The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has partly allowed the appeal filed by Proglogix Research & Development Pvt. Ltd., holding that the services received by the Delhi-based company from its Dubai service provider, City One Tourism and Travel LLC (COTT), did not qualify as “intermediary services” under the Place of Provision of Services Rules, 2012.

The bench of Dr. Rachna Gupta ( Officiating President) and P. V. Subba Rao (Technical Member) observed that service tax could be imposed only on the actual service charges paid to COTT and not on the visa fees belonging to the Government of UAE, even though those fees were routed through COTT.

The appellant, a company based in Delhi, operates the website instadubaivisa.com, through which persons residing outside India can apply for Dubai/UAE visas.

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For facilitating the visa application process, Proglogix engaged City One Tourism and Travel LLC (COTT), Dubai. The Tribunal noted that the appellant’s clients were located outside India and the services rendered by the appellant to those clients were not taxable in India.

The dispute, therefore, concerned a different transaction—namely, the services supplied by the Dubai-based COTT to the Indian company.

Since Proglogix was located in India and COTT was located in Dubai, the central question was where the services supplied by COTT were legally considered to have been provided under the Place of Provision of Services Rules, 2012 (POPS Rules).

The answer to this question determined whether the services constituted an import of services taxable in India under the reverse charge mechanism.

The Revenue contended that the place of provision of COTT’s services was India under Rule 3 of the POPS Rules, 2012, because the recipient of the service—Proglogix—was located in India.

On this basis, the department treated the services received from COTT as taxable services imported into India and demanded service tax under the reverse charge mechanism.

A service tax demand of ₹54,17,677 for the financial year 2016-17 was confirmed against the appellant under the proviso to Section 73(1) of the Finance Act, 1994, along with interest under Section 75. An equivalent penalty was also imposed under Section 78.

The adjudication order dated May 31, 2022 was subsequently upheld by the Commissioner (Appeals) on January 23, 2023, leading to the appeal before CESTAT.

The appellant argued that COTT was functioning as an intermediary between Proglogix and the Government of UAE.

According to the appellant, COTT facilitated the issuance of Dubai/UAE visas to the appellant’s overseas customers and therefore its services should fall under Rule 9 of the POPS Rules, under which the place of provision of specified intermediary services is the location of the service provider.

Since COTT was located in Dubai, the appellant contended that the place of provision would consequently be outside India and no service tax would arise in India.

The appellant also raised an alternative argument concerning the valuation of the taxable service.

It submitted that, even if COTT’s services were taxable in India, tax could be levied only on the amount actually retained or charged by COTT as its service consideration. The large amounts paid to COTT included visa fees payable to the Government of UAE and those amounts could not constitute consideration for services rendered by COTT.

The appellant pointed out that COTT received only AED 10 per application as service charges.

The Tribunal examined the agreement between COTT and Proglogix to determine whether the transaction satisfied the legal requirements of an intermediary service.

CESTAT observed that an intermediary is generally a person who facilitates the provision of a service between two other parties. Thus, the Tribunal emphasized the requirement of a three-party arrangement, where one party facilitates the provision of services between the other two parties.

In the present case, however, the agreement was exclusively between COTT and Proglogix.

The Government of UAE was not a party to the agreement.

The Tribunal further noted that COTT assisted Proglogix in carrying out its work with the UAE Government and received consideration from Proglogix for that assistance. The agreement itself also contained restrictions preventing either party from assigning the agreement or any part of it to a third party without prior consent.

On this basis, the Tribunal concluded that the arrangement was not a tripartite agreement and did not satisfy the essential characteristics of intermediary services.

Rule 3, Not Rule 9, Applies

Having rejected the intermediary-service argument, CESTAT held that Rule 3 of the POPS Rules, 2012 applied.

Under Rule 3, the general rule is that the place of provision of a service is the location of the recipient.

Since Proglogix was located in Delhi, the place of provision of COTT’s services was therefore held to be Delhi, India.

Consequently, the Tribunal held that Proglogix was liable to pay service tax on the import of services from COTT under the reverse charge mechanism.

While rejecting the appellant’s intermediary-service argument, CESTAT accepted the appellant’s alternative submission regarding valuation.

The Tribunal made a clear distinction between: Service charges paid to COTT, and Visa fees paid to the Government of UAE through COTT.

CESTAT held that service tax could be charged only on the service charges actually paid to COTT.

Amounts paid to the Government of Dubai/UAE towards visa fees, even where such amounts were routed through COTT, could not be regarded as consideration for the services supplied by COTT.

Accordingly, the Tribunal directed that the taxable value be recomputed after excluding the UAE Government visa fee.

This finding substantially alters the quantum of the demand because the original proceedings had not adequately distinguished between COTT’s own service consideration and the statutory visa fees collected for the UAE Government.

The appellant had also challenged invocation of the extended period of limitation.

It argued that the show cause notice dated October 16, 2020, relating to 2016-17, was issued beyond the normal limitation period. The appellant maintained that it was under a bona fide belief that no service tax was payable and that there was no mala fide intention or suppression warranting invocation of the extended period.

The Revenue, on the other hand, argued that the appellant was not registered with the service tax department, had neither paid service tax nor filed returns, and that its receipt of services from COTT came to light only during departmental investigation.

CESTAT ultimately found sufficient grounds for invoking the extended period, observing that the appellant had not disclosed the services received from COTT and that the transaction came to the department’s notice only during audit.

Thus, the Tribunal did not grant relief on the limitation issue.

Since the taxable value itself had to be reduced by excluding the UAE Government visa fees, the Tribunal held that the consequences flowing from that value—including interest and the mandatory penalty under Section 78—would also have to be recalculated.

CESTAT therefore did not completely set aside the tax proceedings.

Instead, it modified the impugned order and remanded the matter to the original authority for the limited purpose of determining the correct amount of: Service tax; Interest; and Penalty under Section 78.

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