2025 (7) TMI 339 - AT - Service Tax

Levy of service tax - Appellant is an intermediary in terms of Rule 2(f) of the Place Provision of Services Rules 2012 - services supplied by the Appellant to its parent entity located outside India - export of services in terms of Rule 6A of the Service Tax Rules 1994. HELD THAT - The appellant in terms of the Service Agreement between the Appellant and ITAP inter-alia is required to provide marketing promotional and after-sales services to ITAP s customers in India. It is found that for the period prior to 27.02.2010 the law is well settled by the judgement of the Hon ble High Court of Bombay in the case of Vodafone Idea Ltd. Vs. Union of India 2022 (7) TMI 645 - BOMBAY HIGH COURT that customer s customer cannot be your customer i.e. in a supplier-recipient relationship when services are further rendered by the recipient therein to its third-party customers such third-party customers cannot be called the customers of the original supplier. Furthermore for the period prior to 01.07.2012 the law is also well settled by a Larger Bench of the Hon ble Tribunal Mumbai in the case of Arcelor Mittal Stainless (1) Pvt. Ltd. Vs. Commissioner Service Tax Mumbai-II 2023 (8) TMI 107 - CESTAT MUMBAI-LB wherein it is held that in a case where the benefit of service is accruing outside India the said service should qualify as export of service in terms of the Export Rules. The Larger Bench has further held that export of service would take place under Rule 3(1) of the Export of Services Rules 2005 if a person residing in India provides a service to a foreign entity to enable it to book orders for customers in India. The impugned order confirming the activity of the appellant as an intermediary in terms of Rule 2(f) of Place of Provision of Services Rules 2012 is not sustainable and therefore liable to be set aside. Further the rejection of the 10(ten) refunds claims on the ground that the services of providing marketing promotional and after-sales services to ITAP s customers in India by the Appellant to their parent entity ITAP abroad on the ground that service rendered does not qualify as export is unsustainable. The services rendered by the appellant to ITAP qualify as an export and not as intermediary service therefore the appellant is eligible for the refund of cenvat credit under Rule 5 of the Cenvat Credit Rules 2004 - appeal allowed.

Summary

The core legal questions considered by the Tribunal in these appeals are:

i) Whether the appellant qualifies as an 'intermediary' under Rule 2(f) of the Place of Provision of Services Rules, 2012;

ii) Whether the services supplied by the appellant to its overseas parent entity qualify as an export of services under Rule 6A of the Service Tax Rules, 1994;

iii) Whether the appellant is entitled to refund of unutilized CENVAT credit on input services used for providing export of services;

iv) Whether the demand of service tax, interest, and penalty on the appellant is sustainable, including consideration of limitation and applicability of extended period;

v) Applicability of the Place of Provision of Services Rules (POPS Rules) and Export of Services Rules to the relevant periods;

vi) Treatment of the appellant's marketing support services vis-`a-vis the definition of intermediary services and export of services.

Issue-wise Detailed Analysis:

1. Whether the appellant is an 'intermediary' under Rule 2(f) of the Place of Provision of Services Rules, 2012

The legal framework defines an 'intermediary' as a broker, agent, or any person who arranges or facilitates the provision of a service between two or more persons but does not provide the service on his own account. The three essential conditions are:

• Being a broker, agent, or similar person;
• Arranging or facilitating the provision of a main service between two or more persons;
• Not providing the main service on own account.

The Tribunal referred to the CBIC Education Guide dated 20.06.2012 and Circular No. 159/15/2021-GST dated 20.09.2021, which clarify that the scope of intermediary services remains consistent under Service Tax and GST regimes.

Applying these principles, the Tribunal analyzed the service agreement between the appellant and its overseas parent entity. The appellant was engaged to provide marketing, promotional, and after-sales services to the parent's customers in India but was expressly prohibited from making representations, guarantees, or entering into contracts on behalf of the parent. The appellant received a service fee on a cost-plus markup basis, not linked to performance or commission.

The Tribunal found that the appellant acted as an independent contractor providing services on its own account and did not facilitate or arrange a main service between two other parties. The appellant was not authorized to bind or represent the overseas parent or its customers, and therefore did not satisfy the intermediary definition.

Precedents relied upon include the Tribunal's decisions in Informatica Business Solutions Pvt. Ltd., Excelpoint Systems India Pvt. Ltd., Blackberry India Pvt. Ltd., and AMD India Pvt. Ltd., which held that marketing support or customer care services provided to a foreign entity do not constitute intermediary services when the service provider acts on its own account.

2. Whether the services qualify as export of services under Rule 6A of Service Tax Rules, 1994

The Tribunal examined the export of services provisions, which require:

• Provider located in taxable territory (India);
• Recipient located outside India;
• Service not specified under Section 66D of the Finance Act;
• Place of provision of service outside India;
• Payment received in convertible foreign exchange;
• Provider and recipient not merely establishments of a distinct person.

It was undisputed that the appellant is located in India, the recipient is the overseas parent in Singapore, payment was received in convertible foreign exchange, and the service is not covered under Section 66D.

The Tribunal held that the place of provision of services is the location of the recipient, i.e., outside India, based on Rule 3 of the POPS Rules, 2012. Since the appellant is not an intermediary, the place of provision cannot be the location of the appellant's customers in India but must be the overseas parent's location.

For periods prior to 01.07.2012, the Export of Services Rules, 2005 applied. The Tribunal relied on the Bombay High Court's ruling in Vodafone Idea Ltd. and the Larger Bench decision in Arcelor Mittal Stainless (1) Pvt. Ltd., which held that services provided to a foreign entity to enable it to book orders for Indian customers qualify as export of services. The location of the foreign entity's customers is irrelevant for determining export status.

Thus, the Tribunal concluded that the appellant's marketing support services qualify as export of services for the entire relevant period.

3. Entitlement to refund of unutilized CENVAT credit

The appellant claimed refund of unutilized CENVAT credit on input services used for export of services under Rule 5 of the CENVAT Credit Rules, 2004. The Department rejected the refund on the ground that the services did not qualify as export and also alleged mismatch in credit shown in ST-3 returns.

The Tribunal held that since the services qualify as export, the appellant is entitled to refund. It further relied on the Tribunal's decision in Broadcom Research Pvt. Ltd., upheld by the Karnataka High Court, that non-reflection of credit in ST-3 returns is not a valid ground to deny refund if the credit ledger shows the debit. The Tribunal also referred to the decision in Scribetech India Healthcare Pvt. Ltd. which clarified that refund claims should not be restricted to credit availed during the refund period but must consider the balance available on the last day of the quarter and date of filing.

4. Limitation and imposition of penalty and interest

The appellant contended that the demand is barred by limitation and that penalty and interest cannot be imposed as there was no wilful misdeclaration or suppression. The appellant had exported 100% of its output and discharged service tax liability on input services under reverse charge.

The Tribunal noted that extended period of limitation and penalty require positive acts of wilful misdeclaration or suppression, which were not established. Therefore, the demand was barred by limitation and penalty and interest were not sustainable.

5. Applicability of POPS Rules and Export of Services Rules to relevant periods

The Tribunal observed that the POPS Rules, 2012, came into effect from 01.07.2012 and are not applicable to periods prior to that. For periods before 27.02.2010, the Export of Services Rules, 2005 applied, which did not require the service to be used outside India. The Tribunal held that the adjudicating authority erred in applying POPS Rules to periods prior to their introduction and in relying on a non-existent condition in the Export Rules that the service should be used outside India.

Treatment of competing arguments

The Department argued that the appellant's services are intermediary services, thus not export, and liable to service tax with interest and penalty. The Department also rejected refund claims on the same basis.

The appellant countered with the contractual terms showing lack of authority to bind or represent the overseas parent, the nature of service fee (cost-plus, not commission), and judicial precedents establishing that marketing support services to a foreign parent are export and not intermediary services.

The Tribunal found the appellant's arguments supported by the agreement, legal definitions, and binding precedents, and rejected the Department's contentions.

Significant Holdings:

"The basic requirement to be an intermediary is that there should be at least three parties; an intermediary is someone who arranges or facilitates the supply of goods or services or securities between two or more persons. In other words, there is main supply and the role of the intermediary is to arrange or facilitate another supply between two or more other persons and, does not himself provide the main supply."

"The appellant is providing only the marketing, promotional and after sales service to the overseas parent's customers in India but is not permitted to enter into any contract with those customers and is not authorized to bind the overseas parent. Therefore, the appellant does not satisfy the test of being an intermediary."

"The services provided by the appellant qualify as export of services under Rule 6A of the Service Tax Rules, 1994, as all conditions including location of recipient outside India, payment in convertible foreign exchange, and place of provision outside India are satisfied."

"The rejection of refund claims on the ground that the services do not qualify as export is unsustainable and the appellant is entitled to refund of unutilized CENVAT credit."

"The demand is barred by limitation and penalty and interest cannot be imposed in absence of wilful misdeclaration or suppression."

"The Place of Provision of Services Rules, 2012 are not applicable to periods prior to their introduction and the Export of Services Rules, 2005 govern the earlier periods."

The Tribunal allowed the appeals against demand and set aside the impugned orders confirming the appellant as an intermediary. It also set aside the rejection of refund claims and granted consequential relief as per law.