Custom, Excise & Service Tax Tribunal
Principal Commissioner, Cgst-Delhi ... vs Ernst And Young Limited on 2 February, 2023
Author: Dilip Gupta
Bench: Dilip Gupta
1 ST/50774/20
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
Service Tax Appeal No. 50774 of 2020
(Arising out of Order-in-Appeal No. 154-155/Central Tax/Appl-II/Delhi/2019 dated
02.03.2020 passed by the Principal Commissioner of CGST, New Delhi)
Principal Commissioner of CGST ..................Appellant
rd
GST South, 3 Floor, EIL Annexe Building, Bhikaji Cama Place
New Delhi - 110 066
VERSUS
M/s Ernst & Young Ltd. ................Respondent
First Floor, Atma Ram Mansion
SCI India House, KG Marg, Connaught Place
New Delhi - 110 001
APPEARANCE:
Shri Harshwardhan, Authorised Representative of the Appellant
Shri Sparsh Bhargava, Advocate for the Respondent
CORAM : HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MS. HEMAMBIKA R PRIYA, MEMBER (TECHNICAL)
FINAL ORDER NO. 50160/2023
DATE OF HEARING/DECISION : February 02, 2023
JUSTICE DILIP GUPTA :
This appeal has been filed by the Department to assail the
order dated March 02, 2020 passed by the Principal Commissioner of
CGST & Central Excise, Delhi South1, by which the appeal filed by the
Department to assail that part of the order dated July 31, 2019 passed
by the Assistant Commissioner that sanctioned refund of an amount Rs.
1 the Commissioner (Appeals)
2 ST/50774/20
8,60,52,275/- as against that claimed by M/s Ernst & Young Limited 2 to
the extent of Rs. 9,82,91,155/- has been dismissed. It needs to be
noted that the respondent had also filed an appeal against that part of
the order dated July 31, 2019 passed by the Assistant Commissioner
that rejected the refund to the extent of Rs. 1,22,38,880/- and this
appeal has been remanded by the Commissioner (Appeals) to the
adjudicating authority for verification of the additional evidence supplied
by the said respondent. The Commissioner (Appeals) has held that the
respondent would be entitled to the refund Rs. 8,60,52,275/- for the
reason that it is not an „intermediary‟ as it provided services to M/s Ernst
& Young Ltd., UK3 on its own account.
2. The issue involved in this appeal is regarding the refund
claimed by the respondent under rule 5 of the CENVAT Credit Rules
20044 read with the Place of Provision of Service Rules 20125 of the
unutilized input service credit of input services used by the respondent to
export „Management or Business Consultant Service‟ to Ernst & Young
located in UK under the contracts.
3. As the dispute relates to the refund claims filed by the
respondent under rule 5 of the 2004 Credit Rules, the relevant portion of
rule 5 is reproduced below:
"5. Refund of CENVAT Credit:
A manufacturer who clears a final product or an intermediate
product for export without payment of duty under bond or
letter of undertaking, or a service provider who provides an
output service which is exported without payment of service
2 the respondent
3 E&Y, UK
4 the 2004 Credit Rules
5 the 2012 Rules
3 ST/50774/20
tax, shall be allowed refund of CENVAT credit as determined
by the following formula subject to procedure, safeguards,
conditions and limitations, as may be specified by the Board
by notification in the Official Gazette:
Refund amount=(Export turnover of goods+ Export turnover of services) x Net CENVAT credit
Total turnover
xxxxxx xxxxxx xxxxxx
Explanation 1: For the purpose of this rule,-
(1) "export service" means a service which is provided as per
rule 6A of the Service Tax Rules, 1994."
4. Since "export service" means a service which is provided as
per rule 6A of the Service Tax Rules 19946, the said rule is reproduced:
"6A. Export of services.-
(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 3 of clause (44) of section
65B of the Act
(2) Where any service is exported, the Central
Government may, by notification, grant rebate of service
tax or duty paid on input services or inputs, as the case
may be, used in providing such service and the rebate
shall be allowed subject to such safeguards, conditions and
limitations, as may be specified, by the Central
Government, by notification."
5. As noticed above rule 6A of the 1994 Rules deals with export
6 the 1994 Rules
4 ST/50774/20
of services and sub-clause (d) of sub-rule (1) provides that the provision
of any service shall be treated as export of service when the place of
provision of service is outside India. The place of provision of service is
determined under the 2012 Rules. Rule 3 deals with place of provision
generally. It is as follows:
"3. Place of provision generally.-
The place of provision of a service shall be the location
of the recipient of service:
Provided that in case of services other than online
information and database access or retrieval services, where
the location of the service receiver is not available in the
ordinary course of business, the place of provision shall be the
location of the provider of service."
6. It would be seen that in terms of rule 3 of the 2012 Rules,
the place of provision of a service shall be the location of the recipient of
service.
7. Rule 9, however, deals with place of provision of specified
services and is as follows:
"9. Place of provision of specified services.-
The place of provision of following services shall be the
location of the service provider:-
(a) Services provided by a banking company, or a financial
institution, or a non-banking financial company, to account
holders;
(b) online information and database access or retrieval
services;
(c) Intermediary services;
(d) Service consisting of hiring of all means of transport other
than, -
(i) aircrafts, and
(ii) vessels except yachts,
upto a period of one month."
8. Under rule 9 (c) of the 2012 Rules, the place of provision for
5 ST/50774/20
„intermediary services‟ would be the location of the service provider.
9. According to the department, since the service provider i.e.
the respondent is an intermediary, the place of provision of service by
the respondent would be the location of the service provider under rule
9(c) of the 2012 Rules. According to the respondent, the place of
provision of service shall be the location of the recipient of service as
provided under rule 3 of the 2012 Rules.
10. It is, therefore, necessary to determine whether the
respondent provides „intermediary service‟.
11. The concept of "intermediary" was introduced in the 2012
Rules and „intermediary‟ has been defined in rule 2(f) as follows:
"2(f) „intermediary‟ means 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 or supplies the
goods on his account."
12. The communication dated 16 March 2012 by the Department
of Revenue (Tax Research Unit) dealing with the Union Budget 2012
deals with „intermediary services‟ and is as follows:
"3.7.7 What are "Intermediary Services"?
An "intermediary" is a person who arranges or facilitates a
supply of goods, or a provision of service, or both, between
two persons, without material alteration or further processing.
Thus, an „intermediary‟ is involved with two supplies at any
one time:
(i) the supply between the principal and the third party;
and
(ii) the supply of his own service (agency service) to his
principal, for which a fee or commission is usually
6 ST/50774/20
charged.
For the purpose of this rule, an „intermediary‟ in respect of
goods (commission agent i.e a buying or selling agent) is
excluded by definition.
In order to determine whether a person is acting as an
intermediary or not, the following factors need to be
considered:-
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 are clearly identifiable.
In accordance with the above guiding principles, services
provided by the following persons will qualify as „intermediary
services:-
(i) Travel Agent (any mode of travel)
(ii) Tour Operator
(iii) Stockbroker
(iv) Commission agent [an agent for buying or selling of
goods is excluded
(v) Recovery Agent
Even in other cases, wherever a provider of any service acts
as an agent for another person, as identified by the guiding
principles outlined above, this rule will apply."
13. Rule 2(f) of the 2012 Rules, as noticed above, defines an
"intermediary" to mean a broker, an agent or any other person, by
whatever name called, who arranges or facilitates a provision of a
7 ST/50774/20
service to be 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. The communication
dated 16 March 2012 referred to above, also clarifies that an
intermediary service is involved with two supplies at any one time
namely:
(i) the supply between principal and the third party;
(ii) the supply of his own service (agency service) to his
principal, for which a fee or commission is usually
charged.
14. The said communication also mentions that in order to
determine whether a person is acting as an intermediary or not, three
factors namely nature and value, separation of value and identity and
title have to be examined. In regard to the "nature and value", it states
that 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.
Regarding "separation of value", it states that the value of service
provided by an intermediary is invariably identifiable from the main
supply of service that he is arranging. Generally, the amount charged by
an agent from his principal is referred to as "commission". In regard to
"identity and title", it provides that the service provided by the
intermediary on behalf of the principal are clearly identifiable and
example of a travel agent, a tour operator, stock broker, commission
agent and a recovery agent have been given.
15. The agreements executed between the respondent and E&Y,
UK would, therefore, have to be examined to determine whether the
8 ST/50774/20
respondent is an „intermediary‟. It needs to be noted that the
respondent is an Indian branch office of E&Y, UK and was set up to
provide professional services to the E&Y entities located outside India.
The relevant portion of the three service Agreements are as follows :
S.No. Service Overseas Client Relevant Extracts
Agreement
dated
1. 29.09.2009 EY US EY US wishes to retain E&Y Limited, acting
LLP through its Indian Branch, to provide
certain professional services in India..
E&Y Limited shall provide the services...
EY US shall pay E&Y Limited as arm 's
length fee for the services...
2. 07.05.2009 UK LLP UK LLP wishes to retain E&Y Limited to
provide certain professional services in
India...
E&Y Limited agrees to provide the services
...
UK LLP agrees to pay E&Y Limited an arm's length fee...
3. 20.12.2012 UK LLP UK LLP wishes to retain the Indian Branch of E&Y Limited to provide certain services ...
E&Y Limited acting through its Indian Branch shall provide the services...
16. As per the service Agreements, "services" will be in the nature of, but not limited to the following activities:
(i) business advisory services;
(ii) technical assistance/ advice in relation to
expatriate tax compliance services under the tax laws of the United Kingdom, including technical review and approval of UK income tax returns and other related work products; advice and technical assistance to the Global Shared Services (GSS) personnel with respect to the production of UK income tax returns and other related work products; knowledge transfer on agreement specific matters;
(iii) technical assistance/advice in relation to business tax compliance services under the tax laws of the 9 ST/50774/20 United Kingdom, including technical review and approval of the UK tax returns and other related work products; advice and technical assistance to the GSS personnel with respect to the production of UK tax returns and other related work products;
(iv) advice and technical assistance to the GSS personnel with respect to the UK statutory audit process required under the appropriate accounting standards, including the review and analysis of the financial data of UK LLP's audit clients. "
17. The Assistant Commissioner, in the order dated July 31, 2018, noted the following facts :
"Thus as per the RBİ permission letter and service agreements, the claimant, as Indian Branch Office of M/s Ernst & Young Ltd., UK, is the service provider in India. Further, export invoices have been issued by the claimant and as per copies of FIRCs and Bank Accounts remittances being received by the claimant & invoices; I find that said export services provided by the claimant are taxable services falls under the category of "Management or Business Consultant Service" and also Export of Service as per Rule 6A(1) of Service Tax Rules, 1994 as discussed below:
(a) As mentioned above the claimant is registered in India under the Companies Act, 1956. They also got registered under the Service Tax Laws in India with the Service Tax Commissionerate, Delhi. Thus the provider of service is located in the taxable territory.
(b) The recipients of service namely M/s Ernst & Young LLP, USA, M/s Ernst & Young LLP, UK etc. are separate companies under the laws of their countries and are thus located outside India.
10 ST/50774/20
(c) The provisioned service namely "Management or Business Consultant Service" is not a service specified in Section 66D of the Finance Act, 1994.
(d) The place of provision of the provisioned services falls under Rule 3 the Place of Provisions of Service Rules, 2012 according to which the place of provision of the service shall be the location of the recipient of service i.e. outside India as the recipients are located outside India as discussed in Para supra.
Further, the provisioned services do not fall under the category of Intermediary Services, as defined under Rule 2() of the Place of Provisions of Service Rules, 2012.
I observed that in the instant case, the provisioned services are not covered under the category of "intermediary service' but provided by the party on his own account and Rule 9 of the Place of Provisions of Service Rules, 2012 is not attracted in the instant case. Thus the place of provision of the service is outside India.
(e) The claimant has also submitted copies of BRC/FIRCS for relevant invoices along with Corresponding Bank Statements evidencing that payment (as calculated in the subsequent paras) for provisioned services have been received by the provider of service i.e. the claimant in convertible foreign exchange, and I observe that except in some cases as discussed below in para 7 (D), amount in convertible foreign exchange have been received by the claimant excluding bank charges in few cases which may be ignored.
(f) The service provider i.e. the claimant is in India whereas the service recipients are 11 ST/50774/20 separate companies under the laws of their countries and so are not merely establishment of a distinct person in accordance with Explanation 3(b) of Section 65(B)(44) of the Finance Act, 1994.
The party has submitted copies of ST-3 returns for the relevant periods wherein the provisioned export services have been described as Management or Business Consultant Service" and as per export invoices the description has been given as "Professional Fee for services" and "out of pocket expenses".
18. The Commissioner (Appeals), in the impugned order, has recorded the following findings :
4. (iii) With regard to the appeal filed by the Revenue, I find that nothing has been placed on record by the Revenue to prove that the service by the appellant EYL has been provided under the account of their parent Company. On the other hand, the Adjudicating Authority has based his finding upon the factual verification.
Further, the appellant EYL has furnished various documentary evidences such as copy of sample export invoices, copy of balance sheet, copy of service agreements etc. These documents support the finding of the Adjudicating Authority that the appellant EYL have provided the said service on their own account. As such, Rule 2(1) of Place of provision of Service Rules, 2012 is not attracted in this case. Accordingly, the appeal filed by the Revenue is dismissible."
19. As noted above, an intermediary is a person who arranges or facilitates provision of the main service between two or more persons.
The respondent is not involved in the arrangement or facilitation of the supply of service. In fact, the respondent had entered into agreement with E&Y, UK for providing services on a principal to principal basis. Both 12 ST/50774/20 the Assistant Commissioner and the Commissioner (Appeals) have recorded a finding that services provided by the respondent qualify for export service since it is providing services to E&Y, UK which is located outside India and is receiving convertible foreign exchange for such services.
20. In this connection, it may be pertinent to refer to the decision of the Delhi High Court in Verizon Communication India Pvt.
Ltd. versus Asstt. Commr., S.T. Delhi-III7. It is seen from a perusal of the aforesaid judgment that Verizon India had entered into a Master Supply Agreement with Verizon US for rendering connectivity services for the purpose of data transfer. Verizon US was engaged in the provision of telecommunication services for which it entered into contracts with the customers located globally. Since Verizon US did not have the capacity to provide such services across the globe, it utilized the services of Verizon India to provide connectivity to its customers. The issue, therefore, that arose before the Delhi High Court was whether the telecommunication services provided by Verizon India during the period April 2011 to September 2014 to Verizon US would qualify as „export of services‟. The department believed that the said services would not qualify as „export of services‟.
21. The Delhi High Court noted that in the process of gathering the data from the entities in India for transmission to Verizon US, Verizon India availed services of Indian telecommunication service providers like Vodafone and Airtel. These service providers raised invoices on Verizon India and Verizon India paid these service providers 7 2018 (8) G.S.T.L. 32 (Del.) 13 ST/50774/20 the requisite charges. Verizon India thereafter raised an invoice on Verizon US for the „export of services‟ provided by it to Verizon US. Since the recipient of the service (Verizon US) was outside India, Verizon India treated it as an export of service and understood that it was exempted from service tax under the Export of Service Rules 2005. Verizon US, in turn, raised invoices on its customers in the US. The refund claims of Verizon India pertained to the period January 2011 to September 2014.
The Delhi High Court pointed out that the „recipient‟ of services is determined by the contract between the parties and this would depend on who has the contractual right to receive the services and who is responsible for the payment for the services provided to the service recipient; there was no privity of contract between Verizon India and the customers of Verizon US; such customers may be the „users‟ of the services provided by Verizon India but were not its recipients; Verizon India may have been using the services of a local telecom operator but that would not mean that the services to Verizon US were being rendered in India; and the place of provision of such service to Verizon US remains outside India.
22. The Circular dated 24.02.2009 was relied upon, which is as follows:
"For the services that fall under category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. In this context, the phrase „used outside India‟ is to be interpreted to mean that the benefit of the service should accrue outside India. Thus, for Category III service [Rule 3(1)(iii)], it is possible that export of service may take place even when all the relevant activities take place in India so long as the benefits of these services accrue outside India..."
23. The summary of the conclusions noted by the Delhi High 14 ST/50774/20 Court are as follows:-
"54. To summaries the conclusions:
(i) It made no difference that Verizon India may have provided „telecommunication service‟ and not „business support services‟ since to qualify as export of service both had to satisfy the same criteria.
(ii) The provision of telecommunication services by Verizon India during the period January, 2011 till 1st July, 2012 complied with the two conditions stipulated under Rule 3(1)(iii) of the ESR to be considered as „export of service‟. In other words, the payment for the service was received by Verizon India in convertible foreign exchange and the recipient of the service was Verizon US which was located outside India.
(iii) That Verizon India may have utilised the services of Indian telecom service providers in order to fulfil its obligations under the Master Supply Agreement with Verizon US made no difference to the fact that the recipient of service was Verizon US and the place of provision of service was outside India.
(iv) The subscribers to the services of Verizon US may be „users‟ of the services provided by Verizon India but under the Master Supply Agreement it was Verizon US that was the „recipient‟ of such service and it was Verizon US that paid for such service. That Verizon India and Verizon US were „related parties‟ was not a valid ground, in terms of the ESR or the Rule 6A of the ST Rules, to hold that there was no export of service or to deny the refund.
(v) The Circular dated 3rd January, 2007 of the C.B.E. & C. had no application to the case on hand. It did not pertain to provision of electronic data transfer service. It was wrongly applied by the Department. With its total repeal by the subsequent Circular dated 23rd August, 2007, there was no question of it applying to deny the refund for the period January, 2011 till September, 2014.
(vi) Even for the period after 1st July, 2012 the provision of telecommunication service by
15 ST/50774/20 Verizon India to Verizon US satisfied the conditions under Rule 6A(1)(a), (b), (d) and (e) of the ST Rules and was therefore an „export of service‟. The amount received for the export of service was not amenable to service tax."
(emphasis supplied)
24. The aforesaid judgment of the Delhi High Court in Verizon Communication squarely applies to the facts of the present case. The Commissioner (Appeals) correctly appreciated the position in the impugned order in holding that the respondent was not an intermediary and was involved in export of service to Jindal LLC.
25. It would also be appropriate to refer to the decision of the Tribunal in Verizon India Pvt. Ltd. versus Commissioner of Service Tax, Delhi8. The Tribunal held that as the appellant had provided services under a contract to Verizon US which was located outside India and had raised invoices for such services and received remittance in foreign exchange, the appellant would satisfy the conditions set out in rule 6A of the 1994 Rules. The relevant portion of the decision is reproduced below:
"30. xxxxxxxxxx Further, we find that the Hon‟ble Delhi High Court has held, that its findings applied to post- Negative List also i.e. from July, 2012 onwards, as held by the Hon‟ble High Court in its aforementioned judgment particularly in para-54 (supra). Further, admitted facts are that the appellants have provided output services and raised invoices on principal to principal basis. The appellant has not been acting as intermediary between another service provider and Verizon US. This fact is also supported from the fact that the appellant has raised their bills for the services provided on the basis of cost plus 11% mark-up. As the services have been provided by the appellant under
8. 2021 (45) G.S.T.L. 275 (Tri.-Del.) 16 ST/50774/20 contract with Verizon US, who are located outside India and have raised their invoices, for such services and have received the remittance in convertible foreign exchange, the appellant satisfies all the conditions, as specified under Rule 6A of Service Tax Rules, 1994, inserted w.e.f. 1-7- 2012. xxxxxxxxxxxx
31. From perusal of the aforementioned ruling, it is evident that the services of the appellant to Verizon US do not merit classification under the category of „intermediary services‟. Further, the Hon‟ble High Court has held in the appellant‟s own case (supra) that the agreement between the related parties does not have any impact on the export of services.
Further, the findings of the Commissioner (Appeals) that the service provided by the appellant do not qualify as export, as such services provided to the customers, have been consumed in India, is directly in conflict with the ruling of this Tribunal in the case of Paul Merchants Ltd. (supra). Accordingly, we hold that the appellants have rendered services to Verizon US as principal service provider and not as an intermediary. Accordingly, we hold that the appellants are entitled to refund under Rule 5 of the Cenvat Credit Rules, 2004 read with the notification. Thus, these appeals are also allowed with consequential benefit and the impugned orders are set aside."
(emphasis supplied)
26. Learned counsel for the respondent also placed reliance upon a decision of the Chandigarh Bench of the Tribunal in Service Tax Appeal No. 61877 of 2018 decided on 08.08.20229. After reproducing the definition of „intermediary‟, the Bench observed :
"5. A plain reading of the aforesaid provision makes it clear that to attract the said definition there should be two or more persons besides the service provider. In other words an "intermediary" is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus necessary that the arrangement requires a minimum of three parties, two of
9. M/s. BlackRock Service India Private Limited vs. Commissioner of CGST 17 ST/50774/20 them transacting in the supply of goods or services or securities (main supply) and one arranging or facilitating the said main supply. Therefore, an activity between only two parties cannot be considered as an intermediary service. An intermediary essentially arranges or facilitates the main supply between two or more persons and does not provide the main supply himself. The intermediary does not include the person who supplies such goods or services or both on his own account. Therefore there is no doubt that in cases wherein the person supplies the main supply either fully or partly, on principal to principal basis, the said supply cannot come within the ambit of "intermediary". Sub-contracting for a service is also not an intermediary service. The supplier of main service may decide to outsource the supply of main service, either fully or partly, to one or more sub- contractors. Such sub- contractor provides the main supply, either fully or a part thereof and does not merely arrange or facilitate the main supply between the principal supplier and his customers and therefore clearly not an intermediary. xxxxxxxxxxx
6. What we have gathered from the perusal of the agreement as well as submission of the learned Counsel is that the Support Services in relation to creation of clients account is limited to the performing of services on HLX systems and that too as a backend process. It is the specific case of the appellants that HLX does not have any clients in India. Maintenance, support or troubleshooting function, if any, the appellant is required to perform on requisition from HLX in order to ensure seamless access of services which means there is no requirement of any interaction, whatsoever with the clients of HLX and for performing all these services on behalf of HLX, the appellant receives a pre-agreed consideration from HLX in convertible foreign exchange. Commission is being paid to an intermediary not the transfer pricing, whereas the appellant herein was getting transfer pricing. There is nothing on record to show that the appellant is liasioning or acting as intermediary between the HLX and its clients. Therefore, the finding of the lower authorities that the appellant is an "intermediary‟ is misplaced. We are astonished to notice that although for earlier periods the then adjudicating authority allowed the 18 ST/50774/20 refund claim of the appellant, but without looking into those orders and without giving any reason for not following the earlier orders, this time the concerned Authorities held otherwise by denying the credit."
(emphasis supplied)
27. The aforesaid view also finds support from the decision of the Tribunal in Principal Commissioner, CGST Delhi South Commissionerate vs Comparex India Pvt. Ltd.10 and the decision of the Tribunal in Commissioner of Central Tax, Central Excise & Service Tax vs M/s Singtel Global India Private Limited11. It needs to be noted that the Department had filed an appeal before the Supreme Court against the decision of the Tribunal rendered in Comparex India Pvt. Ltd. and the Civil Appeal was dismissed on February 08, 2021 on the ground of delay.
28. In this connection, it would also be useful to refer to the Circular dated September 20, 2021 issued by the Central Board of Indirect Taxes and Customs regarding the scope of „intermediary‟ and the relevant portion is reproduced below :
"2.3 From the perusal of the definition of "intermediary"
under IGST Act as well as under Service Tax law, it is evident that there is broadly no change in the scope of intermediary services in the GST regime vis-à-vis the Service Tax regime, except addition of supply of securities in the definition of intermediary in the GST Law.
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 10 MANU/CE/0016/2020 11 Service Tax Appeal No. 52609 of 2019 decided on December 07, 2022 19 ST/50774/20 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 supply.
3.2 Two distinct supplies: As discussed above, there are two distinct supplies in case of provision of intermediary services;
(1) Main supply, between the two principals, which can be a supply of goods or services or securities;
(2) Ancillary supply, which is the service of facilitating or arranging the main supply between the two principals. This ancillary supply is supply of intermediary service and is clearly identifiable and distinguished from the main supply.
A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service.
3.3 Intermediary service provider to have the character of an agent, broker or any other similar person: The definition of "intermediary" itself provides that intermediary service provider means a broker, an agent or any other person, by whatever name called....". This part of the definition is not inclusive but uses the expression "means" and does not expand the definition by any known expression of expansion such as "and includes". The use of the expression "arranges or facilitates" in the definition of "intermediary" suggests a subsidiary role for the intermediary. It must arrange or facilitate some other supply, which is the main supply, and does not himself provides the main supply. Thus, the role of intermediary is 20 ST/50774/20 only supportive.
3.4 Does not include a person who supplies such goods or services or both or securities on his own account: The definition of intermediary services specifically mentions Circular No. 159/15/2021-GST 3 that intermediary "does not include a person who supplies such goods or services or both or securities on his own account". Use of word "such" in the definition with reference to supply of goods or services refers to the main supply of goods or services or both, or securities, between two or more persons, which are arranged or facilitated by the intermediary. It implies that in cases wherein the person supplies the main supply, either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of "intermediary".
3.5 Sub-contracting for a service is not an intermediary service: An important exclusion from intermediary is sub-contracting. The supplier of main service may decide to outsource the supply of the main service, either fully or partly, to one or more sub- contractors. Such sub-contractor provides the main supply, either fully or a part thereof, and does not merely arrange or facilitate the main supply between the principal supplier and his customers, and therefore, clearly is not an intermediary. For instance, „A‟ and „B‟ have entered into a contract as per which „A‟ needs to provide a service of, say, Annual Maintenance of tools and machinery to „B‟. „A‟ subcontracts a part or whole of it to „C‟. Accordingly, „C‟ provides the service of annual maintenance to „A‟ as part of such sub-contract, by providing annual maintenance of tools and machinery to the customer of „A‟, i.e. to „B‟ on behalf of „A‟. Though „C‟ is dealing with the customer of „A‟, but „C‟ is providing main supply of Annual Maintenance Service to „A‟ on his own account, i.e. on principal to principal basis. In this case, „A‟ is providing supply of Annual Maintenance Service to „B‟, whereas „C‟ is supplying the same service to „A‟. Thus, supply of service by „C‟ in this case will not be considered as an intermediary."
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29. The aforesaid Circular also emphasizes that an intermediary essentially arranges or facilitates another supply (the "main supply") between two or more other persons and, does not himself provide the main supply. It also clarifies that in cases where a person supplies the main supply either fully or partly, on principal to principal basis, the said supply cannot be covered under the scope of „intermediary‟.
30. There is, therefore, no illegality in the order dated March 02, 2020 passed by the Commissioner (Appeals).
31. Thus, Service Tax Appeal No. 50774 of 2020 filed by the department deserves to be dismissed and is dismissed.
(Dictated & pronounced in the open court) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R PRIYA) MEMBER (TECHNICAL) Golay