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TMI Blog2023 (11) TMI 898X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act read with Section 174 of the C.G.S.T. Act, 2017. 2.1 Brief facts that are relevant for this appeal are that on verification of accounts of M/s. SNQS International Socks Pvt. Ltd., Tirupur by the Audit Officers of Coimbatore, it was noticed that the appellant had received commission for procuring export orders from various buyers in foreign countries for the manufacturers who supplied garments. The appellant raised invoices to their foreign buyers for whom the orders were procured and received commission in foreign currency towards the services rendered in relation to procurement of goods for exports. The appellant have raised invoices to their overseas service receiver namely, M/s. Primark, Ireland towards exports sales commission for the support services rendered in relation to procurement of goods for exports and the commission was paid at the rate of 2.5% on the total value. 2.2 The Department is of the view that these services are rightly classifiable under 'intermediary' service as per Rule 2(f) of the Place of Provision of Services Rules, 2012, as amended with effect from 01st October, 2014. The appellant was registered for Service Tax under business auxiliary serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the principal and the third party (2) Supply of his own service to his principal for a fee or commission usually charged 4. It is the case of the Department that the effect of the above amendment is that a commission agent for goods is also covered under the definition of 'intermediary', whereas earlier only commission agents for services were covered under the said definition. The new provision which was made applicable with effect from 01.10.2014 would thus cover the services provided by a commission agent for sale of goods and as per Rule 9 ibid. and the place of provision of services shall be the location of the service provider. Further, the services rendered by the appellant do not qualify as 'export of service' since one of the conditions of Rule 6A of the Service Tax Rules, 1994 viz. "the place of provision of service should be outside India" was not fulfilled; their services are for procurement of goods and therefore prima facie called as services in relation to procurement of goods with auxiliary support services and the expression "arranges or facilitates" found in the amended definition of 'intermediary' would cover within its ambit a host of marketing and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . - Chennai)] ii. Fifth Avenue Sourcing Pvt. Ltd. v. Commissioner of Service Tax, Chennai [2014 (34) S.T.R. 291 (Tri. - Chennai)] iii. GECAS Services India Pvt. Ltd. v. Commissioner of Service Tax, New Delhi [2014 (36) S.T.R. 556 (Tri. - Del.)] involving identical facts and circumstances, the appellant has submitted that these services are not of commission agents to fall under "business auxiliary service" but are "support services of business or commerce". 8.2 The appellant has submitted that they are involved in providing a gamut of services to their foreign client and their compliance team would audit the compliance certifications of vendor facilities from time to time, to assure their promise towards the client's compliance requirements; that they have their own SOP (Standard Operating Procedure) for Quality Control to ensure that all merchandise shipped by them meets the client's standards. A pre-production check / pilot run inspection is also claimed to have been carried out, whereafter observations are recorded in the pre-production inspection report and a minimum of three pieces per size / colour are selected and verified for measurements. It is also submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other important support services such as quality monitoring, testing, etc., and thus are providing services only to the overseas entity on principal-to-principal basis which could not be classified as intermediary services. 8.6.1 Shri J.V. Niranjan, Ld. Advocate appearing for the appellant, has argued that the original adjudicating authority had failed to appreciate the contentions of the appellant on the doctrine of principle of equivalence, as propounded by the Hon'ble Supreme Court in the cases of M/s. All India Federation of Tax Practitioners v. Union of India [2007 (7) S.T.R. 625 (S.C.)] and M/s. Association of Leasing & Financial Service Companies v. Union of India [2010 (20) S.T.R. 417 (S.C.)] by which it has been inter alia explained that applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. 8.6.2 He also submitted that in the instant case, there is no difference between production of saleable goods and production of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntermediary services and as the issue is no more res integra, the appellant has requested for setting aside the impugned order, with consequential relief. 9.1 Shri R. Rajaraman, Ld. Authorized Representative (Assistant Commissioner) appeared for the Department and has extensively relied on the findings of the ld. adjudicating authority. He has referred to paragraph 15.2 of the Order-in-Original dated 08.07.2019 impugned herein to contend that the appellant satisfies the definition of 'intermediary' in view of the following: - i. M/s. SNQS International Socks Pvt. Ltd. is facilitating provision of supply of goods (main service) between two persons i.e., Indian suppliers and foreign buyers. ii. The appellant cannot alter the value of goods supplied. iii. The consideration for the service provided by the appellant i.e., 'commission', is identifiable from the value of exported goods. iv. They claimed that there existed an agreement between the buyer and the appellant authorizing the appellant to act on behalf of them. 9.2 He has submitted that the contention of the appellant that they are not an intermediary but providers of support services is not acceptable since for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to the appellant's case. 9.7 The Ld. Departmental Representative has thus prayed for rejection of the appeal. 10. Heard both sides and have gone through the submissions made by the appellant in the grounds-of-appeal and also during the hearing before the Tribunal. 11.1 The issue as to whether the services provided by the appellant are classifiable as 'intermediary' or not has been clearly detailed in the order of this Tribunal vide Final Order No. 40478 of 2023 dated 23.06.2023 (supra) in the appellant's own case regarding refund of Service Tax erroneously paid for the period from October 2014 to November 2014, wherein the services provided by the appellant were held to be not intermediary services. In the said case, after examining the comprehensive bouquet of services provided by the appellant in the context of the Place of Provision of Services Rules, 2012, the Tribunal has held that the appropriate classification of these services would be "support services of business or commerce" rather than "business auxiliary service"; business auxiliary services are general in nature as compared to support services of business and commerce and as such, the appellant's services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature and value: An intermediary cannot alter the nature or value of the service, the supply of which he facilitates on behalf of his principal, although the principal may authorize the intermediary to negotiate a different price. Also, the principal must know the exact value at which the service is supplied (or obtained) on his behalf, and any discounts that the intermediary obtains must be passed back to the principal. Separation of value: The value of an intermediary's service is invariably identifiable from the main supply of service that he is arranging. It can be based on an agreed percentage of the sale or purchase price. Generally, the amount charged by an agent from his principal is referred to as "commission". Identity and title: The service provided by the intermediary on behalf of the principal is clearly identifiable. In accordance with the above guiding principles, services provided by the following person will qualify as 'intermediary services': - i) Travel Agent (any mode of travel) ii) Tour Operator iii) Commission agent for a service [ an agent for buying or selling of goods is excluded ] iv) Recovery Agent Even in other cases, wherever a provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, 2012, the words - 'broker' and 'agent' are used synonymously though there are fine differences among the intermediary, commission agent and broker, to be analysed depending upon the facts of each case. As given in paragraph 12.1.1 above, there are two supplies in case of an intermediary - (i) supply between the principal and the third party and (ii) the supply of his own service to his principal for which he gets paid. In the instant case, there is only one supply by the appellant to his principal i.e., the foreign client, that too on his account. There is no service provider and service recipient relationship between the appellant and the vendors who were developed by him as there is no consideration received from these and the supply of goods by these vendors is incidental to the service of the appellant. Reportedly, the appellant has not entered into any agreement with the vendors either on their own or on behalf of the overseas client. 12.3 In this case, the appellant is found to be providing services of design and product development essentially for its foreign client to keep track of updates in fashion trends in knitted goods, evaluation and development of vendors, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are similar. 13. The next issue that is required to be decided in this appeal is whether the services provided by the appellant could be treated as export of service or not. In this regard, the following are required to be gone through for arriving at a decision as to what is the place of provision of service, as applicable to the case of the appellant. 13.1.1 Rule 6A of the Service Tax Rules, 1994 states that:- (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory, (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India, (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act. (2) Where any service is exported, the Central Government may, by notification, grant rebate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Services Rules, 2012. Rule 9 is not applicable to the appellant as the services rendered by him in relation to procurement of goods to the foreign client are on his own account. The appellant is not said to be acting as an intermediary i.e., the services were performed by the appellant on a principal-to-principal basis and at arm's length basis. 13.3 As all the conditions prescribed under Rule 6A of the Service Tax Rules, 1994 are satisfied, the services of the appellant are to be treated as export of services. 14. In view of the above detailed analysis, we find that the impugned Order-in-Appeal No. CMB-CEX-000-APP-186-16 dated 10.08.2016 is not sustainable and is accordingly set aside. 15. We allow the appeal with consequential relief, if any, as per the law." 11.4 The ld. adjudicating authority has held that the services provided by M/s. SNQS International Socks Pvt. Ltd. are not on principal-to-principal basis, which is erroneous in our view, since all these services are rendered by the appellant to its foreign client and as per the direction of the foreign client. Not only procurement of goods, but selection of vendors, monitoring quality of the goods produced, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds for the period beginning with the 8th April, 2011 upto the date on which the Finance Bill, 2015 receives the assent of the President (both days inclusive), the penalty shall be fifty per cent. of the service tax so determined:" * In terms of the above provision, penalty imposable is fifty per cent of the Service Tax determined from 08.04.2011 to 14.05.2015, which is valid only till the date of receipt of assent of the Hon'ble President to the Finance Bill, 2015 as the proviso lapses its sanctity on getting the Presidential assent of the Bill. * The Ld. adjudicating authority should have imposed penalty equal to the Service Tax liability determined. 12.3 However, since we hold that the services of the appellant are not to be categorized as intermediary services, we are of the opinion that there is no need to discuss regarding the invocation of extended period or imposition of penalties. 13. Appreciating the facts and evidence on record and also considering the decision rendered vide Final Order No. 40478 of 2023 dated 23.06.2023 (supra) in the appellant's own case wherein an identical issue was involved, the impugned Order-in-Original No. 08/2019-COMMR. dated 08.07.2019 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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