2024 ACR 129 CESTAT Bangalore
Commissioner of Central Tax GST Commissionerate Bengaluru East
Vs
M/s. Informatica Business Solutions Pvt. Ltd,
HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL)
HON'BLE MRS R BHAGYA DEVI, MEMBER (TECHNICAL)
Service Tax Appeal No. 20390 of 2019
Service Tax Cross Objection No.20360 of 2019
(Arising out of Order-in-Original No. 82/2018 dated 14.12.2018 passed by the Commissioner of Central Tax, GST Commissionerate, Bengaluru East, Bengaluru.)
Final Order No. 21125/2024 PRONOUNCED ON 18.11.2024

Note –

Respondent into ITSS and also into Marketing and Service Support service. Activities involved – (a) identification of customers, (b) providing information and educating potential customers, (c) procuring information from the clients in terms of their requirements / expectation regarding the pricing of their product, (d) passing on the information to their foreign company, (e) providing demonstrations and presentations to the customer on the application of the products and (f) maintenance and support services for the products, etc. Revenue seeking to deny export of service benefit by alleging nature of service to be intermediary services.

Held:

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.

Recently Board has issued a circular bearing No.159/15/2021-GST dated 20.09.2021 clarifying who should be considered as an ‘intermediary’ in the context of GST, which is borrowed from the definition of Rule 2(f) of the POPS Rules, 2012. The said circular has been noted in various judgments of this Tribunal. The present case is more or less similar to the Illustration 4 of the said Circular dated 20.09.2021.

Illustration 4

‘A’ is a manufacturer and supplier of computers based in USA and supplies its goods all over the world. As a part of this supply, ‘A’ is also required to provide customer care service to its customers to address their queries and complains related to the said supply of computers. ‘A’ decides to outsource the task of providing customer care services to a BPO firm, ‘B’. ‘B’ provides customer care service to ‘A’ by interacting with the customers of ‘A’ and addressing / processing their queries / complains. ‘B’ charges ‘A’ for this service. ‘B’ is involved in supply of main service ‘customer care service’ to ‘A’, and therefore, “B’ is not an intermediary.

There is no merit in the appeal filed by the Revenue.

 

APPEARANCE:

Mr.Shailendra S Satloja, Chartered Accountant for the Appellant

Mr. M.A. Jithendra, Assistant Commissioner (AR) for the Respondent

ORDER

PER : DR. D.M. MISRA

This is an appeal filed by the Revenue against Order-in-Original No.82/2018 dated 14.12.2018 passed by the Commissioner of Central Tax, Bengaluru East, Bengaluru.

2.1. Briefly stated the facts of the case are that respondent are registered with the Service Tax Department for providing various taxable services under the category of Information Technology and Software Services(ITSS), Management of Business Consultant Service, Business Auxiliary Service(BAS) and Business Support Service(BSS). On the basis of the audit of their records, it is alleged that they have entered into a Research & Development Agreement dated 02.05.2003 with their foreign company for the purpose of providing research and development of software. The said agreement was amended from time to time and w.e.f. 01.01.2004, the respondent added Marketing and Support Service (M&S Service). The said M&S Service include marketing and sales & customer support service in addition to R&D service (software development). Also w.e.f. 01.04.2017, they had made three separate agreements viz. (1) Software Development Services Agreement, (2) Marketing and Sales Services Agreement and (3) Customer Support Services Agreement with their parent company who are in non-taxable category. The services rendered by the respondent in relation to products are: (a) identification of customers, (b) providing information and educating potential customers, (c) procuring information from the clients in terms of their requirements / expectation regarding the pricing of their product, (d) passing on the information to their foreign company, (e) providing demonstrations and presentations to the customer on the application of the products and (f) maintenance and support services for the products, etc.

2.2. It is alleged that the services by the Respondent amounts to provision of a declared service and the amount received against such services had been reflected in the ST-3 returns for the period July 2012 to June 2017 as ‘export services’ under the category of ITSS and accordingly service tax was not paid. Alleging that the services rendered by the respondent as an ‘intermediary’ service and not covered under the Export Service under the Place of Provision of Services Rules, 2012 (POS Rules, 2012 for short), show-cause notice was issued to them on 24.04.2018 demanding service tax of Rs.62,72,58,776/- with interest and penalty. On adjudication, the demand was dropped by the learned Commissioner. Hence, the Revenue is in appeal.

3.1. The learned AR for the Revenue reiterated the grounds of appeal. He has submitted that the adjudicating authority has erred in observing that the show-cause notice is vitiated by vagueness on non-framing of specific charges. He has submitted that the show-cause notice has specifically alleged that the services provided by the appellant fall under the scope of ‘intermediary service’ as per provisions of Rule 9 of POPS Rules, 2012; the place of provision is the location of the service provider which is in India; therefore, the service does not qualify as an export service in terms of Rule 6A of the Service Tax Rules, 1994. Further, he has submitted that in the show-cause notice, it has been elaborately discussed the description of services rendered and each of the aspects of the said service with reasons for considering the same as ‘intermediary service’; hence, the finding the learned Commissioner that the showcause notice is vague is incorrect.

3.2. Referring to the agreement dated 02.05.2003 and subsequent amendments, the learned AR has submitted that the respondent were raising a single invoice in collecting consideration for Marketing & Sales Support Service and Customer Support Service provided by them to the parent company which is described in the invoice as ITSS and BSS. Further, w.e.f. 01.04.2017, the respondent entered into three separate agreements viz. (1) Software Development Services Agreement, (2) Marketing and Sales Services Agreement and (3) Customer Support Services Agreement with their parent company who is situated in non-taxable category. The respondent has been raising a common invoice on monthly basis for the services rendered. Further, it is submitted that in terms of service agreements, the respondent is required to provide R&D Software Service, Marketing & Sales Support Service and Customer Support Service. On analysis of the nature of the activities undertaken in terms of R&D Software Service, Marketing & Sales Support Service and Customer Support Service, it is clear that the same are in the nature of ITSS covered under Section 66E(d) of the Finance Act, 1994 as ‘declared service’. As narrated in the agreements, it is clear that while rendering the services, the nature of service has been mentioned in the respective agreements, and the respondent acted as an ‘intermediary’ between the parent company and the prospective customers to identify the purchase of software products. Marketing and Sales Services & Customer Support Services are undertaken by the assessee for and on behalf of their parent company in furtherance to the agreement dated 02.05.2003 as mended from time to time and also the three separate agreements w.e.f. 01.04.2017.

3.3. Referring to the definition of ‘intermediary’ under Rule 2(f) of POPS Rules,2012 the learned AR has submitted that the scope of services rendered by the respondent squarely fall under the said definition and as per Rule 9 of the POPS Rules, 2012, place of provision of services which includes intermediary services shall be the location of the service provider; therefore, the services rendered by the respondent cannot be considered as export services and the adjudicating authority has erred in this regard.

4.1. On the other hand, the learned Chartered Accountant for the respondent, supporting the impugned order has submitted that the respondent has not facilitated / arranged any services and hence, the Customer Support and Marketing & Sales Support services rendered by them to the parent company in USA are not qualified as ‘intermediary service’. He has submitted that there is no agent-principal relationship between the service provider and the service recipient. They have rendered Customer Support Services & Marketing and Sales Support Services and the consideration for the said services is paid on cost+ mark-up basis; thus, the respondent had provided the services on principal-to-principal basis and no an intermediary service. Further, referring to the Education Guide issued by Board, he has submitted that Customer Support Services do not qualify as an ‘intermediary service’ as clarified thereunder. He has referred to a recent Circular No.159/15/2021-GST dated 20.09.2021 issued by Board where customer support service is not treated as an ‘intermediary’. In support, he has referred to the following judgments:-

i. Excelpoint Systems India Pvt. Ltd. Vs. CST Bangalore [2022-TIOL-303-CESTAT-BANG]

ii. Excelpoint Systems (India) Pvt. Ltd. Vs. CST(Appeals-I), Bangalore [MANU/KA/4776/2021]

iii. Balckberry India Private Limited Vs. CCT/CCE, Delhi [2022(12) TMI 660-CESTAT NEW DELHI]

iv. AMD India Pvt. Ltd. Vs. CST, Bangalore [2017(12) TMI 772 -CESTAT BANGALORE]

4.2. The learned Chartered Accountant for the respondent has also submitted that since there is no fraud, misstatement, mis-declaration or suppression of facts with intent to evade payment of duty, the demand invoking extended period of limitation cannot be sustained.

  1. Heard both sides and perused the records.

  2. The core issue involved in the present case is, whether the services rendered by the respondent to their parent company situated in USA is an ‘intermediary service’ or otherwise.

  3. Undisputedly, under agreements dated 02.05.2003 effective from 01.01.2004 which have been amended from time to time and three separate agreements dated 01.04.2017, the respondent are required to provide R&D Software Development services, Sales & Marketing Services and Customer Support services. The nature of services broadly rendered by the respondent, briefly, are as follows:-

        • performance of certain software development assignments, programs and projects identified by Informatica;

        • marketing, sales, maintenance and support services for the Products from time to time;

        • Providing sales and marketing assistance to Informatica’s third party distributors, systems integrators, resellers and influencers;

        • Providing technical support and maintenance services by telephone to customers, distributors, systems integrators, resellers and influencers of Informatica’s Products in the Asia-Pacific market from time to time;

        • Providing such other marketing, sales, maintenance and support services for the Products as Informatica may request from time to time;

        • M & S Services shall not include direct sales of the Products to customers.

8. It is alleged that the product for which the appellant rendered marketing & sales services and Customer Support Services are in the nature of ITSS covered under Section 66E(d) of the Finance Act, 1994 as “declared service” viz. (a) identification of customers, (b) providing information and educating potential customers, (c) procuring information from the clients in terms of their requirements / expectation regarding the pricing of their product, (d) passing on the information to their foreign company, (e) providing demonstrations and presentations to the customer on the application of the products and (f) maintenance and support services for the products, etc. The aforesaid services are alleged to be rendered by the respondent in acting as an intermediary and facilitator to their parent company in USA; hence, fall under the scope of Rule 9 of POPS Rules, 2012 attracting Service Tax Rules.

9. The learned Commissioner, analysing these agreements, held as follows:-

86.4. On an analysis of the above, I find that the services of:

      1. identification of potential customers,

      2. providing information and educating potential customers,

      3. procuring information from the client in terms of their requirements, expectation regarding the pricing of the product,

      4. passing on the information to their foreign company,

      5. providing demonstrations and presentations to the customer on the application of the products (f) maintenance and support services for the products are provided to customers in the Asia-Pacific market and going by the tenor and tone of the agreement, it is clear that the relationship between Informatica USA and Informatica India is on a principal to principal basis (even para 36.2 of the SCN states that both are independent) and Informatica India is not acting as an agent or broker. Basically Informatica India is providing Business support services to Informatica USA and the place of provision of such services ought to be determined under Rule 3 of POPS and not under Rule 9 of POPS.

86.5. I find that though the SCN seeks to rely on certain clauses in the agreement, it has not brought out as to how on the basis of the above said clauses a conclusion has been arrived at that the impugned marketing and customer support services provided in the Asia-Pacific market would amount to “intermediary services” provided in India. As such I find the contention in the said para, is more in the nature of a bland assertion without any logical or legal basis.

The said findings of the learned Commissioner have been challenged in the present appeal to be incorrect and the argument of the department that the service provided by Respondent is in the mature of an intermediary service.

10. We find that recently Board has issued a circular bearing No.159/15/2021-GST dated 20.09.2021 clarifying who should be considered as an ‘intermediary’ in the context of GST, which is borrowed from the definition of Rule 2(f) of the POPS Rules, 2012. The said circular has been noted in various judgments of this Tribunal and which are referred in the case of Commissioner of CG&ST &CE, Delhi South Vs. Grant Thornton Advisory Pvt. Ltd. [2024(10) TMI 147 – CESTAT NEW DELHI]. The relevant portion of the order reads as follows:-

      1. The relevant clauses of the Cost Reimbursement Agreement do not indicate that Grant Thornton, India was to act as an ‘intermediary’. The activities undertaken by Grant Thornton, India are for promoting the brand name of Grant Thornton in India. Grant Thornton in India had to provides services on its own account and merely because Grant Thornton, India outsourced certain services would not mean that it became an ‘intermediary’.

      2. The transaction would, therefore, not be covered by rule 9 of the 2012 Rules. Under rule 3 of the 2012 Rules, which would be applicable in the present case, the place of provision of service shall be the location of the recipient of service. The recipient of service is Grant Thornton, London, which is outside India. There is no dispute that the payment for the services had been received by Grant Thornton, India in covertable foreign currency. Thus, the conditions set out in rule 6A of the Service Tax Rules 1994 stand satisfied. Thus, there can be no manner of doubt that the services provided by Grant Thornton, India to Grant Thornton, London would be ‘export of services’.

      3. This issue was examined by the Tribunal in Sunrise Immigration Consultants Private Limited vs. Commissioner of Central Excise and Service Tax, Chandigarh [2018-TIOL-1849- CESTAT-CHD]. The Tribunal considered whether the assessee would be an ‘intermediary’ with reference to the services provided to universities, colleges and banks and whether any service tax could be levied. The observations of the Tribunal are as follows:

“10. We find that the appellant is nowhere providing services between two or more persons. In fact, the appellant is providing services to their clients namely banks/colleges/university who are paying commission/ fees to the appellant. The appellant is only facilitating the aspirant student and introduced them to the college and if these students gets admission to the college, the appellant gets certain commission which is in nature of promoting the business of the college and for referring investors borrow loan from foreign based bank to the people who wishes settled in Canada on that if the deal matures, the appellant is getting certain commission. So the nature of service provided by the appellant is the promotion of business of their client, in terms, he gets commission which is covered under Business Auxiliary Service which is not the main service provided by the main service providers namely banks/university. As the appellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks. In that circumstances, the appellant cannot be called as intermediary.”

(emphasis supplied)

18. The definition of ‘intermediary services’ in section 2(13) of the Integrated Goods and Service Tax Act, 2017 is pari-materia with the definition of ‘intermediary services’ in rule 2 (f) of the 2012 Rules. The meaning of ‘intermediary services’ has been considered by the Punjab and Haryana High Court in Genpact India Pvt. Ltd. vs. Union of India [2023 (68) GSTL 3 (P&H)]. The issue that arose for consideration before the High Court was whether the services rendered by the petitioner under the agreement could be treated as ‘intermediary services’ under the provisions of the IGST Act. The observations of the High Court are as follows:

“28. As per definition of “intermediary” under Section 2(13) of the IGST Act the following three conditions must be satisfied for a person to qualify as an “intermediary”; –

      1. First, the relationship between the parties must be that of a principal-agency relationship. Second, the person must be involved in arrangement or facilitation of provisions of the service provided to the principal by a 3rd party. Third, the person must not actually perform the main service intended to be received by the service recipient itself. Scope of an “intermediary” is to mediate between two parties i.e. the principal service provider (the 3rd party) and the beneficiary (the agents principal) who receives the main service and expressly excludes any person who provides such main service “on his own account”.

      2. A bare perusal of the recitals and relevant clauses of the MSA reproduced hereinabove do not in any manner indicate that petitioner is acting as an “intermediary” so as to fall within the scope and ambit of the definition of “intermediary” under Section 2(13) of the IGST Act. Such clauses cannot also be interpreted to conclude that the petitioner has facilitated the services. The said clauses are in relation to the modalities of how the actual work would be carried out and do not in any manner establish that the petitioner was required to arrange/facilitate a 3rd party to render the main service which has actually been rendered by the petitioner. xxxxxxxxxxx

      1. In the pre-GST regime the term “intermediary services” was defined under Rule 2(f) of the Place of Provision of Service Rules, 2012. Under the 2012 Rules “intermediary services” were defined to mean a 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 on his account.

      2. A perusal of the definition of “intermediary” under the service tax regime vis-a-vis the GST regime would show that the definition has remained similar. Even as per circular dated 20-92021 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs (GST Policy Wing), the scope of “intermediary” services has been dealt in Para 2 thereof. In Para 2.2 it stands clarified that the concept of “intermediary” was borrowed in GST from the Service Tax Regime. The circular after making a reference to the definition of “intermediary” both under Rule 2(f) of the Place of Provision of Service Rules, 2012 and under Section 2(13) of the IGST Act clearly states that there is broadly no change in the scope of “intermediary” services in the GST regime vis-a-vis the service tax regime except addition of supply of securities in the definition of “intermediary” in the GST law.”

(emphasis supplied)

  1. The Delhi High Court in Ernst and Young vs. Additional Commissioner, CGST, Delhi [2023 (73) GSTL 161] also considered whether the services claimed were actually exported and convertible foreign exchange was received by the party in lieu of the said export of services. The observations of the High Court are as follows:

“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 subsection (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. 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 services’ as defined under Section 2(6) of the IGST Act.

34. There is no dispute that the recipient of Services- that is EY Entities – are located outside India. Thus, indisputably, the Services provided by the petitioner would fall within the scope of the definition of the term ‘export of service’ under Section 2(6) of the IGST Act.”

20. This issue was also examined by the Tribunal in M/s Medway Educational Consultant P. Ltd. vs. Commissioner, CGST Commissionerate, DelhiWest [2024 (3) TMI 1178 – CESTAT New Delhi] and it was observed:

“13. Coming to “export of service” post 1st July, 2012, the basic principle to be seen is who is the recipient of the service, whether the place of provision of service is outside India and the party abroad is deriving benefit from the service in India. The High Court of Delhi in Verizon Communication India Private Limited vs. Assistant Commissioner, ST, Delhi [2018 (8) GSTL 32 (Del.)] observed that the recipient of the service is determined by the contract between the parties and who has the contractual right to receive the service and who is responsible for the payment for the service and the department has lost sight of this essential difference. The High Court of Delhi then considered the decision of the Larger Bench of the Tribunal in Paul Merchants Ltd. vs. CCE, Chandigarh [2012 (12) TMI 424CESTAT-DEL.-LB], which was rendered with reference to ESR, 2005 where the assessees were intermediary agents, providing money transfer services to foreign travellers, who were the end user on behalf of their principals and the contention of the department that this did not qualify as export of service was rejected referring to the CBEC clarification letter no. 334/1/2019- TRU dated 26.02.2010 that as long as the party abroad is deriving benefit from service in India, it is an export of service.”

xxxxxxxxxxxxx

  1. Needless to mention, as per the agreement between the appellant and the foreign university the services were delivered outside India as the recipient of service is the foreign universities who are located outside India and the benefit of service rendered by the appellant also accrued outside India, coupled with the fact that the appellant received the payment against the services in convertible foreign exchange and the appellant and the recipient of service are independent legal identities and are not merely establishment of distinct person. It is thus evident that the appellant met the criteria under Rule 6A(1) of the ST Rules and therefore being “export of service” was not amenable to service tax.

  2. We may now consider the stand of the department that the services rendered by the appellant has to be treated as “intermediary services” defined under Rule 2(f) of the Rules, 2012. From the definition of “intermediary services”, we find that activity between two parties cannot be considered as an intermediate service as intermediary essentially arranges or facilitates the main supply between two or more persons, which is not the case here. Further, the definition of intermediary service excludes any person who has provided the service on their own account. Here from the facts, it is evident that the appellant has provided the service on his own account to the recipient of service, i.e. the foreign university placed beyond the taxable territory of India. Referring to Rule 6 of Rules, 2012, the learned Counsel submitted that they were providing services relating to specific event, i.e. recruitment of students for admission in educational institution/universities, i.e. recipients located outside India and therefore the place of provision of service shall be the place where the event is actually held. On the other hand, “intermediary services” are broader category and is not applicable to specific category. We find force in the submission of the learned counsel.”

  1. In Verizon Communication India Private Limited the Delhi High Court had observed:-

“51. In the considered view of the Court, the judgment of the CESTAT in Paul Merchants Ltd. v. CCE, Chandigarh (supra) is right in holding that “The service recipient is the person on whose instructions/orders the service is provided who is obliged to make the payment from the same and whose need is satisfied by the provision of the service.” The Court further affirms the following passage in the said judgment in Paul Merchants Ltd. v. CCE, Chandigarh (supra) which correctly explains the legal position:

“It is the person who requested for the service is liable to make payment for the same and whose need is satisfied by the provision of service who has to be treated as recipient of the service, not the person or persons affected by the performance of the service. Thus, when the person on whose instructions the services in question had been provided by the agents/subagents in India, who is liable to make payment for these services and who used the service for his business, is located abroad, the destination of the services in question has to be treated abroad. The destination has to be decided on the basis of the place of consumption, not the place of performance of Service.”

22. In Vodafone Essar Cellular Ltd. vs. CCE, PuneIII [2013 (7) TMI 178 – CESTAT- MUMBAI] the Tribunal explained the arrangement in the following words:

“Your customer’s customer is not your customer. When a service is rendered to a third party at the behest of your customer, the service recipient is your customer and not the third party. For example, when a florist delivers a bouquet on your request to your friend for which you make the payment, as far as the florist is concerned you are the customer and not your friend.”

23. The aforesaid discussion leads to the inevitable conclusion that Grant Thornton, India is not an ‘intermediary’ and that the services provided by it to Grant Thornton, London are ‘export of services’.

11. 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 present case is more or less similar to the Illustration 4 of the said Circular dated 20.09.2021, which is reproduced below:-

Illustration 4

‘A’ is a manufacturer and supplier of computers based in USA and supplies its goods all over the world. As a part of this supply, ‘A’ is also required to provide customer care service to its customers to address their queries and complains related to the said supply of computers. ‘A’ decides to outsource the task of providing customer care services to a BPO firm, ‘B’. ‘B’ provides customer care service to ‘A’ by interacting with the customers of ‘A’ and addressing / processing their queries / complains. ‘B’ charges ‘A’ for this service. ‘B’ is involved in supply of main service ‘customer care service’ to ‘A’, and therefore, “B’ is not an intermediary.

  1. Similar principle has been laid down by the Tribunal in the following cases:-

i. Excelpoint Systems India Pvt. Ltd. Vs. CST, Bangalore [2022-TIOL-303-CESTAT-BANG];

ii. Blackberry India Private Limited Vs. CCT/CCE, Delhi [2022(12) TMI 660 -CESTAT NEW DELHI]

iii. AMD India Pvt. Ltd. Vs. CST, Bangalore [2017(12) TMI 772 -CESTAT, Bangalore]

13. In view of the above, we do not find merit in the appeal filed by the Revenue. Consequently, the impugned order is upheld and the Revenue’s appeal being devoid of merit is rejected. Cross-objection also disposed of.

(Order pronounced in Open Court on 18.11.2024)

(D.M. MISRA)

MEMBER (JUDICIAL)

(R BHAGYA DEVI)

MEMBER (TECHNICAL)