Service tax on overseas advisory services: Tata Asset Management Wins Appeal

Tata Asset Management Limited Vs Commissioner of CGST & Central Excise Mumbai South Commissionerate (CESTAT Mumbai)

Tata Asset Management Limited (TAML) contested a service tax demand issued by the Principal Commissioner of CGST & Central Excise, Mumbai South Commissionerate. The department alleged that the services provided by TAML to overseas clients—primarily advisory services in investment management—were subject to service tax. This demand was based on the argument that TAML acted as an intermediary between foreign investors and India-based securities, thus shifting the place of provision of service to India, thereby not qualifying as an export of service.

TAML, on the other hand, argued that the services it provided were non-binding investment advisory services and should qualify as exports under the Service Tax Rules. It emphasized that the advisory services were rendered to entities outside India, with no intermediary relationship between TAML and the clients. TAML’s position was bolstered by its reliance on decisions from the Tribunal in cases like Greater Pacific Capital and Verizon India, where similar services were ruled to qualify as export of service. Furthermore, TAML cited the Central Board of Indirect Taxes and Customs (CBIC) Circular No. 159/15/2021-GST, which clarified that advisory services to foreign entities without a business presence in India are not considered intermediary services.

The Tribunal reviewed the facts, including the nature of the agreements between TAML and its overseas clients, which clearly outlined that the services were advisory and did not involve any physical management of investments or direct involvement in trading securities. The Tribunal referred to previous decisions, including the case of Chevron Phillips Chemicals India Pvt. Ltd. v. Commissioner of Central Tax, which reaffirmed that services provided directly to overseas entities qualify as export services under the Place of Provision of Services (POPS) Rules.

Moreover, the Tribunal found that the services in question were neither intermediary services nor related to trading or selling of securities. They were purely advisory in nature, with the benefit accruing to foreign clients, thereby satisfying the criteria for export of service under Rule 3 of the POPS Rules. The Tribunal also cited the Supreme Court’s dismissal of an appeal in the Chevron Phillips case, affirming the principle that services provided to foreign entities for use outside India are exempt from Indian service tax.

Ultimately, the Tribunal set aside the demand for service tax and penalties, ruling in favor of Tata Asset Management. The decision highlighted the distinction between advisory services and intermediary services, reinforcing the interpretation of export services under Indian tax laws, and clarified the treatment of cross-border advisory services for entities without a business presence in India.

The matter was argued by Ld. counsel Bharat Raichandani.

FULL TEXT OF THE CESTAT MUMBAI ORDER

This appeal has been filed by M/s Tata Asset Management Limited, Mumbai (herein after, for short, referred to as ‘the appellants’) against the Order-in-Original No. MUM.SOUTH/CGST/Pr. Commr-50 to 51/21-22 dated 31.01.2021 (herein after, referred to, as ‘the impugned order’) passed by the Principal Commissioner of CGST & Central Excise, Mumbai South Commissionerate, Mumbai.

2.1 Brief facts of the case, leading to this appeal, are that the appellants herein are engaged in providing various services viz., Banking and other Financial Services, renting of immovable property, Business Auxiliary service, Business Support Service, investment advisory services etc., and for payment of service tax and for compliance with the law, they are registered with jurisdictional Commissionerate vide Service Tax registration No. AAACT1458LST001. The appellants also provide non­binding investment advisory to various overseas clients viz., Tata Asset Management (Mauritius) Private Limited, Ebene, Mauritius (Group company), Shinko Investment Trust Management Co. Ltd., Tokyo (independent entity) as per the contractual norms agreed upon by them. The activities undertaken pursuant to the agreement involve seeking, reviewing, evaluating and analysis investment opportunities; advising the client regarding investment and disposition opportunities; advising potential strategies for investment and exit opportunities; informing the client with economic and political developments in India having a bearing on investment opportunities and such other portfolio investment advisory services from time to time as agreed between them; however, these services provided by the appellants did not involve physically managing the funds. The appellants have considered these services provided to their clients situated outside India as ‘export of service’ and accordingly, no service tax liability was discharged by them for provision of these services in favour of the overseas entities. However, during EA-2000 audit conducted by the department for the financial years 2015-16 and 2016­17, it had objected to the fact of non-payment of service tax on the ground that the appellants firstly being intermediary to the foreign investors are engaged in buying and selling of securities, and secondly are arranging and facilitating the operations of funds, constituting trading of securities in India on behalf of foreign entities. As the department interpreted that in terms of Rule 2(f) read with Rule 9 of the Place of Provision of Service Rules, 2012, the provision of intermediary services for foreign entities would the place of service provider i.e., the appellants’ place in India, and therefore these services do not qualify for export of service in terms of Rule 6A of Service Tax Rules, 2004.

2.2 Therefore, the department had initiated show cause proceedings leading to issue of Show Cause Notice (SCN) dated 05.09.2019 for demanding service tax of Rs.3,05,69,231/- for the period 2015-2016 to 2016-2017 under Section 73(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 along with interest and for imposition of penalty under Section 76, 77 ibid. For the subsequent period, one another Statement of Demand cum SCN dated 22.01.2020 demanding service tax of Rs.35,18,739/- for the period April, 2017 to June, 2017 along with interest, penalty was issued to the appellants. The show cause notice dated 05.09.2019and 22.01.2020 issued in this regard were adjudicated by the learned Principal Commissioner vide the impugned order dated 31.01.2021, wherein total service tax demand of Rs.3,40,87,970/- was confirmed along with interest and also penalties were imposed under Section 76, 77 & 78 of the Finance Act, 1994. Feeling aggrieved with the impugned order, the appellants have preferred this appeal before the Tribunal.

3.1 Learned Advocate appearing for the appellants have submitted that the non-binding investment advisory services provided by the appellants involve two distinct services viz. (i) advisory service and (ii) management service. On the first category of service, the appellants provide non­binding and non-exclusive investment advice as a portfolio manager under ‘portfolio investment advisory agreement’ to the foreign clients for which the consideration is received as an annual fee based on “cost + 20%” of the fund advised. On the second category of service, the appellants are providing investment management services to funds located outside India under ‘investment advisory agreement’, for a fee calculated on periodical/daily basis at an agreed % of the total net assets of the funds covered therein. The entire transaction between the appellants and their foreign clients are governed by the contracts and are on principal-to-principal basis; and there is no intermediary relationship between them. Accordingly, he stated that the services provided by the appellants are governed by Rule 3 of the Place of Provision of Services Rules, 2012 (POPS Rules) whereby the place of provision of service shall be the location of the recipient of service, who are located outside India. Hence, he claimed that these services should be construed as export, when provided to a recipient located outside India. Therefore, he claimed that the adjudged demands in the impugned order are not sustainable and the appeal filed by them may be allowed.

3.2 In support of their stand, he relied upon the decision of the Tribunal in the following cases and the circular issued by the CBIC:-

(i) Commissioner of Service Tax, Mumbai Vs. Greater Pacific Capital Pvt. Ltd., – 2015 (38) S.T.R. 656 (Tri. Mumbai)

(ii) Verizon India Pvt. Ltd. Vs. Commissioner of Service Tax, Delhi. – 2021 (45) G.S.T.L. 275 (Tri. Del.)

(iii) Thyssenkrupp System Engineering India Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Pune-I – Final Order No. A/86179/2023 dated 11.05.2023

(iv) CBIC Circular No. 159/15/2021-GST dated 20.09.2021

4. On the other hand, the learned AR appearing for the Revenue reiterated the findings recorded in the impugned order.

5. Heard both sides and perused the case records.

6. In this case, the issue to be decided by the Tribunal is whether the services provided by the appellants to their clients located outside India qualify as export of service in terms of Rule 9 of the Place of Provision of Services Rules, 2012 or not, read with Rules 2(f), 3 ibid and Sub-sections (25) and (43) of Section 65B of the Finance Act, 1994 and consequently, whether the appellants are liable to penal consequences or not.

7. In order to appreciate the issue under dispute, the specific legal provisions of the Finance Act, 1994 and Place of Provision of Services Rules, 2012 are extracted and herein given below for ease of reference:

Chapter V of the Finance Act, 1994

“Interpretations.

65B. In this Chapter, unless the context otherwise requires,—

(25) “goods” means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

(43) “securities” has the meaning assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956);..”

Place of Provision of Service Rules, 2012

“Place of provision generally.

Rule 3 . The place of provision of a service shall be the location of the recipient of service:

Provided that in case ¹of 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.

Place of provision of specified services.

Rule 9.

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;

²(b)…

(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.”

8.1 It is an admitted fact on record that the appellants have entered into agreement(s) with the overseas entities for providing services under the category of non-binding and non-exclusive investment advice as a portfolio manager under ‘portfolio investment advisory agreement’ to the foreign clients. Further, the appellants are also providing investment management services to funds located outside India, under ‘investment advisory agreement’. It is also an admitted fact that the appellants have provided investment advisory service to their clients located outside India and those entities do not have any business in India. The payment for provision of said services were also received in convertible foreign exchange viz., US dollars and Japanese Yen.

8.2 We have perused the agreements dated 25.08.2006 entered into between the appellants and their clients situated abroad; and agreement dated 16.05.2011 entered between the appellants &its group company located in Mauritius. These agreements have specific clauses stating that the appellants should provide services of ‘investment advisory services’ and ‘portfolio investment advisory services’ as per the contractual terms entered therein. On reading of the clauses in the ‘investment advisory agreement’ dated 25.08.2006, it transpires that the appellant’s scope of work is confined to promoting the interests of the company located outside India for investment of monies received and to facilitate the distribution of capital and income attributable to the investment units, including obtaining relevant exchange control permission in India and filing all necessary documents in support of such activities. All these services are advisory in nature and do not involve supply of goods or services to the clients located outside India. Similarly, in respect of ‘portfolio investment advisory agreement’ dated 16.05.2011, the scope of services provided to the company abroad is a non-binding and non-exclusive investment advice to their client(s) for seeking, reviewing, evaluating, analysing investment opportunities; advising on potential strategies for investment and exit options; informing the client(s) on various developments that may have an impact on investment opportunities etc. Further, there was no contractual obligation on part of the appellants to ensure their participation for provision of services or goods between the overseas company and any other defined party/customer. Therefore, in the absence of necessary pre-requisites of facilitating actual supply of goods or services between two or more identifiable persons, the transaction made by the appellants does not stand to qualify as an “intermediary service”, rather, the services rendered by the appellants shall qualify as investment advisory service.

8.3 We find that the Central Board of Indirect Taxes & Customs vide Circular No. 159/15/2021-GST dated 20.09.2021 has clarified the scope of an ‘intermediary service’. It is made clear in the said circular that it applies to the Service Tax Regime too as there is no change in the scope of the services. Extract of the relevant portion of the said circular is given below:

“2. Scope of Intermediary services

2.1 ‘Intermediary’ has been defined in the sub-section (13) of section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “IGST” Act) as under–

“Intermediary means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.”

2.2 The concept of ‘intermediary’ was borrowed in GST from the Service Tax Regime. The definition of ‘intermediary’ in the Service Tax law as given in Rule 2(f) of Place of Provision of Services Rules, 2012 issued vide notification No. 28/2012-ST, dated 20-6-2012 was as follows:

“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;”

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 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 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 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 sub­contractor 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.

3.6 The specific provision of place of supply of ‘intermediary services’ under section 13 of the IGST Act shall be invoked only when either the location of supplier of intermediary services or location of the recipient of intermediary services is outside India….”

Plain reading of the above circular makes it clear that in order to constitute the intermediary service, the conditions to be fulfilled are that (i) there should be minimum of three parties to the contract; (ii) there shall be two distinct supplies i.e., main supply and ancillary supply; and that (iii) the intermediary service provider should have the character of an agent, broker or any other similar persons. It is further specifically provided that such term ‘intermediary service’ does not include a person who supplies goods or services or both or securities on their own account. In the present case, none of the ingredients, itemized in the definition of intermediary service are fulfilled by the appellants, inasmuch as they are not a facilitator between the foreign company/clients and its customers or any person located in India, either with regard to either supply of goods or provision of service.

8.4 Further, we also find that the conditions prescribed under sub-rule (1) of Rule 6A of the Service Tax Rules, 1994 have been duly fulfilled by the appellants inasmuch as the service recipient was located outside India, the payment towards provision of service has been received in convertible foreign exchange. Thus, the place of provision of service in this case would be governed by Rule 3 of Place of Provision of Services Rules, 2012. In absence of any documentary evidence that the appellant had acted as an intermediary between the overseas entity and its Indian customer or any person located in India; and that the location of the service receiver is in Mauritius/Japan, the transaction in our considered view, should appropriately be considered as the export of service under Rule 3 ibid and not under Rule 9 ibid, which is applicable in the case of intermediary service.

9. We find that the issue in dispute with respect of investment advisory service provided by an entity in India to their group company located outside India was dealt with in detail by this Tribunal in a similar case of Goldman Sachs (India) Securities Private Limited Vs. Commissioner of Service Tax-V, Mumbai – (2024) 22 Centax 118 (Tri.-Bom.). In this case, the Tribunal has held that non-binding investment advisory services provided to overseas group companies qualify as export, since the benefit accrues to overseas entities.

“5. It is an admitted fact on record that the appellants have entered into the agreement with the overseas entities for providing the services under the category of non-binding investment advisory services in their behalf. The payment for provision of said services were also received in convertible foreign exchange. The services provided by the appellants were for the benefit of the overseas entities and as such, falls under the Category-III of services defined under Rule 3(1) (iii) ibid. With regard to the classification of such service for the purpose of consideration as export, the CBEC vide Circular No.111/5/2009-S.T. dated24.02.2009 had explained the scope of “used outside India” and had clarified as under:

“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 services [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.”

Further, the CBEC vide Circular dated 13.05.2011 has also clarified the said phrase ‘used outside India’, mentioning that the benefit should accrue in favour of the overseas entities for the purpose of qualifying certain transaction as export of service. The relevant paragraph in the said circular is also extracted herein below:

“It may be noted that the words “accrual of benefit” are not restricted to mere impact on the bottom-line of the person who pays for the service. If that were the intention it would render the requirement of services being used outside India during the period prior to 28.2.2010 infructuous. These words should be given a harmonious interpretation keeping in view that during the period upto 27.2.2010 the explicit condition was provided in the rule that the service should be used outside India. In other words these words may be interpreted in the context where the effective use and enjoyment of the service has been obtained. The effective use and enjoyment of the service will of course depend on the nature of the service. For example effective use of advertising services shall be the place where the advertising material is disseminated to the audience though actually the benefit may finally accrue to the buyer who is located at another place”.

Further, we also find that the issue arising out of the present dispute is no more open for any debate, in view of the order dated 09.06.2023 passed by this Tribunal in the case of Arcelor Mittal Stainless India Pvt. Ltd.(supra). The Larger Bench of the Tribunal in said case has held that since the benefit of service is accruing outside India, the said service should qualify as export of service in terms of the Rules, 2005.

6. We find that in the reply to show cause notice, the appellants had categorically stated that the disputed services were used/utilized for provisions of the output service. However, while dealing with the matter, the adjudicating authority has denied the benefit of Cenvat Credit solely on the ground that no documentary evidences were produced to demonstrate that those disputed services would be considered as input service. Since, the appellants are the business entity and utilized the services for provision of the output services and also paid the service tax on the input services, it cannot be said that those disputed services were not used/utilized for provisions of the output services. Since, the disputed services were used for accomplishing the purpose of the business, the said service, in our considered view, should qualify as ‘input service’, defined under Rule 2(l) ibid.”

10. We further find that in the case of Greater Pacific Capital Pvt. Ltd. (supra), the Tribunal has held that investment advisory services provided group company located outside India and having no office in India, is a case of export of service. The relevant paragraph of the said order is extracted and given below:

“10. It is an admitted fact that the respondent has provided investment advisory service to GPC Management located outside India and does not have any business in India. It is also not in dispute the respondent has received the payment in convertible foreign exchange. Therefore, as per Rule 3(1)(iii) of the above said Rules, the services provided by the respondent not qualifies as export of service as the service provided by the respondent to a service recipient located outside India and are to be used outside India for their benefit. Further, I find that the issue came up before this Tribunal in the case of Paul Merchants Ltd. (supra) and in that case also this Tribunal has held that if the services recipient is located outside India and the same has been utilized outside India, therefore it is a case of export of service. Further in the case of Vodafone Essar Cellular Ltd. – 2013 (31) S.T.R. 738 this Tribunal held that telecom services provided to inbound roaming international consumers would qualify as export of service. In the said case, Vodafone provided telecom services in India to international inbound roamers registered with foreign telecom network operators but located in India at the time of providing of the said services. In that case this Tribunal held that Vodafone rendered the telecom service, in the context of international roaming, the benefit accrued to the foreign telecom service provider, though the actual consumer was in India but in that case it was held that it is a support service. In the instant case, the respondent has provided investment advisory services to GPC who is located outside India and having no office in India. In that case it is held that it is a case of export of service….”

11.1 We also find that in the case of Chevron Philips Chemicals India Pvt. Ltd. Vs. Commissioner of Central Tax and Central Excise, Navi Mumbai – (2024) 15 Centax 102 (Tri.-Bom), the Coordinate Bench of this Tribunal has held that service provided directly to overseas entity would amount to export of services under POPS Rules, 2012,for the reason that no service was provided in India by the appellants, acting as intermediary to customers of such overseas entity. The relevant paragraph in the said order of the Tribunal is extracted and given below:

“7. We have examined the contract dated 14-9-2009 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.”

11.2 Against the above order of the Tribunal, the department had filed a Civil Appeal in Diary No. 51950 of 2023 before the Hon’ble Supreme Court. While condoning the delay in filing the appeal by the department, the Hon’ble Supreme Court had held that it is not inclined to entertain the appeal filed by the department and accordingly dismissed the same. The copy of the said judgement of the Hon’ble Supreme Court dated 29.01.2024 is given below:

12. In view of the foregoing discussions and analysis, and on the basis of the decisions of the Tribunal and the judgement delivered by the Hon’ble Supreme Court, we do not find any merits in the impugned order, insofar as it has confirmed the adjudged demands on the appellants. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellant.

13. In the result, the impugned order dated 31.01.2021 is set aside and the appeal filed by the appellants is allowed in their favour.

(Operative portion of the order pronounced in open Court)

Notes:

¹ Inserted by Notification No.46/2016-ST, dated 9-11-2016, w.e.f. 1-12-2016.

² Clause (b) omitted by Notification No.46/2016-ST, dated 9-11-2016, w.e.f. 1-12-2016. Prior to its omission, said clause read as under : “(b) Online information and database access or retrieval services;”