TMI Blog2024 (4) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the above deal, i.e., the Appellant, Clients of the Appellant and IVP US OR BACS. Reference is made to the decision of the CESTAT in the case M/S. EXCELPOINT SYSTEMS (INDIA) PVT. LTD. VERSUS CST, BANGALORE [ 2017 (10) TMI 806 - CESTAT BANGALORE] where the party was engaged providing project support services, consulting services, marketing on product, technical support services, providing advice, clarification and technical assistance to customers on behalf of the group company located outside India and payment received in convertible foreign exchange. The party in the said matter contested that he was providing services in nature of Business Auxiliary. It is seen that demand was raised and subsequently confirmed under reverse charge mechanism treating the place of provision of services within taxable territory. Under the Place of Provisions of Services Rules, 2012 (POP Rules), place of provisions of services were specified for different services - In the present case services for which demand was raised were intermediary services. In accordance with Rule 9 of the POP Rules, place of provision of service of intermediary service was location of service provider. Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at three different places namely, (i) SDF B-13, 14 15, 3rd Floor, Noida Special Economic Zone, Dadri Road, Phase-II, Noida, (ii) Unit No.153 154, 1st Floor, SDF-V, Santacruz Electronics Export Processing Zone, SEZ Andheri (E), Mumbai and (iii) 702, 7th Floor Skylark Building, 60, Nehru Place, New Delhi and was holding Centralized Service Tax registration No. AAACI7597RSD002 dated 12/05/2016. The Appellant was engaged in software development activities and was availing CENVAT credit under CENVAT Credit Rules, 2004 in respect of service tax paid on input services received. 3. The Officers of Central Tax, Audit Commissionerate, Noida had conducted audit of the records of the Appellant for the period from April, 2013 to June, 2017 during June,18, July,18 September,18 and observed that in Balance Sheets for 2013-14 to 2016-17, income on two points was shown, (i) from sale of licence and (ii) from sale of services. It was further observed that in the said Balance sheets, under the head of other expenses and expenditure in foreign currency , expenses incurred were shown to be Rs.10,18,89,711/-, Rs.8,93,82,836/-, Rs.9,50,98,590/- and Rs.20,12,62,814/- respectively. It was also observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Auxiliary Services rendered by the Appellant were not Authorised Operation as per Approval letter issued by the SEZ. 7. On the basis of above audit observation, Show Cause Notice dated 23.10.18 was issued to the Appellant for demand of service tax of Rs.6,66,50,976/- on the services carried out by IVP-US and BACS in US and other parts of the world on behalf of the Appellant during the period April, 2013 to June, 17 along with interest and penalty under reverse charge mechanism, treating such services under the category of Business Auxiliary Service . The case was adjudicated and demand was confirmed along with interest and penalties imposed. Hence the present appeal before this Tribunal. 8. Shri Abhinav Kalra C.A. represented the case on behalf the Appellant and contended that IVP US and BACS had been working as intermediaries and they had been providing intermediary services. They were engaged in Marketing Support Services on account of the Appellant to overseas customers. Citing the definition of Intermediary Service as provided under Rule 2(f) of the Place of Provision of Services Rules, 2012 (in short the POP Rules ), he contended that an intermediary arranges provision of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the Central Board of Excise and Customs. He emphasized that where a service was capable of being classified under two or more categories, the more specific classification would prevail. It was argued that the definition of Intermediary specifically excluded a person who provided the main service or supplies the goods on his account. IVP US and BACS were not having any control over the provision of the main service nor can alter any terms between IVP India and their clients. Reliance was placed on the decision of Excel Point Systems (India) Private Limited Vs Commissioner of ST Bangalore, 2018 (10) G.S.T.L. 254 (Tri. - Bang.). He also referred to the decision of the Tribunal in the matter of Samarth Sevabhavi Trust vs. Commissioner of Central Excise, Aurangabad. In Royal Western India Turf Club Ltd. Vs Commissioner of Service Tax, Mumbai-I, the Tribunal set aside the Order in Original which confirmed the demand on the basis of wrong classification of service. 10. On the issue of non-inclusion of services like identification and prediction of market trends in US, to analyse customer needs on regular basis, full time marketing services provided by IVP globally, generate leads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requisite skilled employees who are capable of providing Marketing Support Services. (c) Subject to terms and conditions set forth herein, the parties hereto agree that IVP US will allocate specific personnel /employees as listed in the Appendis-1 and as may be modified in writing from time to time to provide Marketing Support Services in US. The IVP US shall use its best efforts to support the IVP India to identify and predict market trends in US, analyse customer needs on regular basis and pass on suggestion to incorporate updated modules of software, improve customer relations, facilitate the information flow between the IVP India and its customers and facilitate closure and execution of assignments / project for IVP for filling gap between customer and the IVP India. (d) The price which IVP India shall pay to the IVP US for Marketing Support Services shall be equal to the IVP US s cost plus appropriate mark up at arm s length as per the bench marking provided by global transfer pricing consultants. (e) Cost in para 2.1.1 means all direct and indirect costs attributable to the performance of the Marketing Support Services by identified personnel/employees including their sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by providing above specified services. 16. We find that the demand of service tax was raised treating the said specified services as Business Auxiliary Service. With effect from 01.07.12, under negative list era when all services were made taxable except those which were enumerated in negative list, there was no definition of Business Auxiliary Service . However, there was definition of Business Auxiliary Service in the Finance Act, 1994 during pre-negative list era, under section 65(105)(zzb) of the Finance Act, 1994. It was defined as:- Business Auxiliary Service means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, service in relation to promotion or marketing of service provided by the client includes any service provided in relation to promotion or marketing of games of change, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on his account. Above definition reveals that intermediary involves three or more persons i. Provider of service, ii. Principal on whose behalf service is rendered or supply of goods is made and iii. Persons (customers of principal) who actually received services. It is also important to note that in case provision of service was made by a person is in his own account to his customers, it cannot be termed as an intermediary. The words arranges or facilitates the provision of services or supply of goods, between two or more persons, is the crux of the definition of intermediary. Legal meaning of facilitate , as per Merriam Webster Dictionary, is i) to make something easier, ii) to help something run more smoothly and effectively. Here in the present case, IVP US and BACS help IVP India to make sale of software developed by the Appellant easier. In Taxation of Services: An Education Guide issued by the CBEC, the Intermediary services were clarified as under:- 5.9.6 What are Intermediary Services ? Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice The above discussion makes it clear as to what kind of services would fall in the category of Intermediary Services . The scope of intermediary services can be summarized as under:- 1. Minimum of Three Parties: Intermediary does not carry out the main supply himself but arranges or facilitates the main supply of goods and services between two or more persons. The arrangement requires a minimum of three parties, two of them transacting in the main supply of goods and services and one arranging or facilitating the main supply. An activity between only two parties can, therefore, NOT be considered as an intermediary service. 2. Two distinct supplies: There are two set of supplies- a. Main supply, of goods or services, between two principals, which can be a supply of goods or services or securities; b. Ancillary supply, is the service of facilitating or arranging the main supply of goods or services between the two principals. This supply is identifiable and distinguished from the main supply and is supply of intermediary service. 3. Intermediary service provider to have the character of an agent, broker or any other similar person: The Act itself defines intermediary as a broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re clearly identifiable. There were three persons involved in the above deal, i.e., the Appellant, Clients of the Appellant and IVP US OR BACS. In view of the above discussion we are of the considered view that services provided by IVP US and BACS were of the category of intermediary services . Reference is made to the decision of the CESTAT in the case Excel Point Systems (India) Pvt. Ltd. [2018 (10) G.S.T.L. 254 (T) where the party was engaged providing project support services, consulting services, marketing on product, technical support services, providing advice, clarification and technical assistance to customers on behalf of the group company located outside India and payment received in convertible foreign exchange. The party in the said matter contested that he was providing services in nature of Business Auxiliary. The Ld. First appellate authority however, held that the services rendered by the appellant fall under the definition of intermediary under Rule 2(f) of the Place of Provisions of Services Rules, 2012 and in terms of Rule 9 of the Place of Provision of Services Rules, 2012 specified vide Notification No.28/2012, dated 20-6-2012 which is effective from 1-7-2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice providers in the instant case were located in USA. Hence, place of provision of service was USA. As both the service provider and service recipient were located in non-taxable area, service tax demanded in this case is not sustainable. 19. The Ld. Pr. Commissioner while confirming demand had given his findings as under:- In the present case, IVP US and BACS had not arranged or facilitated services rendered by IVP India rather they had provided marketing support services such as to identify and predict market trends in US, analyse customer needs on regular basis and pass on suggestion to incorporate updated modules of software, improve customer relations, facilitate the information flow between the IVP India and its customers and facilitate closure and execution of assignments / project for IVP for filling gap between customer and the IVP India. From the fee structure involved in both the cases i.e., IVP and BACS, it is evident that both the service providers namely IVP US and BACS have provided services on principal to principal basis. In case of IVP US the fee payable is cost plus margin and BACs was engaged by IVP India on full time basis on payment of USD 3,00,000/ per annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of revenue neutrality in the circumstances of charging service tax under reverse charge mechanism has been settled in catena of judgments. In the case of Jet Airways India Ltd. [2016-TIOL-2072-CESTAT-MUM], the Tribunal considered the issue of revenue neutrality where service tax was required to pay under reverse charge mechanism as service provider was foreign based firm. The Tribunal held that as the appellant could have availed CENVAT credit of the service tax paid on reverse charge mechanism, hence, a revenue neutral situation arises wherein appellant pays the tax and takes the credit and accordingly set aside the tax demand interest thereon and penalties. In the case of Jain Irrigation System Ltd. [2015 (40) S.T.R. 572 (T)] the Tribunal holds that revenue neutral situation comes about when credit is available to assessee himself. In the case of Coca-Cola India Pvt. Ltd. [2007 (213) E.L.T. 490 (S.C.)] the Apex Court accepted the stand that the duty payable in respect of beverage basis/concentrates is modvatable. Since the duty payable is modvatable, there is no revenue implication. We find that the facts of the present case are squarely covered by the abovementi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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