Case Law Details
Microsoft India (R&D) Private Limited Vs Commissioner of Central Tax (CESTAT Banga-lore)
Conclusion: Online technical support services rendered by assessee-company to M/s. Microsoft Corp., USA and Microsoft Mobile, Finland by Microsoft India were considered as ‘Export of Service’ not under Intermediary services under Rule 2(f) of the Place of Provision of Services Rules, 2012 as services provided on one’s own account were not intermediary services and qualified as exports if other conditions, such as payment in convertible foreign currency, were met. Assessee was entitled to CENVAT Cash refund of Rs. 16.8 crores.
Held: Assessee-company was engaged in providing ‘Information Technology Software Services’ and ‘Business Auxiliary Services,’ filed for a cash refund of accumulated CENVAT credit on input services used in providing output services exported under Rule 5 of the CENVAT Credit Rules, 2004, read with Notification No.05/2006-CE (NT) dated 14.03.2006. Adjudicating Authority had rejected refund claims totaling ₹3.42 crore (October–December 2015) and ₹13.46 crore (April 2011–September 2013). CIT (Appeals) held that assessee qualified as an ‘intermediary,’ making the services rendered ineligible for classification as ‘Export of Services’ under the Service Tax Rules, 1994. Assessee contended that their services, provided under direct agreements with Microsoft Corporation, USA, and Microsoft Mobile, Finland, were principal-to-principal in nature, involving software development and customer support without interacting with Microsoft’s customers. Payments for these services were received in foreign exchange. Assessee argued that they did not meet the definition of ‘intermediary’ under Rule 2(f) of the Place of Provision of Services Rules, 2012, citing CBIC Circular No.159/15/2021/GST and supporting case law, including CCT vs. M/s. Informatica Business Solutions Pvt. Ltd. and their own earlier case reported in 2015 (38) STR 838 (Tri.-Bang.). Revenue rejected the refund claims of assessee on the ground that the services provided to Microsoft Corp, USA, were not considered “export of service” but instead classified as “intermediary services.” Consequently, assessee was deemed ineligible to claim a refund of accumulated credit. It was held that in the case of CCT vs. Informatica Business Solutions Pvt. Ltd., where it was held that services rendered under agreements between entities on a principal-to-principal basis did not qualify as “intermediary services” under Rule 9 of the Place of Provision of Services (POPS) Rules, 2012 instead, such services were governed by Rule 3, making them eligible for classification as export services. Further, Circular No. 159/15/2021-GST, clarified that “intermediary” involves facilitating or arranging services between two or more parties, which was not the case here. Services provided on one’s own account were not intermediary services and qualified as exports if other conditions, such as payment in convertible foreign currency, were met. Therefore, assessee provided services directly to Microsoft Corp, received payment in convertible foreign exchange, and met the conditions for “export of services.” Consequently, it was entitled to the refund of accumulated Cenvat credit.
FULL TEXT OF THE CESTAT BANGALORE ORDER
These two appeals are filed against respective Order- in Appeal passed by Commissioner of Central Tax, Bangalore. Since the issue involved is common in both these appeals, these are taken up togeth-er for hearing and disposal.
2. Briefly stated the facts of the case are that the appellants are engaged in providing ‘Information Technology Software Services’ and ‘Business Auxiliary Services’. They have filed cash refund of accu-mulated Cenvat credit on input services used in providing output service which have been exported in terms of Rule 5 of Cenvat Credit Rules (CCR), 2004 read with Notification No.05/2006-CE NT dat-ed 14.03.2006. They have claimed a total refund of Rs.3,42,97,703/- for the period October 2015 to December 2015 in appeal ST/20181/2023 and Rs.13,46,28,475/- (5 refund claims) for the period April 2011 to September 2013 in appeal No.ST/20631/2023. All the refund claims were rejected by the adjudicating authority. Aggrieved by the same, they filed appeals before the Commissioner (Ap-peals), who in turn rejected their appeals. Hence, the present appeals.
3. Assailing the impugned orders, the learned advocate has submitted that in rejecting refund claims, the learned Commissioner (Appeals) held that the appellant is an ‘intermediary’, hence the services rendered to their foreign agency would not qualify as ‘Export of Service’ as envisaged in Service Tax Rules, 1994. He has submitted that under the Parent Subsidiary Agreement, Appellant undertakes software development for Microsoft Corporation (MS Corp.) under a bipartite arrangement. The software products owned by the MS Corp. require continuous development on account of the emerging technology trends. The deliverable of the appellant is in the form of developed software which is supplied to MS Corp. for which they received consideration in foreign exchange. He has submitted that the appellant did not interact with any customers or vendors of MS Corp. while ren-dering these services. They are only two parties to the contract i.e., appellant and MS corp. Similar development of software services were provided by the appellant to Microsoft Mobile, Finland un-der Research and Development Agreement dated 01.01.2015. Under the Product Support Agree-ment, the appellant provides customer care and product support services to MS Corp. all over the world after the said customers have purchased hardware and software products from MS Corp. They offered technical support and ongoing technical support to the customers of MS Corp. over email, phone, etc. These services rendered by the appellant would be termed as after sales support or product warranty services. The appellant has no contractual relationship or obligation with the customers who have purchased the software from MS Corp. The accountability of the appellant is vis-à-vis MS Corp. alone. These services provided by the appellant are on principal-to- principal basis to MS corp. and the consideration for such services are received in foreign exchange. Thus, there are only two parties to the contract. He submits that the definition of ‘intermediary’ prescribed under Ruel 2(f) of the Place of Provision of Services Rules (POPS), 2012 is not satisfied in the present case. In support, he has referred to the CBIC Circular No.159/15/2021/GST dated 20.09.2021, therefore, the appellant is not an intermediary. Hence, the services rendered by the appellant to MS Corp. be considered as ‘Export of Services’ and they are eligible to avail cash refund of accumulated Cenvat credit. In support, they have referred to the decision of this Tribunal in the case of CCT vs. M/s. Informatics Business Solutions Pvt. Ltd. vide Final Order No.21125/2024 dated 18.11.2024 and also decision rendered in appellant’s own case as reported 2015 (38) STR 838 (Tri.-Bang.).
4. Learned Authorised Representative for the Revenue reiterated the findings of the learned Com-missioner (A).
5. Heard both sides and perused the records.
6. The limited issue involved in the present appeals for consideration is whether the appellants are entitled to cash refund of accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules, 20024 on ‘Export of Service’ to M/s. Microsoft , USA and Microsoft Mobile, Finland.
7. The Revenue rejected the refund claims solely on the ground that the services rendered by the appellant to Microsoft Corp, USA is not an ‘Export of Service’, which are in the nature of ‘intermedi-ary service’. Hence, the appellants are not allowed to claim the refund of the accumulated credit con-sidering the service as export services. On going through the records, we find that the appellants had entered into an agreement with Microsoft for providing various services viz., online technical support service to the customers of Microsoft Corp. through mail, over phone, etc. In other words, they ren-dered services in the nature of after sales support or product warranty support services by an agreement with MS Corp. Thus, there is an agreement between the appellant and MS Corp and no-where, they are connected with the customers of the Microsoft Corp in rendering such services.
8. This issue has been considered by this Tribunal more or less in a similar circumstances in the case of CCT vs. M/s. Informatics Business Solutions Pvt. Ltd., after analysing the judgment on the subject and taking note of the circular issued by the Board, it is observed as:
“6. The core issue involved in the present case is, whether the ser-vices rendered by the respondent to their parent company situated in USA is an ‘intermediary ser-vice’ or otherwise.
7. Undisputedly, under agreements dated 02.05.2003 effective from 01.01.2004 which have been amended from time to time and three separate agreements dated 01.04.2017, the respondent are required to provide R&D Software Development services, Sales & Marketing Services and Customer Support services. The nature of services broadly rendered by the respondent, briefly, are as follows:-
➢ performance of certain software development assignments, programs and projects identified by Informatica;
➢ marketing, sales, maintenance and support services for the Products from time to time;
➢Providing sales and marketing assistance to Informatica’s third party distributors, systems integrators, resellers and influencers;
➢Providing technical support and maintenance services by tel-ephone to customers, distributors, systems integrators, resellers and influencers of Informatica ‘s Products in the Asia-Pacific market from time to time;
➢Providing such other marketing, sales, maintenance and sup-port services for the Products as Informatica may request from time to time;
➢ M & S Services shall not include direct sales of the Products to customers.
8. It is alleged that the product for which the appellant rendered mar-keting & sales services and Customer Support Services are in the nature of ITSS covered under Section 66E(d) of the Finance Act, 1994 as “declared service” viz. (a) identification of customers, (b) providing information and educating potential customers, (c) procuring information from the clients in terms of their requirements / expectation regarding the pricing of their product, (d) passing on the information to their foreign company, (e) providing demonstrations and presentations to the cus-tomer on the application of the products and (f) maintenance and support services for the products, etc. The aforesaid services are alleged to be rendered by the respondent in acting as an intermediary and facilitator to their parent company in USA; hence, fall under the scope of Rule 9 of POPS Rules, 2012 attracting Service Tax Rules.
9. The learned Commissioner, analysing these agreements, held as follows:-
86.4. On an analysis of the above, I find that the services of:
(a) identification of potential customers,
(b) providing information and educating potential custom-ers,
(c) procuring information from the client in terms of their re-quirements, expectation regarding the pricing of the product, (d) passing on the information to their foreign company,
(e) providing demonstrations and presentations to the cus-tomer on the application of the products
(f) maintenance and support services for the prod-ucts
are provided to customers in the Asia-Pacific market and going by the tenor and tone of the agreement, it is clear that the relationship be-tween Informatics USA and Informatics India is on a principal to principal basis (even para 36.2 of the SCN states that both are independent) and Informatics India is not acting as an agent or broker. Basically Informatics India is providing Business support services to Informatics USA and the place of provision of such services ought to be determined under Rule 3 of POPS and not under Rule 9 of POPS.
86.5. I find that though the SCN seeks to rely on certain clauses in the agreement, it has not brought out as to how on the basis of the above said clauses a conclusion has been arrived at that the impugned marketing and customer support services provided in the Asia-Pacific market would amount to “intermediary services” provided in India. As such I find the contention in the said para, is more in the nature of a bland assertion without any logical or legal basis.
The said findings of the learned Commissioner have been challenged in the present appeal to be in-correct and the argument of the department that the service provided by Respondent is in the ma-ture of an intermediary service.
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 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 Immigra-tion 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 ser-vice 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 ac-count”.
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
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36. In the pre-GST regime the term “intermediary ser-vices” was defined under Rule 2(f) of the Place of Provision of Service Rules, 2012. Under the 2012 Rules “intermediary services” were de-fined to mean a broker/an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (here-inafter 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” un-der 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 Reve-nue, Central Board of Indirect Taxes and Customs (GST Policy Wing), the scope of “interme-diary” 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-à-vis the service tax regime except addition of supply of securities in the definition of “intermediary” in the GST law.”
(emphasis supplied)
19. 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 fol-lows:
“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 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 deter-mined 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 “ex-port 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 differ-ence. 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 ref-erence 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.”
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16. Needless to mention, as per the agreement between the appellant and the foreign university the services were delivered outside India as the re-cipient 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 ex-change and the appellant and the recipient of service are independent legal identi-tiesand 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 satis-fied 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 ex-plains 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/sub-agents 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 consump-tion, 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 ser-vice 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 per-sons 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 cus-tomer 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 ser-vice’ to ‘A’, and therefore, “B’ is not an intermediary.
12. Similar principle has been laid down by the Tribunal in the follow-ing 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. Cross-objection also disposed of.
8. In view of the above, the impugned orders are set aside and the appeals are allowed with conse-quential relief, if any, as per law.
(Operative portion of the order was pronounced in open court on conclusion of hearing.)
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