The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that services provided by an overseas education consultancy to foreign universities for facilitating admission of Indian students cannot automatically be classified as “intermediary services” merely because the consultancy is described as an agent and receives commission.
The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) found that the essential requirement of a tripartite arrangement involving two distinct services was absent and dismissed the Department’s appeal seeking to impose service tax liability.
The respondent/assessee, an overseas education services provider based in Jalandhar, was engaged in facilitating admission of Indian students into foreign universities, colleges and other educational institutions. For these activities, it received commission from foreign universities and educational institutions.
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The department initiated an inquiry and took the view that the consultancy was functioning as an “intermediary” between Indian students and foreign universities within the meaning of Rule 2(f) of the Place of Provision of Services Rules, 2012. A show cause notice dated April 23, 2018 covered the period from July 1, 2012 to March 31, 2017, while a statement of case dated February 1, 2020 covered April 2017 to June 2017. The proposals were confirmed by the adjudicating authority through an order dated December 15, 2020, along with an equal penalty.
On appeal, however, the Commissioner (Appeals), CGST, Ludhiana set aside the adjudication order on March 21, 2023. The Revenue thereafter approached CESTAT challenging that decision.
Before the Tribunal, the Department argued that the agreements entered into with foreign universities described the respondent as an “agent”. According to Revenue, the consultancy acted as a bridge between students and foreign universities and its services were essential for students seeking admission.
The Department further contended that the consultancy received a fixed commission calculated as a percentage of the fees paid by students and that its services were clearly identifiable. Revenue also argued that the service provider was located in India and therefore the services should fall within the relevant place-of-provision provisions.
The Department disputed reliance on earlier CESTAT decisions concerning overseas education consultants, including the decision in Sunrise Immigration Consultants Pvt. Ltd., arguing that the decision relied upon by the Commissioner (Appeals) did not have precedential value because the Department had accepted it on monetary grounds.
The respondent, on the other hand, submitted that the Revenue’s case was factually and legally contradictory.
It was pointed out that students directly paid their fees and that no part of the students’ payments flowed through the consultancy. The consultancy did not issue invoices to the students; instead, it raised invoices on the foreign universities. According to the respondent, these facts demonstrated that the consultancy was providing services to the foreign universities and not acting as an intermediary between the students and the universities.
The respondent also relied upon CBIC Circular No. 159/15/2021-GST dated September 20, 2021, which explains the nature of intermediary services. According to the submission, an intermediary arrangement requires at least three parties and two distinct supplies—the main supply and an ancillary supply. Since the consultancy was providing a single service to the overseas universities, the essential ingredients of an intermediary arrangement were absent.
The respondent further relied upon earlier decisions involving overseas education consultants, including Oceanic Consultants Pvt. Ltd., K.C. Overseas Education Pvt. Ltd., Sunrise Immigration Consultants Pvt. Ltd. and M/s IDP Education India Pvt. Ltd., submitting that the legal position had already been settled in favour of such service providers.
The Tribunal rejected the Department’s attempt to classify the respondent as an intermediary merely because the agreements used the expression “agent” and the respondent received commission.
CESTAT observed that the respondent had indeed acted as an agent for foreign universities and received commission. However, there was no tripartite agreement and no involvement of more than one service. Consequently, the respondent could not be treated as an intermediary simply because it was labelled an agent or because its remuneration took the form of commission.
This distinction is significant because the statutory concept of “intermediary” depends on the actual nature and structure of the transaction rather than merely the terminology used in commercial agreements.
The Tribunal relied extensively upon its earlier decision in Oceanic Consultants Ltd. In that case, CESTAT had examined the definition of intermediary under Rule 2(f) of the Place of Provision of Services Rules, 2012.
The definition covers a broker, agent or other person who arranges or facilitates provision of the main service between two or more persons, but specifically excludes a person who provides the main service on his own account.
Applying that framework, the Tribunal found that the necessary three-party structure was absent. The underlying arrangement showed that the principal service was rendered to foreign universities and the remuneration was paid in connection with that service. The Indian education consultancy could therefore, at most, be regarded as a sub-contractor or sub-agent in the relevant arrangement, rather than an intermediary between Indian students and foreign universities.
The Tribunal also referred to CBIC Circular No. 159/15/2021-GST dated September 20, 2021.
The circular clarifies that intermediary services require a minimum of three parties and two distinct supplies—namely, a main supply and an ancillary supply. It further clarifies that a person providing the main supply on a principal-to-principal basis cannot be treated as an intermediary.
Importantly, the Tribunal noted that the circular itself explains that there is no difference between the Service Tax and GST regimes regarding the treatment of intermediary services.
CESTAT also referred to the principles laid down by the Punjab and Haryana High Court in Genpact India Pvt. Ltd. The Tribunal noted that an intermediary relationship requires, among other things, a principal-agent relationship and involvement in arranging or facilitating a service supplied by a third party.
At the same time, a person who actually provides the main service on its own account falls outside the definition of an intermediary. The Tribunal emphasized that an intermediary essentially mediates between the principal service provider and the beneficiary receiving the main service.
This distinction formed the core of the Tribunal’s reasoning in the present case.
CESTAT also considered the decision involving M/s IDP Education India Pvt. Ltd., where similar arrangements concerning recruitment and facilitation of students for foreign universities had been examined.
In that case, the records showed an agreement between the Indian entity and IDP Australia, while the foreign universities paid consideration to IDP Australia. The Tribunal found that the Indian entity was performing services subcontracted to it by IDP Australia and that Revenue had failed to establish that it was acting as an intermediary between IDP Australia and the foreign universities.
The Chandigarh Bench found the facts in the present matter to be materially similar and therefore held that the case law relied upon by Revenue could not support the proposed demand.
On the basis of the above analysis, the Tribunal concluded that the services rendered in the relevant arrangement did not fall within the category of “intermediary services”.
CESTAT specifically relied upon the established legal position that where the service provider is rendering the service on its own account and the statutory requirements of an intermediary arrangement are absent, the service cannot be brought within the intermediary rule merely because the service provider facilitates a transaction involving persons located in different countries.
The Tribunal therefore found no merit in the Department’s appeal.
CESTAT also made an important observation concerning the Department’s treatment of its earlier decision in Sunrise Immigration Consultants.
The Tribunal questioned how Revenue could contend that the earlier decision had no precedential value when the Department itself had chosen not to challenge that decision before the appropriate forum.
The Tribunal observed that Revenue had been free to appeal against the earlier decision. Having not done so, it could not subsequently challenge an order of the Commissioner (Appeals) that relied upon the same precedent. According to the Tribunal, such conduct would effectively amount to a review of the order passed by the Tribunal Bench and was inconsistent with judicial discipline.
The Tribunal also considered service tax liability relating to commission received from domestic educational institutions.
The respondent had submitted that the commission amounted to ₹3,25,748 during 2012-13 and ₹2,23,829 during 2013-14. It claimed the benefit of the threshold exemption under Notification No. 33/2012-ST dated June 20, 2012.
CESTAT noted that taxable services having an aggregate value not exceeding ₹10 lakh in a year were exempt under the relevant notification. It further held that the value of exported services could not be included while calculating the threshold for the exemption. On that basis, the Tribunal concluded that the respondent was not liable to service tax on the commission received from domestic institutions.
The Tribunal also recorded the respondent’s submission concerning exemption available to Auxiliary Educational Services under Notification No. 25/2012 dated June 20, 2012.
CESTAT ultimately dismissed the Revenue’s appeal, finding no merit in the Department’s challenge to the Commissioner (Appeals)’s order.
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