Case Law Details
Informatica Business Solutions Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bangalore)
The CESTAT Bangalore allowed the appeals filed by Informatica Business Solutions Pvt. Ltd. against the partial rejection of refund claims under Rule 5 of the Cenvat Credit Rules, 2004. The appellant, engaged in providing Information Technology Software Services, customer support services, and marketing and sales support services to its overseas group entity, had claimed refund of accumulated Cenvat credit on export of services. The refund claims had been partly rejected on the grounds that the services were intermediary services, the Foreign Inward Remittance Certificates (FIRCs) were defective, and certain input services lacked nexus with the exported output services.
The Tribunal rejected the finding that the appellant’s services were intermediary services. Relying on its own earlier decision in the appellant’s case and several judicial precedents, it held that an intermediary merely arranges or facilitates the supply of goods or services between two or more persons, whereas the appellant was providing the main services on its own account to its overseas client. Since the recipient of the services was located outside India and consideration was received in convertible foreign exchange, the services qualified as export of services and refund could not be denied on the ground that they were intermediary services.
Regarding the FIRCs, the Tribunal noted that the Commissioner (Appeals) had observed that some FIRCs did not specifically mention the appellant’s name. As the appellant produced FIRCs before the Tribunal claiming they were proper, the matter was remanded to the original authority solely for verification of the FIRCs.
On the objection relating to nexus between input and output services, the Tribunal held that refund could not be denied merely because certain services such as sponsorship, insurance auxiliary, or event management services were considered unrelated. Relying on the Telangana High Court’s decision in Qualcomm India Pvt. Ltd., it observed that where the department had not disputed the availment of Cenvat credit under Rule 14, refund under Rule 5 could not be denied on the ground of nexus, particularly when the statutory formula for refund was satisfied.
Accordingly, the Tribunal held that the rejection of refund on the grounds of intermediary services and lack of nexus was unsustainable. The matter was remanded only for limited verification of the appellant’s name in the relevant FIRCs, with all other issues decided in favour of the appellant.
Cases Discussed
- Deloitte Tax Services India Pvt. Ltd. – 2008-TIOL-629-CESTAT
- ABB Ltd. v. CCE – 2009 (21) STT 77 (Tri.)
- KPMG v. CCE, New Delhi – 2014 (33) STR 96
- Commissioner of CGST & CE, Delhi South v. Grant Thornton Advisory Pvt. Ltd. – 2024 (10) TMI 147 – CESTAT New Delhi
- Sunrise Immigration Consultants Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Chandigarh – 2018-TIOL-1849-CESTAT-CHD
- Genpact India Pvt. Ltd. v. Union of India – 2023 (68) GSTL 3 (P&H)
- Ernst and Young v. Additional Commissioner, CGST, Delhi – 2023 (73) GSTL 161 (Delhi)
- M/s Medway Educational Consultant Pvt. Ltd. v. Commissioner, CGST Commissionerate, Delhi West – 2024 (3) TMI 1178 – CESTAT New Delhi
- Verizon Communication India Pvt. Ltd. v. Assistant Commissioner, Service Tax, Delhi – 2018 (8) GSTL 32 (Delhi)
- Paul Merchants Ltd. v. CCE, Chandigarh – 2012 (12) TMI 424 – CESTAT Delhi (LB)
- Vodafone Essar Cellular Ltd. v. CCE, Pune-III – 2013 (7) TMI 178 – CESTAT Mumbai
- Excelpoint Systems India Pvt. Ltd. v. CST, Bangalore – 2022-TIOL-303-CESTAT-BANG
- Blackberry India Pvt. Ltd. v. CCT/CCE, Delhi – 2022 (12) TMI 660 – CESTAT New Delhi
- AMD India Pvt. Ltd. v. CST, Bangalore – 2017 (12) TMI 772 – CESTAT Bangalore
- Qualcomm India Pvt. Ltd. v. Commissioner of Customs & Central Excise, Hyderabad-IV – 2021 (11) TMI 72 (Telangana High Court)
FULL TEXT OF THE CESTAT BANGALORE ORDER
These appeals are filed by the appellant M/s. Informatica Business Solutions Pvt. Ltd., against common Order-in-Appeal No. 277-280/2021 dated 02.11.2021 passed by the Commissioner of Central Tax (Appeals-I), Bangalore.
2. The appellant is basically providing Information Technology Software Services (ITSS) and various other services and are availing cenvat credit on the input services used in the above output services. During the period of dispute, refund claims were filed and the original authority partly sanctioned the refund and partly rejected their refund claims. On rejection of refund claims, the appellant filed appeals before the Commissioner (Appeals) and the Commissioner (Appeals) in the impugned order upheld the rejection on various grounds. Aggrieved by this order, the appellant is in appeal before us.
3. The Learned Chartered Accountant for the appellant submits that they are into Software Development Services and render Customer Support Service and Marketing and Sale Support Service to Informatica USA. Since, there services fall under export of services, they had filed refund claims under Rule 5 of Cenvat Credit Rules, 2004 read with Notification No.27/2012-CE(NT) dated 18.06.2012. It is submitted that their services do not fall under the definition of ‘intermediate services’ as held in the impugned order and hence, the question of rejection of refund does not arise.
3.1 The Commissioner (Appeals) has rejected some of the refunds on the ground of nexus and on this issue they rely on the decisions of Deolitte Tax Services India Pvt. Ltd. 2008- TOIL -629 (Tri.), ABB Ltd. Vs. CCE: 2009 (21) STT 77 (Tri.) and KPMG Vs. CCE. New Delhi 2014 (33) STR 96.
4. The learned Authorized Representative reiterated the findings of the learned Commissioner (Appeals).
5. Heard both sides. We find that the Commissioner (Appeals) has rejected the refund claims on the following grounds.
i. The export services are in the nature of intermediary services.
ii. The FIRC’s are not in order.
iii. Some of the services have no nexus with the input services
6. Let’s examine the above on individual issues.
(i) The export services are in the nature of intermediary services.
The Commissioner in the impugned order based on the service agreement dated 02.05.2003 for various periods has held that the services cannot be considered as export of services because they fall under the definition of intermediary services. This Tribunal in the appellant’s own case vide Final Order No. 21125/2024 dated 18.11.2024 referring to the above agreements has held as follows:
“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:-
15. 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’.
16. 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’.
17. 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”; –
29. 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”.
30. 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
36. 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.
37. 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 20-9- 2021 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)
18. 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, Delhi West [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 424- CESTAT-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
16. 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.
17. 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.”
21. 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, Pune III [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.
12. 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”.
In view of the above, the first issue for rejection of refund is devoid of any merit.
i. The FIRC’s are not in order.
The Commissioner (Appeals) in the impugned order has recorded that the FIRC’s do not bear the specific name of the appellant/exporter who has filed the refund claims. The appellant before us has placed on record some of the FIRC’s to claim that they are in order. For the limited purpose of verification of the FIRC’s, we remand the matter to the original authority.
ii. Some of the services have no nexus with the input services
The impugned order rejects refund claim on the ground that some of the services such as sponsorship service, insurance auxiliary service, event management service etc., have no nexus with the output services. The appellant has submitted that some of the services are required for maintenance of office working space for promoting healthy environment for the employees. We find that the Hon’ble Telangana High Court in the case of M/s. Qualcom India Pvt. Ltd. vs. Commissioner of Customs and Central Excise Hyderabad-IV: 2021 (11) TMI 72 (Telangana High Court) held as follows:
“17. Further, it is to be noted that these appeals relate to period prior to amendment made to Rule 5 of Rules w.e.f 01.04.2012 and also thereafter. In so far the claim for refund of CENVAT credit for the period prior to 01.04.2012 is concerned, as Rule at the relevant point of time did not contain any prescription as to the nexus between input services and output service, the denial of refund on the said ground cannot be held to be valid. For the period subsequent to the introduction of substituted Rule 5 of Rules, the only prescription for grant of refund in respect of export of output service is by applying the formula specified.
18. The Tribunal, while considering the above aspect, had observed as under:
‘In so far as taking of irregular CENVAT is concerned, Rule 14 ibid clearly mandates that in case of irregular availment of credit or its utilization, such credit can be recovered from the assessee and for effecting the recoveries, the provisions of Section 11A of the Central Excise Act, 1944/Section 73 of the Finance Act, 1994 shall apply mutatis mutandis. It is an admitted fact on record that the department has not invoked the provisions of Rule 14 ibid for effecting recovery of the alleged irregular CENVAT credit availed by the assessee-appellant. Thus, under such circumstances, it can be said that taking of CENVAT credit on the disputed services by the appellant is in conformity with CENVAT statute. Rule 5 ibid nowhere specifies that CENVAT credit can be denied on the ground of irregular availment or utilization of the same. Thus, in absence of specific provisions contained in the statute, denial of the refund benefit provided under Rule 5 of ibid, in our considered opinion, cannot stand for judicial scrutiny.’
19. The Tribunal by observing as above, held –
“Since the department has not specifically alleged regarding actual exportation of services by the assessee-appellant and use/utilization of disputed services for such activities, benefit of refund should be available in terms of the unambiguous provisions contained in Rule 5 ibid, subject only to adherence of the formula laid down thereunder.”
20. The above findings as recorded by the Tribunal, in our view, do not call for any interference, being a finding of fact.
21. Thus, this Court is of the view that in the given facts and circumstances, the reasons assigned by the Tribunal for holding that the respondent/assessee is entitled for grant of refund of unutilized CENVAT credit under Rule 5 of the Finance Act, does not call for any interference.”
In view of the above, we do not find any reason to reject the refund claim on the ground of nexus when there is no dispute or alleged irregularity on availing the input service credit by the Revenue.
7. In view of the above, the issue is remanded only to the extent of verify the appellant’s name in the FIRC’s relevant to the refund claims.
(Operative portion of the order was pronounced in Open Court on conclusion of hearing.)
Author Bio
