Business Support Services to Overseas Group Entity Qualify as Export, Not Intermediary Services: CESTAT Chandigarh
Overview of the Dispute
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, recently delivered a significant ruling in the case of Esprit India Pvt Ltd Vs Commissioner of Central Excise (CESTAT Chandigarh), setting aside the rejection of refund claims totalling ₹12,94,486 pertaining to unutilized CENVAT credit. The Tribunal held that business support services rendered by an Indian subsidiary to its overseas group company, under a principal-to-principal arrangement, qualify as export of services and do not attract the classification of intermediary services.
The refund claims covered two quarters — October to December 2014 and January to March 2015 — and were filed under Notification No. 27/2012-CE(NT) dated 18.06.2012 in respect of input services used for providing taxable output services.
Background and Factual Matrix
Esprit India Pvt Ltd (referred to herein as M/s EI) is an Indian subsidiary of M/s Esprit De Corp (Far East) Limited, Hong Kong (M/s EDCFE), which is itself a fellow subsidiary of M/s Esprit Macao. M/s EI was registered with the Service Tax Department and was engaged in providing a range of business support services to its overseas parent entity pursuant to a Service Agreement dated 13.07.2012, subsequently amended on 11.03.2013.
Nature of Services Rendered
The scope of services covered under the agreement included, among others:
- Market research relating to price, quality, and availability of goods in India
- Gathering pricing information from various suppliers and advising on optimal combinations of price, quality, and delivery
- Trademark protection and sourcing compliance, ensuring vendors adhered to protocols established by M/s Esprit Macao
- Providing regulatory information pertaining to import, export licences, visa requirements, and applicable laws
- Inspection of goods post order placement, including monitoring manufacturing processes
- Implementing shipping instructions and making logistics arrangements as directed by M/s EDCFE
- Ensuring compliance with applicable Indian laws, customs regulations, and other governmental requirements
- Disclosing information to M/s EDCFE upon request regarding correspondence and service-related data
A critical feature of the Service Agreement was the express characterisation of the relationship between M/s EDCFE and M/s EI as that of independent contractors, with the agreement categorically stating that no partnership, principal-agent, or employer-employee relationship was established between them. The remuneration structure was also clearly defined as cost-plus 5% mark-up on M/s EI's operating costs.
Refund Claims and Departmental Rejection
M/s EI filed refund claims for unutilized CENVAT credit on the following basis:
| S. No. | Period | Amount (₹) | Date of Filing |
|---|---|---|---|
| 1 | October – December 2014 | 4,55,159 | 29.09.2015 |
| 2 | January – March 2015 | 8,39,327 | 23.12.2015 |
| Total | 12,94,486 |
The Original Authority, vide Order-in-Original dated 29.01.2016, rejected both refund claims. On appeal, the Commissioner (Appeals), Gurgaon, vide the impugned Order-in-Appeal dated 20.07.2016, sustained the rejection on the ground that the services rendered by M/s EI did not constitute export of services but fell within the definition of intermediary services, thereby disentitling M/s EI to the refund benefit.
Aggrieved by this finding, M/s EI preferred an appeal before CESTAT Chandigarh.
Arguments Advanced by the Assessee
Counsel for M/s EI advanced the following contentions before the Tribunal: