2025 (5) TMI 1898 - AT - Service Tax

Levy of service tax - Services to WECA HK in the capacity of an intermediary - credit of export - definition of the Intermediary - terms of Rule 9 of POPS Rules - evade payment of duty - Demand of service tax along with interest and penalty - HELD THAT - On going through the terms of the Agreement we find that the Agreement is between two principals. There is nothing in the agreements even to remotely indicate that the appellants are agents of WECA HK. The Revenue also did not come up with any evidence in the form of tripartite agreements between the appellants their principal WECA HK and their vendors. In view of the same it is difficult to accept that the appellants are agents/ brokers of WECA HK so as to be covered under Rule 9 of POPS Rules. This Bench has taken similar view in respect of M/s Airbnb Payments India Pvt Ltd. 2024 (9) TMI 1172 - CESTAT CHANDIGARH . We find that in the instant case too the appellants cannot be called intermediary as per the criteria laid down by the Hon ble Punjab Haryana High Court in the case of Genpact India Pvt Ltd. 2023 (8) TMI 1210 - PUNJAB AND HARYANA HIGH COURT . Therefore we find that the impugned order incorrectly holds the appellants as intermediary and denies the benefit of export. Therefore we find that the impugned order confirming the demand holding that the appellants are an intermediary cannot be sustained. When the impugned order does not survive on this issue we find that it is a futile exercise to go into the elaborate submissions given by the learned Counsel for the appellants. Thus the appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the appellants rendered services to their principal, WECA HK, in the capacity of an intermediary within the meaning of Rule 9 of the Place of Provision of Services (POPS) Rules, 2012;
• If the appellants are intermediaries, whether the services provided by them qualify as export of services under the relevant provisions of service tax law and POPS Rules;
• Whether the show cause notice and the impugned order suffer from procedural infirmities, including reliance on statements recorded without proper examination under Section 9D(1)(b) of the Central Excise Act, 1944, and improper invocation of provisions of the CGST Act;
• Whether the Revenue was justified in invoking Rule 4 and Rule 9 of POPS Rules simultaneously and whether these Rules are applicable to the facts of the case;
• Whether the appellants' contractual relationship with WECA HK establishes a principal-to-principal relationship or an agency/intermediary relationship;
• Whether the extended period for demand of service tax can be invoked on grounds of suppression or concealment;
• Whether the appellants are entitled to the benefit of export of services and consequent non-payment of service tax on the services rendered to WECA HK;
• Whether the demand of service tax, interest, and penalty as confirmed by the Commissioner is sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the appellants acted as intermediaries under Rule 9 of POPS Rules

Relevant legal framework and precedents: Rule 9 of POPS Rules defines intermediary services as those rendered by a broker, agent, or any other person who arranges or facilitates the provision of goods or services between two or more persons but does not provide the main supply on their own account. Section 2(f) of the POPS Rules elaborates the criteria for intermediary services, including the necessity of a principal-agent relationship and facilitation between two distinct parties. The CBIC Circular No. 159/15/2021-GST dated 20.09.2021 clarifies that intermediary services require a minimum of three parties and two distinct supplies (main and ancillary). Key precedents relied upon include Genpact India Pvt. Ltd. (2023), Oceanic Consultants Pvt. Ltd. (2024), and IDP Education India Pvt. Ltd. (2023), which emphasize the necessity of a principal-agent relationship and the absence of provision of the main service by the intermediary itself.

Court's interpretation and reasoning: The Tribunal examined the agreements between the appellants and WECA HK, which explicitly state that the appellants have no authority to contract or obligate WECA HK with manufacturers, suppliers, or clients, and that the relationship is that of independent contractors without any principal-agent or agency relationship. The Tribunal noted the absence of any tripartite agreements involving the appellants, WECA HK, and vendors or clients, which would have indicated an intermediary role.

Key evidence and findings: The agreements from 2015 and 2017 contain clauses (Articles 6 and 7 in the 2015 agreement and Articles 7 and 8 in the 2017 agreement) clearly denying agency or principal-agent relationship and confirming the independent contractor status of the appellants. The Revenue did not produce evidence of any contractual authority or agency relationship. The appellants provided services such as market research, sample verification, and shipment tracking on their own account to WECA HK.

Application of law to facts: Given the absence of agency or facilitation between two distinct parties by the appellants, and the fact that they provided the main service on their own account, the Tribunal concluded that the appellants do not fall within the definition of intermediary under Rule 9 of POPS Rules.

Treatment of competing arguments: The Revenue argued that the appellants acted as intermediaries and invoked Rule 9, but the appellants countered with contractual evidence and authoritative precedents. The Tribunal favored the appellants' submissions, finding the Revenue's reliance on intermediary characterization unsustainable.

Conclusion: The appellants are not intermediaries as per Rule 9 of the POPS Rules.

Issue 2: Applicability of Rule 4 of POPS Rules and simultaneous invocation of Rules 4 and 9

Relevant legal framework and precedents: Rule 4 of POPS Rules deals with services related to goods that require physical presence of goods or recipient for the service to be provided. The CBEC Education Guide dated 20.06.2012 clarifies the scope of Rule 4 sub-rules.

Court's interpretation and reasoning: The Tribunal noted that Rule 4(a) applies only to services performed in respect of goods physically made available to the service provider, such as repair or warehousing, and Rule 4(b) applies to services requiring physical presence of the recipient. The appellants' services did not involve physical presence of goods or recipients in India, as the recipient WECA HK is located in Hong Kong.

Key evidence and findings: The appellants performed market research, sample verification, and shipment tracking, none of which required physical availability of goods or presence of the recipient in India.

Application of law to facts: Rule 4 was found inapplicable, and the Revenue's simultaneous invocation of Rule 4 and Rule 9 was held to be incorrect. Rule 14 of POPS Rules mandates that if multiple Rules apply, the later Rule should prevail, but since Rule 4 was inapplicable, Rule 9 alone was relevant, which was also rejected.

Treatment of competing arguments: The appellants argued against applicability of Rule 4, supported by the Education Guide and relevant case law; the Tribunal agreed with this interpretation.

Conclusion: Rule 4 of POPS Rules is not applicable; simultaneous invocation with Rule 9 is impermissible.

Issue 3: Whether the services rendered qualify as export of services

Relevant legal framework and precedents: Export of services requires that the place of provision of service is outside India, the recipient is located outside India, and payment is received in convertible foreign exchange, among other conditions. Rule 3 of POPS Rules defines the place of provision of services as the location of the recipient in case of services not covered by other Rules. The appellants relied on Rule 3 and the principal-to-principal contractual relationship.

Court's interpretation and reasoning: Since the appellants are not intermediaries and the recipient WECA HK is located in Hong Kong, the place of provision of services is outside India. The appellants provided the main service on their own account to WECA HK, qualifying as export of services.

Key evidence and findings: The contracts and payment records showed that the recipients are located outside India and payments were received in foreign exchange. The Revenue did not dispute compliance with other conditions of export under Rule 6A of Service Tax Rules, 1994.

Application of law to facts: The services rendered by the appellants qualify as export of services under the relevant provisions.

Treatment of competing arguments: The Revenue disputed export classification based on intermediary characterization; the Tribunal rejected that basis and accepted appellants' claim.

Conclusion: The services rendered by the appellants qualify as export of services.

Issue 4: Procedural infirmities and reliance on statements

Relevant legal framework and precedents: Section 9D(1)(b) of Central Excise Act, 1944 requires examination-in-chief of witnesses during adjudication. Statements recorded under Section 70 of CGST Act cannot be relied upon in service tax proceedings. Precedents include Hi Tech Abrasives Ltd. (2018) and Kuber Tobacco India Ltd. (2016).

Court's interpretation and reasoning: The Tribunal found that the Revenue relied on statements recorded without conducting examination-in-chief, violating the statutory provisions. Statements recorded under CGST provisions were improperly relied upon in service tax adjudication. Additionally, a key witness retracted his statement, undermining the evidentiary basis.

Key evidence and findings: Statements of employees and vendors were recorded without proper examination; retraction of statement by Shri Manoj Davis was noted.

Application of law to facts: Procedural violations render the reliance on such statements improper and weaken the Revenue's case.

Treatment of competing arguments: The Revenue did not justify the procedural lapses; the Tribunal accepted appellants' submissions.

Conclusion: Reliance on improperly recorded statements is unsustainable.

Issue 5: Invocation of extended period and allegation of suppression

Relevant legal framework and precedents: Extended period of limitation can be invoked if there is suppression of facts or intention to evade tax. Precedents include Avery India Ltd. (2024), Sunrise Immigration Consultants (2018), SBI Cards & Payment Services Pvt. Ltd. (2025), and Mahanagar Telephone Nigam Ltd. (2023).

Court's interpretation and reasoning: The appellants had bona fide belief that their services qualified as export. No positive act of suppression or concealment was established by the Revenue. The Tribunal found no justification for invoking extended period or imposing interest and penalty.

Key evidence and findings: No evidence of suppression or intent to evade tax was brought on record by the Revenue.

Application of law to facts: Absence of suppression negates the applicability of extended period and penalty provisions.

Treatment of competing arguments: Revenue's contention of suppression was rejected due to lack of evidence.

Conclusion: Extended period and penalties are not justified.

Issue 6: Consistency of Revenue's stance and revenue neutrality

Relevant legal framework and precedents: Revenue cannot take divergent views for different periods on the same issue as held in SS Engineers (2023) and Rosmerta Technologies Ltd. (2023). Input tax credit provisions under service tax law make the issue revenue neutral if service tax is paid.

Court's interpretation and reasoning: Revenue did not dispute classification of services as export for April 2015 to March 2016 but disputed for April 2016 to June 2017, which is inconsistent. Even if service tax was payable, input credit would neutralize the impact. Section 67(2) of the Finance Act, 1994 provides for cum-duty benefit.

Key evidence and findings: Revenue's inconsistent stand and lack of challenge for earlier period.

Application of law to facts: The inconsistency undermines Revenue's case; the issue is revenue neutral.

Treatment of competing arguments: Tribunal accepted appellants' argument on consistency and neutrality.

Conclusion: Revenue's inconsistent approach is untenable; issue is revenue neutral.

3. SIGNIFICANT HOLDINGS

"The appellants have entered into agreements which clearly establish a principal-to-principal relationship and not an agency or intermediary relationship. The absence of any authority to contract on behalf of WECA HK and the lack of tripartite agreements negate the characterization of the appellants as intermediaries under Rule 9 of the POPS Rules."

"Rule 4 of the POPS Rules is not applicable to the services rendered by the appellants as there is no physical presence of goods or recipient involved, and simultaneous invocation of Rule 4 and Rule 9 is impermissible."

"The services rendered by the appellants qualify as export of services as the place of provision of service is outside India, being the location of the recipient, WECA HK in Hong Kong."

"Reliance on statements recorded without examination-in-chief under Section 9D(1)(b) of the Central Excise Act, 1944 and reliance on statements recorded under CGST Act provisions in service tax proceedings is improper and cannot sustain the demand."

"Extended period of limitation cannot be invoked in absence of any positive act of suppression or intent to evade tax by the appellants."

"Revenue cannot take divergent views on the same issue for different periods; the issue is revenue neutral if service tax is paid and input credit is available."

"Accordingly, the impugned order confirming the demand on the basis that the appellants are intermediaries and denying the export benefit is set aside."