Intermediary Services Not Subject to Service Tax: CESTAT Rules Services as Export [Read Order]

The Allahabad Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) ruled that assessee’s intermediary services, which facilitated communication and negotiations between foreign entities and Indian customers without confirming orders or handling payments, were not subject to service tax as they qualified as export of services.

Coperion Ideal Pvt. Ltd,appellant-assessee,was registered with the Service Tax Department and paid Service Tax on its services. The assessee assisted foreign parties by sharing details of Indian customers and market conditions, helping them prepare quotes and handle negotiations independently.

In 2007, the assessee entered into agreements with M/s Werner Pfleiderer & GmbH Co. KG and M/s Coperion Waeschle GmbH & Co. KG, Germany. Under the agreement, the assessee interacted with Indian customers who placed orders directly with the group entities. The group entities then exported goods to the customers and invoiced them directly. The assessee’s role was limited to being an intermediary and did not involve confirming orders or handling payments.

The assessee earned a commission, paid in foreign currency, from the foreign parties once payment was received from Indian customers. Documents confirming receipt of payment in foreign currency were provided.

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In 2012, during an audit, it was determined that the assessee acted as a commission agent for the foreign companies. A Show Cause Notice was issued demanding service tax under "Business Auxiliary Service" (BAS) for the period from April 2007 to June 2012. In 2013, the Commissioner issued an order, but the tribunal set it aside in 2018, agreeing that the assessee’s actions amounted to the export of services.

Following further communication, a new Show Cause Notice was issued in 2014, alleging the appellant acted as an intermediary between July 2012 and March 2014. Despite the assessee’s response, the Adjudicating Authority passed an impugned order in 2016.

The two member bench comprising P.K.Choudhary(Judicial Member) and Sanjiv Srivastava(Technical Member) noted that the issue had already been settled in its previous decision (Final Order No. 71035/2018 dated 28.02.2018) for the period from April 2007 to June 2012. The current proceedings focused on the period from July 2012 to March 2014.

The appellate tribunal referred to the case of Sumitomo Corporation India Pvt. Ltd. v. Commissioner of S.T., Delhi, where it ruled that the assessee’s activities were considered export of service. The bench clarified that service tax applies to commercial activities, not to the business itself, and the foreign entities were the actual recipients of the service, not the Indian parties.

The CESTAT concluded that the appellant was promoting the market for the foreign entities in India, which qualified as export of service. Based on this, the impugned order, which confirmed the demand for BAS, was found to be incorrect and was set aside.

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In this split judgment, the tribunal’s Technical Member concurred with the final outcome. However, the  Judicial Member  relied on the assessee’s earlier case, which covered the period from April 2007 to June 2012. It was noted that the rules had changed significantly for the disputed period from July 2012 to March 2014. The earlier decision had ruled that the demand could not be confirmed under BAS.

Read More:Recipient of Services located outside India & Payment received in Foreign Exchange; Services qualify as Exports, No Service Tax applies: CESTAT

From July 1, 2012, the concept of BAS was removed, and services falling under the definition in Section 65B(44) became taxable unless exempt. The assessee's services clearly fit this taxable category.

The main issue was whether the assessee acted as an intermediary. It was evident that the assessee only facilitated communication between foreign companies and their Indian customers, without confirming or accepting orders. The assessee earned commission only after the foreign company received payment.

Though the assessee acted as an intermediary, the services were excluded from the intermediary definition because they involved goods. This exclusion remained until October 1, 2014. The judgment referred to another case and confirmed that, before October 1, 2014, services related to the sale of goods were not considered intermediary services. Since the recipient of the services was outside India, these services qualified as export of services, and no service tax was applicable.

Thus, the CESTAT set aside the demand in the impugned order and affirmed the assessee's entitlement to the export of services benefit.

To Read the full text of the Order CLICK HERE

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