2025 (6) TMI 455 - AT - Service Tax

Classification of services - services rendered by the appellant to the foreign universities - export of service as claimed by the appellant or intermediary service as alleged by the Revenue? - HELD THAT - The issue has already been decided in favour of the appellant in large number of decisions taking a consistent view that the appellant cannot be categorized as an intermediary and the services rendered by him for promotion and marketing of foreign universities was on principal to principal basis. The services rendered by the appellant in India are received by the foreign universities outside India for which commission is received in foreign currency is export of service and consequently no service tax is leviable thereon. Appeal allowed.

Summary

The core legal question considered is whether the services rendered by the appellant to foreign universities constitute "export of service" or fall within the ambit of "intermediary service" under the relevant service tax laws and rules. This determination is pivotal as it affects the applicability of service tax on the appellant's activities.

The Tribunal examined the nature of services provided by the appellant, who promotes and markets foreign universities to Indian students, and whether such services qualify as export of service under the Service Tax Rules and the IGST Act or are intermediary services attracting tax liability.

Regarding the legal framework, the Tribunal relied heavily on the Place of Provision of Services Rules, 2012 (POPS Rules), particularly Rule 6A defining export of service, and Rule 2(f) defining "intermediary". The definition of "intermediary" requires that the person acts as a broker or agent facilitating services or goods between two parties without providing the service on his own account. The Tribunal also referred to the IGST Act's definition of "intermediary services" as pari materia to the POPS Rules.

Precedents cited include multiple decisions of the CESTAT and High Courts, notably the recent decision in Sannam S-4 Management Services India Pvt. Ltd. which clarified that services rendered for promotion and marketing of foreign universities to Indian students, when the service recipient is the foreign university located outside India, qualify as export of service. The Supreme Court's guidance in All India Federation of Tax Practitioners vs Union of India was also invoked to affirm that the place of consumption determines the destination of service, not the place of performance.

The Tribunal's reasoning emphasized that the appellant entered into agreements directly with foreign universities, which are the service recipients located outside India. The appellant receives consideration in convertible foreign exchange from these foreign entities, and no consideration is received from the Indian students who are merely beneficiaries of the promotional activities. Since no taxable service can exist without consideration from the recipient, the Indian students cannot be deemed service recipients.

Applying Rule 3 of the POPS Rules and Section 66B of the Finance Act, 1994 (Service Tax Act), the Tribunal held that services provided to recipients outside the taxable territory are not liable to service tax. The appellant's activities were found to be principal-to-principal transactions rather than intermediary services. The appellant did not act as a broker or agent facilitating services on behalf of the foreign universities but rendered promotional and marketing services on its own account.

The Tribunal addressed competing arguments by the Revenue, which contended that the appellant was an intermediary arranging or facilitating enrolment of students and earning commission, thereby attracting service tax. The Tribunal distinguished the appellant's role from that of an intermediary by highlighting that the appellant's services were promotional and marketing in nature, directly provided to the foreign universities, and that the appellant bore the risk and responsibility of the services rendered.

Key evidence included the agreements between the appellant and foreign universities, invoices raised on the universities for fees, receipt of payment in foreign exchange, and the modus operandi of the appellant's business model. The appellant's returns reflecting the income as exports further supported the claim of export of service.

On the basis of the above analysis, the Tribunal concluded that the appellant's services qualify as export of service under Rule 6A of the POPS Rules and Section 2(6) of the IGST Act, and do not constitute intermediary services under Rule 2(f) of the POPS Rules. Consequently, the demand for service tax on the appellant's activities was unsustainable and was set aside.

Significant holdings include the following verbatim legal reasoning:

"The appellant has entered into an agreement with the foreign universities/foreign group entities, whereby 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."

"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."

"One of the conditions is that the provision of such service shall not be made by that person himself, on his account. In other words, an intermediary is a person who while dealing with a third-party, acts for another person."

"Following the decision referred above 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'."

The core principles established are:

• Services rendered by an Indian entity to a foreign university for promotion and marketing, where the foreign university is the service recipient located outside India and consideration is received in convertible foreign exchange, qualify as export of service.
• Indian students who benefit from such promotional activities but do not pay consideration cannot be treated as service recipients.
• Intermediary services require the provider to act as a broker or agent facilitating services or goods between two parties without providing the service on his own account. Mere promotion and marketing do not constitute intermediary services.
• Place of consumption of service determines export of service, not the place of performance.
• Service tax cannot be levied on services provided to recipients outside the taxable territory.

Final determinations on the issue are that the appellant's services are "export of services" and not "intermediary services", and therefore, no service tax liability arises. The demand confirmed by the adjudicating authority was quashed, and the appeals were allowed accordingly.