Sales Promotion Services Are Not Intermediary Services: SC Upholds CESTAT Ruling

Commissioner of Central Tax And Central Excise Vs Chevron Phillips Chemicals India Pvt. Ltd. (Supreme Court of India)

The matter originated from an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) challenging the order dated 20.09.2019 passed by the Commissioner, Central Tax and Central Excise, Navi Mumbai. By the impugned order, the adjudicating authority confirmed a service tax demand of ₹6,37,70,061, together with interest and an equivalent penalty against the appellant.

Read CESTAT Mumbai Order in this case: Sales Promotion Services to Foreign Principal Are Not Intermediary Services: CESTAT Mumbai

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 classifiable as Business Auxiliary Service under the Finance Act, 1994. Since the appellant claimed that its entire output services were exported to its overseas associated company, it sought 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. On scrutiny of the refund application, the jurisdictional Commissioner issued a show cause notice alleging that the appellant had provided services as an agent of CPC Global and was therefore an intermediary. It was further alleged that the appellant had failed to discharge service tax on the taxable value, resulting in the demand of ₹6,37,70,061.

Before the Tribunal, the appellant submitted that its relationship with CPC Global was neither that of principal-agent nor broker-principal and therefore it could not be regarded as an intermediary so as to deny the refund under Rule 5. The appellant also contended 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. The Revenue supported the findings recorded in the adjudication order.

The Tribunal examined the agreement dated 14.09.2009 between the appellant and CPC Global. It noted that the agreement expressly provided that the appellant had no authority to determine prices, execute contracts, or make commitments on behalf of the overseas entity. The consideration payable to the appellant was not directly linked with sales of products in India but was determined on the basis of fees earned by CPC Global. The agreement described the relationship as one of independent contractor and contractee, and not that of principal and agent. The Tribunal further observed that no services were rendered by the appellant to the selling companies or end customers on behalf of CPC Global.

On examining the contractual terms together with the statutory provisions, the Tribunal held that the appellant had not acted as an intermediary between the overseas entity and its customers in India. It observed that, to qualify as an intermediary, the essential requirement was a principal-agent relationship in which the agent was authorised to represent and bind the principal. The Tribunal concluded that the services rendered by the appellant 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. In that decision, the Tribunal had held that, after 01.10.2014, the appellant could not be regarded as an intermediary because it merely undertook sales promotion for CPC Global, had no role in price fixation or negotiations with customers, and therefore fell outside the amended definition of intermediary under Rule 2(f) read with Rule 9 of the Place of Provision of Services Rules, 2012. The earlier order had also relied upon the decisions in Lubrizol Advance Materials and R.S. Granite Machine, wherein services rendered on a principal-to-principal basis without acting as a bridge between overseas entities and Indian customers were held not to constitute intermediary services.

Following its examination of the agreement and the earlier Tribunal decision, the Tribunal found no merit in the adjudication order confirming the service tax demand, interest and penalty. It set aside the impugned order and allowed the appeal in favour of the appellant.

The Revenue challenged the Tribunal’s decision before the Supreme Court of India in Commissioner of Central Tax and Central Excise v. Chevron Phillips Chemicals India Pvt. Ltd. The Supreme Court heard counsel appearing for the Revenue. After hearing the matter, the Court stated that it was not inclined to entertain the Civil Appeal and accordingly dismissed it. The Court also directed that all pending applications, if any, stood disposed of.

As a result, the Tribunal’s order allowing the appeal, setting aside the service tax demand, interest and penalty, and holding that the appellant’s services qualified as export of services remained undisturbed.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER