The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that business support services rendered by an Indian entity to its overseas group company on a principal-to-principal basis cannot be classified as “intermediary services.”
The bench of S.S. Garg (Judicial Member) and Mr. P. Anjani Kumar (Technical Member) allowed the refund of ₹12.94 lakh of accumulated CENVAT credit after holding that the services qualified as export of services under Rule 6A of the Service Tax Rules, 1994.
The appellant, an Indian subsidiary of a Hong Kong-based group company, was engaged in providing various business support services, including market research, supplier evaluation, quality inspections, logistics coordination, and regulatory compliance assistance to its overseas affiliate.
The company had filed refund claims aggregating to ₹12,94,486 for unutilised CENVAT credit accumulated during the quarters October–December 2014 and January–March 2015 under Notification No. 27/2012-CE (NT).
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However, both the adjudicating authority and the Commissioner (Appeals) rejected the claims on the ground that the services were “intermediary services” and therefore did not qualify as exports.
The principal question before the Tribunal was whether the services rendered by the Indian company constituted export of services eligible for refund of accumulated CENVAT credit, or intermediary services, making the refund inadmissible.
The appellant argued that it rendered services on its own account and not as an agent or broker of the overseas company.
According to the service agreement, it independently undertook activities such as conducting market research regarding price, quality and availability of goods, identifying suitable suppliers, ensuring compliance with sourcing principles, inspecting goods after purchase orders, coordinating logistics and shipping, advising on import, export and customs regulations, and ensuring compliance with Indian laws.
The agreement also expressly stated that the relationship between the parties was that of independent contractors, with the Indian entity being remunerated on a cost-plus 5% mark-up basis, rather than through commission linked to sales.
The appellant further submitted that it neither negotiated contracts nor facilitated transactions between vendors and the overseas company and had no authority to conclude contracts on behalf of the foreign entity.
After examining the service agreement in detail, the Tribunal observed that the appellant was providing business support services directly to the overseas company and not arranging or facilitating supplies between two independent parties.
The Bench noted that the agreement clearly established a principal-to-principal relationship, expressly describing the Indian company as an independent contractor. The consideration was computed on a cost-plus basis, further demonstrating that the remuneration was for services rendered and not for facilitating third-party transactions.
Accordingly, the Tribunal concluded that the appellant was not acting as an intermediary within the meaning of Rule 2(f) of the Place of Provision of Services Rules, 2012.
The Tribunal observed that the controversy was no longer res integra and relied upon several earlier decisions involving similar sourcing and business support arrangements.
It referred to: William E. Connor and Associates Sourcing Pvt. Ltd., where sourcing and quality support services were held not to be intermediary services; SNQS International Socks Pvt. Ltd., which was subsequently affirmed by the Supreme Court, holding that vendor identification, quality monitoring and sourcing support rendered directly to a foreign client amounted to export of services; and Chevron Philips Chemicals India Pvt. Ltd., where sales support services rendered to an overseas associated enterprise were similarly held to constitute exports rather than intermediary services. The Tribunal observed that these precedents squarely covered the present dispute.
The Tribunal held that the appellant rendered services directly to the overseas company; there was no tripartite arrangement involving Indian vendors; the appellant did not arrange or facilitate supply between third parties; the contractual relationship was that of independent contractors; and the services satisfied the requirements of export of services under Rule 6A of the Service Tax Rules, 1994.
Since the services qualified as exports, the refund of accumulated CENVAT credit could not be denied merely by treating them as intermediary services.
Setting aside the orders of the lower authorities, the CESTAT allowed the appeal and held that the rejection of the refund claims was unsustainable in law. The Tribunal directed that the appellant be granted consequential relief in accordance with law, thereby allowing refund of ₹12,94,486 of accumulated CENVAT credit.
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