Chevron Philips Chemicals India Pvt. Ltd. Vs Commissioner of Central Tax & Central Excise (CESTAT Mumbai)
The appeal challenged the order dated 20.09.2019 passed by the Commissioner, Central Tax and Central Excise, Navi Mumbai, confirming a service tax demand of ₹6,37,70,061, together with interest and an equivalent penalty. The appellant was engaged in providing sales promotion and other sales support services to its associated company, M/s Chevron Philips Chemicals Global FZE (CPC Global) located outside India. The services were classified as Business Auxiliary Service under the Finance Act, 1994. Since the entire output services were provided to the overseas entity, the appellant claimed refund of accumulated unutilized CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-CE (NT) dated 18.06.2012.
Read SC Judgment in this case: Sales Promotion Services Are Not Intermediary Services: SC Upholds CESTAT Ruling
The jurisdictional Commissioner issued a show cause notice alleging that the appellant had acted as an agent of CPC Global and was therefore an intermediary, resulting in denial of refund and a demand of service tax amounting to ₹6,37,70,061. The adjudicating authority confirmed the demand through the impugned order, prompting the present appeal before the Tribunal.
The appellant submitted that its relationship with the overseas entity was that of an independent contractor and not of a principal-agent or broker-principal. It contended that it could not be regarded as an intermediary and that the issue had already been decided in its favour by the Tribunal in Final Order No. A/87373-87378/2019 dated 20.12.2019 in its own case. It therefore argued that neither rejection of refund nor confirmation of the service tax demand could be sustained. The Revenue supported the findings recorded in the impugned order.
The Tribunal examined the agreement dated 14.09.2009 executed between the appellant and CPC Global. It noted that the agreement expressly provided that the appellant had no authority to determine prices, sign contracts or make commitments on behalf of the overseas entity. The agreement further stipulated that the consideration received by the appellant was not directly linked to sales made in India, but was determined on the basis of fees earned by CPC Global. It also expressly recognised the relationship between the parties as that of an independent contractor and contractee, and not that of principal and agent. The Tribunal observed that the agreement did not authorise the appellant to provide services to Indian selling companies or end customers on behalf of CPC Global.
Based on these contractual terms, the Tribunal held that the appellant could not be regarded as an intermediary in the dealings between the overseas entity and its customers in India. It observed that, for a person to qualify as an intermediary under the statutory provisions, the parties must stand in a principal-agent relationship, and the alleged agent must possess authority to represent and bind the principal. On examining the agreement alongside the statutory provisions, the Tribunal concluded that the appellant’s services qualified as export of services under Rule 6A of the Service Tax Rules, 1994, read with Rule 3 of the Place of Provision of Services Rules, 2012.
The Tribunal also relied upon its earlier decision in the appellant’s own case, rendered through Final Order No. A/87373-87378/2019 dated 20.12.2019, wherein it had held that the appellant could not be treated as an intermediary. In that earlier decision, the Tribunal had found that the appellant’s role was confined to sales promotion, that it had no role in price fixation or negotiations between CPC Global and its customers, and that it therefore fell outside the amended definition of “intermediary” under the Place of Provision of Services Rules. The Tribunal had also referred to Lubrizol Advance Materials and R.S. Granite Machine, wherein services rendered on a principal-to-principal basis and remunerated on a cost-plus markup basis were held not to constitute intermediary services.
Following the earlier decision in the appellant’s own case and the precedents relied upon therein, the Tribunal found no merit in the impugned order confirming the service tax demand. It set aside the impugned order and allowed the appeal in favour of the appellant with consequential relief in accordance with law.
FULL TEXT OF THE CESTAT MUMBAI ORDER
The applicant/appellant has filed the miscellaneous application, seeking early hearing of appeal. On going through the submissions made in the said application, we are of the view that the prayer made therein can be considered favorably for grant of out-of-turn hearing of appeal. Therefore, the miscellaneous application filed by the applicant is allowed. Since the issue involved in this appeal lies in a narrow compass, with the consent of both sides, the appeal is taken up for hearing and disposal today.
2. This appeal is directed against the impugned order dated 20.09.2019 passed by the Commissioner, Central Tax and Central Excise, Navi Mumbai. Vide the impugned order, the adjudicating authority has confirmed service tax demand of Rs. 6,37,70,061/- along with interest and also imposed equal amount of penalty on the appellant.
3. Brief facts of the case are that the appellant is providing sales promotion and other sales support services to its associated company namely, M/s Chevron Philips Chemicals Global FZE (“CPC Global”) located outside India. The services provided by the appellant are classifiable under the taxable category of “Business Auxiliary Service”, defined under the Finance Act, 1994. For providing such taxable service, the appellant got itself registered with the Service Tax Department. Since the entire output services provided by the appellant were exported to its associated company, there was no scope on the part of the appellant to discharge the service tax liability on such output services. Thus, for claiming the accumulated balance of unutilised Cenvat Credit, the appellant had filed refund application before the jurisdictional Service Tax authorities in terms of Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 27/2012-CE(NT) dated 18.06.2012. On scrutiny of the refund application, the jurisdictional Commissioner of Central Excise had issued the show cause notice dated 16.11.2008, alleging that the appellant had provided services as an agent of M/s CPC Global and as such, is to be considered as an intermediary. It has further been alleged that the appellant had failed to pay appropriate service tax amount on the taxable value, which works out to Rs. 6,37,70,061/-. The matter arising out of the show cause notice was adjudicated vide the impugned order dated 20.09.2019 in confirming the preferred demand made therein. Feeling aggrieved with the impugned order, appellant has preferred this appeal before the Tribunal.
4. Learned Advocate appearing for the appellant submitted that the relationship between the appellant and the overseas entity is not that of principal-agent or broker-principal and therefore, it cannot be termed as intermediary for denying the benefit of refund provided under Rule 5 The learned Advocate further submitted that the issue involved in this case has already been settled in the Final Order No. A/8737387378/2019 dated 20.12.2019 passed by this Tribunal in the case of the appellant. Thus, it is contended on behalf of the appellant that the impugned order, rejecting the benefit of refund application and subsequent confirming the adjudged demands cannot be sustained.
5. On the other hand, learned AR appearing for the Revenue reiterated the findings recorded in the impugned order.
6. Heard both sides and perused the case records.
7. We have examined the contract dated 14.09.2009 entered into between the overseas entity M/s CPC Global and the appellant. Clauses in the agreement provide that the appellant shall not be empowered to make any pricing decisions, to sign any contracts, or to make any commitments on behalf of the overseas entity; that the consideration received by the appellant from M/s CPC Global as a service provider, is not directly linked with the sale of products by the selling companies in India, but determined based on fees earned by M/s CPC Global; that the relationship between the parties as per the contract is that of the independent contractor-contractee and not that as agents. The content in the agreement clearly provide that no services were provided by the appellant to the selling companies or end customers on behalf of the overseas entity M/s CPC Global. Thus, under such circumstances, it cannot be said that the appellant has acted as an intermediary in the dealings between the overseas entity and their customers in India. To qualify as an intermediary, service as per the statutory provision, the essential element for consideration is that the parties to the contract should act as principal-agent and that the agent shall be in a position to represent and bind the principal. On reading of the clauses in the agreement vis-à-vis the statutory provisions, it is abundantly clear that the services provided by the appellant to the overseas entity qualify as export in terms of Rule 6A of the Service Tax Rules, 1994 read with Rule 3 of the Place of Provision of Services Rules, 2012.
8. We find that by reading the contents of the said agreement dated 14.09.2009 entered into between the appellant herein and the self same overseas entity, this Tribunal in the case of the appellant itself, vide Final Order No. A/87373-87378/2019 dated 20.12.2019 has held that the appellant cannot be termed as an intermediary. The relevant paragraph in the said order is extracted herein below:-
“17. For the period after 1.10.2014, on merit also, the appellant cannot be called as an ‘intermediary’. On a simple reading of the agreement analyzed as above, it is clear that the appellants are appointed by their overseas counterpart CPC Global for sales promotion of the goods for their client in the defined territory. The appellant has no role in fixation of price nor they negotiate in any manner between CPC Global and their clients relating to sales promotion of the goods sold. Therefore, in my view, the appellant cannot be called as an intermediary. consequenity, fall outside the amended definition of `intermediary’ under Rule 2(f) and Rule 9 of the POPS Rules, 2012. Similar view has been expressed by the Tribunal in the case of Lubrizol Advance Materials (supra) and R.S. Granite Machine (supra). This Tribunal in the case of Lubrizol Advance Materials has held as under:-
“6. I find that the learned Commissioner (Appeals) has denied the benefit of export with effect from 1.10.2014 under the Place of Provision of Services Rules, 2012, holding that the appellant had facilitated supply of goods between its foreign counterpart and processing of goods and thus, it should be considered as an intermediary. On perusal of the contracts, I find that the service fee charged by the appellant to its overseas group entities for provision of service has no direct nexus with the supply of goods by the overseas group entities to its customers in India. Further, the appellant had provided the service to the overseas entities on principal to principal basis. Thus, the appellant cannot be termed as an intermediary between the overseas entity and the Indian customers. It is an admitted fact on record that the consideration received by the appellant for providing the services was based upon cost plus markup and is nowhere connected with the main supply of goods. In other words, the main supply may or may not happen and thus, cannot be directly correlated with the service provided by the appellant. Thus, the appellant is not acting as a bridge between the overseas group entities and supplies made to their customers in India and accordingly, it cannot be said that the appellant has provided intermediary service and should be governed under the provisions of Rule 9 of the rules.”
Also, in the case of R.S. Granite Machine (supra), this Tribunal has held as under: –
5. The facts of the case as analysed elsewhere in this order, make it clear that obtaining/procuring order for its foreign Principals is the main service rendered by the appellant and consequently, rigors Rule 9 vis-à-vis Rule 2 (f) are not applicable. In view of the above, I am of the considered opinion that Rule 3 of POPS Rules would only apply and therefore the appellant cannot be fastened with tax liability. For the above reasons, demand as well as the impugned order are not sustainable and consequently, the same are set aside and the appeal stands allowed with consequential benefits if any, as per law.”
9. In view of the foregoing discussions, we do not find any merits in the impugned order passed by the adjudicating authority in confirming the adjudged demands on the appellant. Therefore, by setting aside the impugned order, the appeal is allowed in favour of the appellant.
(Operative portion of the order pronounced in open court)
