TMI Blog2023 (3) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... iod after March 2020 has also been accepted by the Adjudicating Authority. Thus, the petitioner has been denied ITC only for the period from December 2017 to March 2020; it has been allowed CENVAT credit for the period covered under the service tax regime as well as ITC for the period after March 2020. In terms of Sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In terms of Clause (b) of Sub-section (8) of Section 13 of the IGST Act, the place of supply of intermediary services is the location of the supplier of services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing intermediary services - the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of export of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court considers it apposite to entertain the present petition. Factual Context 4. The petitioner is an Indian Branch Office of M/s Ernst Young Limited, a company incorporated under the laws of United Kingdom (hereafter E Y Limited ). The petitioner was established pursuant to the permission granted by the Reserve Bank of India on 04.04.2008. 5. Prior to the enactment of the Act, the petitioner was registered with the Central Excise Department as a separate tax entity, for providing services of Management or business consultant service, Rent-a-cab scheme operator Service, Manpower recruitment/supply agency service, Legal consultancy service , for the purposes of service tax. 6. E Y Limited has entered into service agreements for providing professional consultancy service to various entities of Ernst Young group (hereafter EY Entities ) including Ernst Young US LLP (hereafter EY US ), Ernst Young Service Pty Ltd. Australia (hereafter EY Australia ), Ernst Young Group Ltd. New Zealand (hereafter EY NZ ) and Ernst Young LLP, UK (hereafter EY UK ) on arm s length basis. 7. In terms of the aforementioned service agreements, the overseas entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E Y Limited an arms length fee for the Services, provided, that, if it is determined that such fee is not in accordance with the arms' length principles, then the parties shall negotiate and modify it at least annually to reflect an arms' length price. 3. EY US may terminate this agreement for any reason on 30 days prior written notice to E Y Limited. 4. Except to the extent otherwise required by applicable professional standards, EY US shall own all right, title and interest in and to all data, reports, frameworks, specifications, designs models, analyses, inventions, programs, other property or materials (collectively, the Works ) that E Y Limited develops in connection with the provision of the Services, including all copyright and intellectual property rights in the Works. 5. E Y Limited shall not to disclose any confidential information relating to EY US, its affiliates, or their respective business, services, personnel, clients, operations or vendors, to any third party except to the extent required by applicable law. These restrictions do not apply to information that has entered the public domain or that has been disclosed to E Y Limited by a third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) How the input services have nexus with the provision of exported services and how they have been utilized for provision of the same. Accordingly, kindly explain the nature of input services and their nexus utilization with the provision of exported services. 13. The petitioner responded to the said show cause notices, inter alia, explaining that the petitioner was involved in providing business advisory services and technical assistance (hereafter the Services ) in relation to tax compliance and other matters. The petitioner states that the Services are in the nature of management consultancy/professional consultancy services. According to the petitioner, it had provided the Services directly to the EY Entities located outside India in terms of the service agreements entered into between E Y Limited (the head office of the petitioner) with the respective EY Entities. The petitioner had raised invoices for the Services rendered and the consideration was received directly from the overseas EY Entities in convertible foreign exchange. The petitioner s ITC had accumulated on account of supplies availed by the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oung Limited the permission to establish a Branch Office in India and noted that the activities that could be carried out by the Branch Office in India included representing the parent company in India and acting as buying/selling agent in India . It further noted that in terms of the service agreements, overseas EY Entities had retained the petitioner (Indian Branch of Ernst Young Limited) to provide professional services in India. In view of the above, the Adjudicating Authority held that the petitioner is engaged in rendering professional or consultancy services, promoting technical or financial collaboration between Indian companies and parent or overseas group companies, representing the parent company in India and acting as buying/selling agent in India etc. . Further, in terms of the service agreements, the petitioner agreed to provide certain professional services in India and the invoices also clearly stated that the services were not provided in USA, UK and Australia. The Adjudicating Authority referred to the definition of intermediary under Section 2(13) of the IGST Act and held as under: I find that the party is an intermediary of E Y Ltd., UK and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or both or securities on his own account; 20. A plain reading of the aforesaid definition makes it amply clear that an intermediary merely arranges or facilitates supply of goods or services or both between two or more persons. Thus, it is obvious that a person who supplies the goods or services is not an intermediary. The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier. In the present case, there is no dispute that the petitioner does not arrange or facilitate services to EY entities from third parties; it renders services to them. The petitioner had not arranged the said supply from any third party. 21. It is important to note that the Adjudicating Authority had also accepted that the petitioner has provided the Services. As noted hereinbefore, the Adjudicating Authority had returned a categorical finding that the party provides services on behalf of E Y Ltd., UK in India to its (E Y Ltd., UK) overseas client . The Adjudicating Authority had reasoned that since the petitioner provides services on behalf of E Y Limited (the petitioner s head office), it was an intermediary. This re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services. 24. Thus, even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of intermediary under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party. 25. The assumption that the petitioner has acted as a buying and selling agent, is without any basis. The Adjudicating Authority had referred to the letter dated 04.04.2008 issued by RBI permitting E Y Limited to open a branch office in India (that is establishing the petitioner) and further clarifying the activities that a branch office could carry on. The same included export-import of goods; rendering professional or consultancy services, carrying out research work in which the parent company is engaged, promoting technical or financial collaboration between Indian companies and parent or overseas group companies and representing the parent company in India and acting as a buying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the main 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 own account. 3. Primary Requirements for Intermediary services The concept of intermediary services, as defined above, requires some basic prerequisites, which are discussed below: 3.1 Minimum of Three Parties: By definition, an intermediary is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus a natural corollary that the arrangement requires a minimum of three parties, two of them transacting in the supply of goods or services or securities (the main supply) and one arranging or facilitating (the ancillary supply) the said main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. An intermediary essentially arranges or facilitates another supply (the main supply ) between two or more other persons and, does not himself provide the main supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional services rendered by it cannot be considered as services as an intermediary . It is also material to note that the petitioner s application for refund of ITC for the period after March 2020 has also been accepted by the Adjudicating Authority. Thus, the petitioner has been denied ITC only for the period from December 2017 to March 2020; it has been allowed CENVAT credit for the period covered under the service tax regime as well as ITC for the period after March 2020. 30. It is also relevant to refer to Section 2(6) of the IGST Act, which defines the expression export of services . Section 2(6) of the IGST Act is set out below: export of services means the supply of any service when,- (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India. (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India]; and (v) the supplier of service and the recipient of service are not merely establishment of a distinct person in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or (iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. 33. In terms of Sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In terms of Clause (b) of Sub-section (8) of Section 13 of the IGST Act, the place of supply of intermediary services is the location of the supplier of services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing intermediary services. As discussed above, the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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