service tax applies only to services provided within the taxable territory (India). Since the service recipients are located outside India and the benefit of services accrues outside India, the services meet the criteria under Rule 6A and thus qualify as export of service.

It was noted that the place of consumption (location of service recipient) governs the place of provision, not the place of performance of the service, in line with the Larger Bench decision in Paul Merchants Ltd and Delhi High Court's ruling in Verizon Communication.

Application of law to facts: The appellant's services are promotional and consultancy services rendered to foreign universities or foreign group entities, which are located outside India and pay in foreign currency. The Indian students are merely beneficiaries of the foreign universities' services and not service recipients of the appellant. Therefore, the services are deemed exported and not taxable under service tax.

Treatment of competing arguments: The Revenue argued that the appellant acts as an intermediary facilitating enrolment of Indian students to foreign universities, thus making the place of provision India under Rule 9(c). However, the Tribunal rejected this, finding no agency or intermediary relationship but an independent contractual relationship on principal-to-principal basis.

Conclusions: The services qualify as export of services under Rule 6A and are not liable to service tax.

Issue 2: Whether the appellant's services constitute "intermediary services"

Relevant legal framework and precedents: Rule 2(f) of the POPS Rules defines 'intermediary' as a person who arranges or facilitates provision of service or supply of goods between two other persons and does not provide the service on his own account. The definition is pari materia with Section 2(13) of the IGST Act, and relevant case law includes Punjab and Haryana High Court in Genpact India Pvt. Ltd. and Delhi High Court in Ernest and Young Ltd., which clarified the scope of intermediary services and their place of supply.

CESTAT Mumbai's decision in Chevron Phillips Chemicals India P. Ltd., affirmed by the Supreme Court, also supports the interpretation that intermediary services require a three-party relationship and facilitation role rather than independent provision of services.

Court's interpretation and reasoning: The Tribunal analyzed the appellant's agreements with foreign universities and group entities. The agreements explicitly state the relationship as independent contractor to client, excluding agency or principal-agent relationships. The appellant's role is promotional and marketing services to foreign universities on principal-to-principal basis, not acting as an agent or broker.

The appellant does not facilitate or arrange services on behalf of the universities to Indian students but independently promotes the universities. The final decision to admit students lies solely with the foreign universities. The appellant neither provides education nor admits students.

Regarding agreements with foreign group entities, the Tribunal noted these entities subcontract their entire exercise to the appellant, who undertakes the full scope of services independently. The relationship between the appellant and foreign group entities is also principal-to-principal, not agency.

Precedents such as M/s IDP Educational India Pvt. Ltd. and M/s Oceanic Consultants Pvt. Ltd. were cited, where similar subcontracting arrangements were held not to constitute intermediary services due to absence of a three-party relationship and the independent nature of service provision.

The Tribunal also referred to Circular No. 159/15/2021-GST clarifying that intermediary services require minimum three parties and two distinct supplies, which are absent here.

Application of law to facts: The appellant's role is independent service provider, not an intermediary. The agreements and conduct demonstrate that the appellant acts on its own account and not as an agent or facilitator of services between foreign universities and Indian students.

Treatment of competing arguments: The Revenue's contention that the appellant acts as an intermediary was rejected on the basis of documentary evidence and legal principles. The Tribunal found that the appellant neither facilitates nor arranges services between two other parties but independently provides consultancy services.

Conclusions: The appellant does not qualify as an intermediary under Rule 2(f) of POPS Rules; hence Rule 9(c) is inapplicable.

Issue 3: Applicability of service tax demand and penalty

Relevant legal framework and precedents: Service tax is leviable only if the place of provision of service is within India, per Section 66B of the Finance Act. The POPS Rules govern place of provision. The demand for service tax, interest, and penalty arises if the appellant's services are taxable.

Court's interpretation and reasoning: Since the Tribunal concluded that the appellant's services qualify as export of service and not intermediary services, the place of provision is outside India. Therefore, the demand of service tax, interest, and penalty confirmed by the original order is unsustainable.

Application of law to facts: The appellant's services fall outside the taxable territory; hence no service tax liability arises.

Treatment of competing arguments: The Revenue's demand was based on the premise that the appellant acted as an intermediary with place of provision in India, which the Tribunal rejected.

Conclusions: The service tax demand, interest, and penalty are set aside.

3. SIGNIFICANT HOLDINGS

- "The appellant satisfies the criteria as per Rule 6A of the Service Tax Rules, 1994 and cannot be imposed service tax on the services provided."

- "An intermediary is a person who while dealing with a third-party, acts for another person. The appellant is not acting as an agent of the university but as an independent service provider on principal to principal basis."

- "The services rendered by the appellant to the foreign university/foreign group entity do not fall under the category of 'intermediary services' and the appellants are eligible for the benefit of 'export of services'."

- "The Indian students cannot be termed as service recipients of the services provided by the appellant as there is no agreement or consideration from them."

- "Rule 9 of POPS Rules will not be applicable to the appellant and consequently Rule 3 would apply, placing the location of service recipient outside India and exempting the appellant from service tax."

- "The demand confirmed by the impugned order is unsustainable and is hereby set aside."