2025 (7) TMI 1546 - AT - Service Tax

Classification of service - export of service or taxable service falling under the category of intermediary service under Rule 2(f) of the Place of Provision of Services Rules 2012 - agency and distribution agreement entered into by the appellant with their holding company - extended period of limitation - HELD THAT - Clause 3.3 states the appellant acting as commercial agent shall act as an intermediary for the sale of the products in the name and on account of Plansee and Clause 8.1 states if acting as a commercial agent sales company shall act only in accordance with Plansee s instructions. Relying on these two clauses of the agreement without dwelling into how actually the activities of the appellant can be treated as intermediary services has not been explained in the impugned order. It is agreed that unless there is evidence to prove that the appellant has acted as an intermediary the Clauses of the Agreement cannot be attracted to state that the appellant is an intermediary. Moreover the consideration received by the appellant is on cost plus fee arrangement which has no bearing on the sale of goods by the holding company. In the case of CCE vs. M/s. Informatica Business Solutions Pvt. Ltd. 2024 (11) TMI 922 - CESTAT BANGALORE this Tribunal referring to various decisions observed that the basic requirement to be an intermediary is that there should be atleast 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 to or more another person and does not himself provide the main supply. Referring to the Board Circular relied upon by the Revenue this Tribunal held that the intermediary services are not attracted in a case where an agreement is entered into for rendering marketing and self-services as is the case in the present proceedings. The agreement between the appellant and their holding company cannot justify that the appellant is an intermediary and hence the demand on this ground cannot be sustained - Since the appeal succeeds on merits the question of discussing invocation of extended period of limitation does not arise - the impugned order is set aside. Appeal allowed.

Summary

ISSUES:

Whether the activity carried out qualifies as export of service or taxable intermediary service under Rule 2(f) of the Place of Provision of Services Rules, 2012.Whether the appellant acted as an intermediary by arranging or facilitating the supply of goods or services between the holding company and third parties.Whether the appellant's service falls under the definition of intermediary service as per Section 65B(44) of the Finance Act, 1994 and related Board Circulars.Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 can be invoked in absence of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax.Whether reliance on the terms "agent" or "intermediary" in the agreement conclusively establishes the appellant's status as an intermediary.

RULINGS / HOLDINGS:

The appellant's activity is not an intermediary service but qualifies as an export of service because the appellant acts on a principal-to-principal basis and does not provide the main service on behalf of the holding company.The mere use of the term "intermediary" or "agent" in the agreement is insufficient to establish the appellant as an intermediary without evidence that the appellant had power to conclude contracts or acted as an agent; the appellant is not authorized to conclude contracts on behalf of the holding company.The essential feature of intermediary service is that the intermediary "arranges or facilitates a provision of service or a supply of goods" between two or more persons but "does not include a person who provides the main service or supplies the goods on his account."The extended period of limitation under Section 73(1) cannot be invoked absent fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax; mere failure to declare export of services in returns does not constitute suppression with intent to evade tax.Cost plus fee arrangement for marketing and support services does not constitute intermediary service as it has no bearing on the sale of goods by the holding company.

RATIONALE:

The Court applied the definition of "intermediary" under Section 65B(44) of the Finance Act, 1994 and the Place of Provision of Services Rules, 2012, emphasizing that an intermediary "arranges or facilitates" supply but does not provide the main service.The Court relied on authoritative interpretations including the Education Guide on intermediary services, Board Circular No.159/15/2021-GST dated 20.09.2021, and relevant case law emphasizing substance over form in agency relationships (Supreme Court decisions on principal-agent distinction and interpretation of contractual terms).The Court referred to precedent holding that the contractual label of "agent" or "intermediary" is not decisive; the actual rights and obligations under the agreement and conduct of parties must be examined to determine the true nature of the relationship.The Court distinguished the appellant's role from that of an intermediary by noting absence of authority to conclude contracts and the appellant providing services on its own account rather than facilitating a third-party supply.The Court declined to uphold invocation of extended limitation period in absence of evidence of intent to evade tax, relying on statutory provisions and judicial precedents that require such intent for extended limitation to apply.The decision aligns with recent tribunal rulings holding that marketing and support services rendered on a cost plus fee basis do not constitute intermediary services when the provider acts as principal service provider.