The Bangalore Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that various support services rendered by the company to its overseas group entities constitute export of services and cannot be classified as ‘intermediary services’ under the Place of Provision of Services Rules, 2012. 

The bench P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical  Member) set aside a service tax demand of over ₹1,431.49 crore, along with the associated penalties, holding that the company was providing services on a principal-to-principal basis rather than merely facilitating supplies between overseas entities and customers. 

The appellant/assessee, a wholly-owned subsidiary of Cisco Systems Inc., USA, provides a wide range of services to its overseas group companies, including management support, manufacturing support, marketing and sales support, administrative assistance, technical support, advanced services and spare services. A substantial portion of these services is rendered from its Special Economic Zone (SEZ) units in Bengaluru. 

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The Service Tax Department alleged that these activities amounted to ‘intermediary services’ because Cisco India was facilitating the sale of products and services of its overseas affiliates in India. Based on this allegation, show cause notices covering the period July 2012 to June 2017 were issued, invoking the extended limitation period under Section 73 of the Finance Act, 1994. The adjudicating authority confirmed a service tax demand exceeding ₹1,431 crore and imposed penalties. 

The assessee contended that it was rendering services on its own account under various agreements executed with overseas affiliates and that none of its activities involved arranging or facilitating supplies between two independent parties.

The company argued that all services—including marketing support, technical support, manufacturing support, finance, legal, tax, information technology and management services—were supplied on a cost-plus markup basis, independent of any sale of Cisco products. It emphasized that customer orders were accepted or rejected solely by the overseas entities, while Cisco India had no authority to conclude contracts, negotiate prices or receive payments from customers. 

Relying on CBIC Circular No. 159/15/2021-GST and several judicial precedents, Cisco submitted that an intermediary service necessarily requires three parties, two distinct supplies, and an intermediary acting like an agent or broker. Since it was itself providing the contracted services directly to its overseas affiliates, the exclusion contained in Rule 2(f) of the Place of Provision of Services Rules squarely applied. 

Cisco further argued that the Department had wrongly invoked the extended period of limitation because all agreements had been regularly furnished to the Department since 2007 and there was no suppression of facts. 

The department maintained that the company functioned as a liaison between overseas entities and Indian customers by identifying prospective buyers, promoting products, responding to customer queries, participating in trade shows and forwarding customer orders to overseas affiliates.

According to the Department, these activities clearly facilitated the supply of goods and services by the overseas companies and therefore fell within the statutory definition of intermediary services. It also argued that the fact that Cisco was compensated on a cost-plus basis instead of commission was legally irrelevant because the definition of intermediary does not prescribe any particular mode of remuneration. 

After examining the agreements in detail, the Tribunal held that the payments received by Cisco India were based solely on actual costs incurred plus a 10% markup and were not linked to sales made by the overseas entities.

The Bench observed that this remuneration structure demonstrated that Cisco India was rendering services independently rather than acting as an intermediary whose compensation would ordinarily be connected with facilitating supplies.

The Tribunal extensively relied upon CBIC Circular No. 159/15/2021-GST, which clarifies that intermediary services require a minimum of three parties; two distinct supplies; a person acting in the nature of an agent or broker; and exclusion of persons supplying services on their own account.

The Bench noted that Cisco India satisfied none of the essential characteristics of an intermediary because it was itself supplying contracted services to overseas entities on a principal-to-principal basis. 

The Tribunal observed that the controversy was already covered by several earlier decisions involving similar marketing and support service arrangements.

It referred to decisions including Salesforce.com India Pvt. Ltd., Informatica Business Solutions Pvt. Ltd., T.C. Global India Pvt. Ltd., Amazon Development Centre India Pvt. Ltd., Blackberry India Pvt. Ltd., Grant Thornton Advisory Pvt. Ltd. and other judgments which consistently held that support services provided independently to overseas entities qualify as export of services rather than intermediary services. 

The Bench also noted that the GST Council had subsequently recommended omission of Section 13(8)(b) of the IGST Act relating to intermediary services for exports, reflecting the legislative intent to remove difficulties faced by exporters of services. 

The Tribunal concluded that Cisco India was not acting as an intermediary but was providing services on its own account to its overseas affiliates. Accordingly, the services qualified as export of services, making them not liable to service tax under the Finance Act, 1994.

The Tribunal therefore set aside the impugned orders, including the service tax demand of over ₹1,431.49 crore, interest and penalties, granting consequential relief to the company in accordance with law.  

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