Entity/ person to qualify as ‘intermediary’ must be shown to work as ‘broker’ who only facilitates provision of service

While dismissing the appeal of the commissioner of Central tax, the Delhi High Court upheld the refund claim of M/S Singtel Global India Pvt Ltd. (SGIPL), an India-based company providing global telecommunication and support services to Singapore Telecommunication Ltd. (SingTel). 

A Division Judge Bench of Justice Yashwant Varma and Justice Dharmesh Sharma observed that “the submissions advanced by the learned Standing counsel for the appellant overlooks the fact that the recipient of services is based outside India. At the cost of repetition, it may be stated that SGIPL apart from facilitating the main service of telecommunication services also provides services of customer care and customer support services to the end consumers based in Singapore and foreign territories registered with SingTel Singapore in matters relating to telecommunication, access, data entry, and data retrieval.”

“SingTel has no contract with telecom service providers in India and the end consumers are based in Singapore and other foreign territories covered by SingTel and are independently entitled to demand service from SingTel and pay for the services accordingly it too”, added the Bench.

Advocate Sonu Bhatnagar appeared for the Petitioner whereas Advocate Kamal Sawhney appeared for the Respondent.

The brief facts of the case were that SGIPL is an India-based company that is engaged in providing global telecommunication and ancillary support services. It entered into an agreement with SingTel, which is a licensed telecommunications service provider in Singapore. The Petitioner stated that SGIPL merely procures services from other service providers in India (Airtel, Vodafone, Tata, Reliance, etc.) and supplies the same to Singtel without any alteration. SGIPL contends that the place of provision of services would be considered as per the location of the recipient of services by virtue of Rule 3 of the ST Rules, which is outside India, and that it is not an „intermediary‟.

CESTAT vide the impugned common Order interpreted the terms and conditions of the agreement executed between SGIPL and SingTel and held that there was no scope for doubt that services provided by SGIPL do not qualify as „intermediary services‟ and the services provided by it out of its own account to SingTel. Accordingly, SGIPL has been held entitled to claim the refund.

After considering the Submission, the Bench noted that there is no stay order in favor of the department/appellant, and therefore, there is no bar in this Court to consider the broad issues raised in the present appeals.

The Bench stated with reference to Rule 3 of the POPS Rules that the place of provision of a service shall be the location of the recipient of the service.

“However, vide Rule 9(c) of POPS Rules, the place of provision for “Intermediary services” would be the location of the service provider”, added the Bench.

The bench highlighted the meaning of term “intermediary” by plain reading of Rule 2(f),” “2(f) Intermediary’ means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (hereinafter called the ‘main’ service) or a supply of goods, between two or more persons, but does not include a person who provides the main service or supplies the goods on his account.”

The bench deliberately examined the terms and conditions of agreement between the SGIPL and SingTel and found that no legal infirmity or irrational approach was adopted by the CESTAT concluding that SGIPL is not providing „intermediary services‟.

The Bench also stated that there is no contract between SingTel and service providers in India like Airtel, Vodafone, Reliance, etc., and the agreement between SGIPL and SingTel is on a principal-to-principal basis.

The Bench further highlighted Clause 19 of the Agreement which specifically stipulates that the relationship of the parties to the Agreement shall always and only be that of independent contractors and nothing in the Agreement shall create or be deemed to create a partnership or the relationship of principal and agent or employer and employee between the parties.

Referring to the case All India Federation of Tax Practitioners v. Union of India, the Bench Reiterated that “Service Tax is a VAT which in turn is a destination-based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value-added tax”.

The bench mentioned that the action on the part of the Assistant Commissioner in trying to overreach the orders passed by the superior authority was deprecated by the Court and inter alia a passing reference was made that the view that SGIPL is a provider of “intermediary services‟ was not correct and there was no option but for the Revenue to await the outcome of the appeals preferred by them before the learned CESTAT.

Accordingly, the Delhi High Court dismissed the appeal by finding it bereft of any merit.

Cause Title: Commissioner of Central Tax Vs. M/S Singtel Global India Pvt Ltd. [SERTA 10/2023 / 2023-Enterslice-2-HC-Del-Misc]

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