Ernst And Young Limited Vs Additional Commissioner CGST (Delhi High Court)
In the present case, the petitioner has provided professional services in terms of the service agreements to overseas entities (EY Entities). It had issued the invoices for the said services directly to EY Entities and had received the invoiced consideration from EY Entities, in foreign convertible exchange. As stated hereinbefore, there is no dispute that the professional services were, in fact, rendered by the petitioner. The Adjudicating Authority has proceeded on the basis that since the service agreements were between EY Entities and the petitioner’s head office (E&Y Limited), the petitioner has rendered services on behalf of its head office (E&Y Limited). It reasoned that since the professional services were rendered on behalf of its head office, the same were not on the petitioner’s ‘own account’; therefore, the petitioner is an intermediary.
It is apparent that the Adjudicating Authority has interpreted the last limb of the definition of ‘intermediary’ under Section 2(13) of the IGST Act as controlling the definition of the term. We are unable to agree with this interpretation. The limb of Section 2(13) of the IGST Act reads as “but does not include a person who supplies such goods or services or both or securities on his own account” but this does not control the definition of the term ‘intermediary’; it merely restricts the main definition. The opening lines of Section 2(13) of the IGST Act expressly provides that an intermediary means a broker, agent or any other person who “arranges or facilitates supply of goods or services or both or securities between two or more persons”. The last line of the definition merely clarifies that the definition is not to be read in an expansive manner and would not include a person who supplies goods, services or securities on his own account. There may be services, which may entail outsourcing some constituent part to a third party. But that would not be construed as intermediary services, if the service provider provides services to the recipient on his own account as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services.
Thus, even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party.
The assumption that the petitioner has acted as a buying and selling agent, is without any basis. The Adjudicating Authority had referred to the letter dated 04.04.2008 issued by RBI permitting E&Y Limited to open a branch office in India (that is establishing the petitioner) and further clarifying the activities that a branch office could carry on. The same included export-import of goods; rendering professional or consultancy services, carrying out research work in which the parent company is engaged, promoting technical or financial collaboration between Indian companies and parent or overseas group companies and representing the parent company in India and acting as a buying or selling agent in India. However, merely because one of the activities that could be carried on by the petitioner is to act as buying/selling agent in India does not mean that the petitioner had carried on such activities and the invoices raised were for services as a buying/selling agent. As noted above, in the facts of the present case, there is no dispute that the petitioner had, in fact, rendered professional and consultancy services, which is also one of the permissible activities.
Concededly, the services rendered by the petitioner to EY Entities, prior to roll out of the GST regime, was considered as ‘export of services’. The petitioner prevailed before the concerned service tax authorities in establishing that the professional services rendered by it cannot be considered as services as an ‘intermediary’. It is also material to note that the petitioner’s application for refund of ITC for the period after March 2020 has also been accepted by the Adjudicating Authority. Thus, the petitioner has been denied ITC only for the period from December 2017 to March 2020; it has been allowed CENVAT credit for the period covered under the service tax regime as well as ITC for the period after March 2020.
Section 13 of the IGST Act contains provisions for determining the place of services where the location of supplier or location of the recipient is outside India. Thus, the question whether the supply of service by the petitioner is outside India is required to be determined with reference to Section 13 of the IGST Act.
In terms of Section 13(2) of the IGST Act, the place of supply of services except the services specified in Sub-section (3) to (13) is the location of the recipient of the services. In the present case, there is no dispute that the provisions of Sub-sections (3) to (13) except Subsection (8) of Section 13 are not attracted.
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 Sub-section (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.
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.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The petitioner is an Indian Branch Office of M/s Ernst & Young Limited and has filed the present petition impugning an order-in-appeal dated 15.03.2022 (Order-in-Appeal No.311-313/2021-22) (hereafter ‘the impugned order’) passed by the Additional Commissioner of CGST Appeal-II (hereafter ‘the Appellate Authority’), whereby respective appeals preferred by the petitioner against orders-in-original dated 25.01.2020, 09.12.2020 and 21.05.2021 (hereafter ‘the impugned orders-in-original’) passed by the Assistant Commissioner, CGST, Division Vasant Kunj (hereafter ‘the Adjudicating Authority’) were rejected.
2. The petitioner had appealed against the impugned orders-in- original passed by the Adjudicating Authority being aggrieved by the rejection of its refund applications for input tax credit (hereafter ‘ITC’) in respect of export of services for the period from December 2017 to March 2020. The Adjudicating Authority had denied the said applications for refund of ITC on the premise that the petitioner is an ‘intermediary’ and thus, the place of services is located in India, where the petitioner’s place of business is located and not where recipient of services is located.
3. The petitioner has the statutory right to appeal the decision of the Appellate Authority before the Goods and Service Tax Appellate Tribunal under Section 112 of the Central Goods and Services Tax Act, 2017 (hereafter ‘the Act’). However, the said remedy is unavailable as the Goods and Services Tax Appellate Tribunal has not been constituted as yet. Therefore, this Court considers it apposite to entertain the present petition.
Factual Context
4. The petitioner is an Indian Branch Office of M/s Ernst & Young Limited, a company incorporated under the laws of United Kingdom (hereafter ‘E&Y Limited’). The petitioner was established pursuant to the permission granted by the Reserve Bank of India on 04.04.2008.
5. Prior to the enactment of the Act, the petitioner was registered with the Central Excise Department as a separate tax entity, for providing services of “Management or business consultant service, Rent-a-cab scheme operator Service, Manpower recruitment/supply agency service, Legal consultancy service”, for the purposes of service tax.
6. E&Y Limited has entered into service agreements for providing professional consultancy service to various entities of Ernst & Young group (hereafter ‘EY Entities’) including Ernst & Young US LLP (hereafter ‘EY US’), Ernst & Young Service Pty Ltd. Australia (hereafter ‘EY Australia’), Ernst & Young Group Ltd. New Zealand (hereafter ‘EY NZ’) and Ernst & Young LLP, UK (hereafter ‘EY UK’) on arm’s length basis.
7. In terms of the aforementioned service agreements, the overseas entities had retained E&Y Limited, acting through its Indian Branch (the petitioner herein) to provide certain professional services (the Services). It is material to note that the petitioner had placed on record the agreements dated 29.09.2009 entered into between E&Y Limited and EY US; agreement dated 25.10.2010 between E&Y Limited and EY Australia; agreement dated 15.01.2018 entered into between E&Y Limited and EY NZ; agreement dated 20.12.2012 E&Y Limited and EY UK; and agreement dated 25.09.2018 between E&Y Limited and EY US.
8. The terms and conditions for rendering services under the aforementioned agreements are broadly similar in material aspects. It would be relevant to set out the contents of one such agreement dated 29.09.2009 between E&Y Limited and EY US for purpose of setting out a definite context in which the present controversy arises. The same are set out below:
“Ernst & Young US LLP (“EY US”) wishes to retain Ernst & Young Limited (“E&Y Limited”), acting through its Indian branch, to provide certain professional services in India, as may be agreed from time to time by the parties (the “Services”).
The Services may be in the nature of, but not limited to, the following activities:
(i) assurance and business advisory services;
(ii) technical assistance/ advice in relation to expatriate tax compliance services under the tax laws of the United States, including technical review and approval of US income tax returns and other related work products; and knowledge transfer on engagement specific matters to other firms that may be performing professional services for EY US in India;
(iii) technical assistance/advice in relation to business tax compliance services under the tax laws of the United States, including technical review and approval of US tax returns and other related work products; and
(iv) advice and technical assistance with respect to US audit processes required under appropriate accounting standards, including the review and analysis of the financial data of EY US’s audit clients.
Accordingly, we agree as follows.
1. E&Y Limited shall provide the Services in accordance with all applicable professional standards, as well as all of the requirements imposed upon member firms of Ernst & Young Global Limited in the conduct of professionals services under the “Ernst & Young” name.
2. EY US shall pay E&Y Limited an arms’ length fee for the Services, provided, that, if it is determined that such fee is not in accordance with the arms’ length principles, then the parties shall negotiate and modify it at least annually to reflect an arms’ length price.
3. EY US may terminate this agreement for any reason on 30 days’ prior written notice to E&Y Limited.
4. Except to the extent otherwise required by applicable professional standards, EY US shall own all right, title and interest in and to all data, reports, frameworks, specifications, designs models, analyses, inventions, programs, other property or materials (collectively, the “Works”) that E&Y Limited develops in connection with the provision of the Services, including all copyright and intellectual property rights in the Works.
5. E&Y Limited shall not to disclose any confidential information relating to EY US, its affiliates, or their respective business, services, personnel, clients, operations or vendors, to any third party except to the extent required by applicable law. These restrictions do not apply to information that has entered the public domain or that has been disclosed to E&Y Limited by a third party who is not subject to any restriction on disclosure.
6. This agreement supersedes and replaces the previous agreement dated September 29,2009.
7. This agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made, and fully to be performed, therein by residents thereof.
8. This agreement is effective as of December 1, ”
9. It is not disputed that the agreements to provide services to other EY Entities are in similar terms.
10. The petitioner had provided various professional services to overseas EY Entities in terms of the agreements entered into between E&Y Limited and the respective overseas EY Entities. The invoices raised described the nature of services for the invoiced amount as “Professional Fees for Services”.
11. The petitioner applied for refund of the ITC availed for providing its professional services for the periods December 2017 to March 2020. A tabular statement indicating the period for which refund was sought; the date for filing the refund claimed; and the amount of refund sought, is set out below:
