Services rendered by EY India to EY Entities located outside India Fall in scope of Exports: HC

The petitioner is an Indian Branch Office of M/s Ernst & Young Limited, a company incorporated under the laws of United Kingdom (hereafter ‘E&Y Limited’). The petitioner was established pursuant to the permission granted by the Reserve Bank of India on 04.04.2008.

Prior to the enactment of the Act, the petitioner was registered with the Central Excise Department as a separate tax entity, for providing services of “Management or business consultant service, Rent-a-cab scheme operator Service, Manpower recruitment/supply agency service, Legal consultancy service”, for the purposes of service tax.

E&Y Limited has entered into service agreements for providing professional consultancy service to various entities of Ernst & Young group (hereafter ‘EY Entities’) including Ernst & Young US LLP (hereafter ‘EY US’), Ernst & Young Service Pty Ltd. Australia (hereafter ‘EY Australia’), Ernst & Young Group Ltd. New Zealand (hereafter ‘EY NZ’) and Ernst & Young LLP, UK (hereafter ‘EY UK’) on arm’s length basis.

In terms of the aforementioned service agreements, the overseas entities had retained E&Y Limited, acting through its Indian Branch (the petitioner herein) to provide certain professional services (the Services). It is material to note that the petitioner had placed on record the agreements dated 29.09.2009 entered into between E&Y Limited and EY US; agreement dated 25.10.2010 between E&Y Limited and EY Australia; agreement dated 15.01.2018 entered into between E&Y Limited and EY NZ; agreement dated 20.12.2012 E&Y Limited and EY UK; and agreement dated 25.09.2018 between E&Y Limited and EY US.

The petitioner had provided various professional services to overseas EY Entities in terms of the agreements entered into between E&Y Limited and the respective overseas EY Entities. The invoices raised described the nature of services for the invoiced amount as “Professional Fees for Services”.

The petitioner applied for refund of the ITC availed for providing its professional services for the periods December 2017 to March 2020.

The Adjudicating Authority issued show cause notices dated 02.01.2020, 13.04.2020 and 23.04.2021 corresponding to the three refund applications filed by the petitioner. Each of the said show cause notices indicated the reasons for proposing to reject the refund applications in similar words as set out below:

i) How the Output services are treated as Export of Services. Accordingly, kindly explain the nature of Output Services and provide copy of Agreement with overseas client along with annexure/schedule and copy of export invoices.

ii) How the input services have nexus with the provision of exported services and how they have been utilized for provision of the same. Accordingly, kindly explain the nature of input services and their nexus & utilization with the provision of exported services.”

The petitioner responded to the said show cause notices, inter alia, explaining that the petitioner was involved in providing “business advisory services and technical assistance” (hereafter ‘the Services’) in relation to tax compliance and other matters. The petitioner states that the Services are in the nature of management consultancy/professional consultancy services. According to the petitioner, it had provided the Services directly to the EY Entities located outside India in terms of the service agreements entered into between E&Y Limited (the head office of the petitioner) with the respective EY Entities. The petitioner had raised invoices for the Services rendered and the consideration was received directly from the overseas EY Entities in convertible foreign exchange. The petitioner’s ITC had accumulated on account of supplies availed by the petitioner for performing the Services. This included services of chartered accountant, management and consultancy services, hotel accommodation services, bank charges and renting of immovable property. According to the petitioner, the supplies were directly related for providing professional services (business support services and management and consultancy services).

Adjudicating Authority held that the petitioner “is engaged in rendering professional or consultancy services, promoting technical or financial collaboration between Indian companies and parent or overseas group companies, representing the parent company in India and acting as buying/selling agent in India etc.”. Further, in terms of the service agreements, the petitioner agreed to provide certain professional services in India and the invoices also clearly stated that the services were not provided in USA, UK and Australia. The Adjudicating Authority referred to the definition of ‘intermediary’ under Section 2(13) of the IGST Act

Conclusions:

A plain reading of the aforesaid definition makes it amply clear that an intermediary merely “arranges or facilitates” supply of goods or services or both between two or more persons. Thus, it is obvious that a person who supplies the goods or services is not an intermediary. The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier. In the present case, there is no dispute that the petitioner does not arrange or facilitate services to EY entities from third parties; it renders services to them. The petitioner had not arranged the said supply from any third party.

In terms of Sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In terms of Clause (b) of Sub-section (8) of Section 13 of the IGST Act, the place of supply of intermediary services is the location of the supplier of services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing intermediary services. As discussed above, the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of ‘export of services’ as defined under Section 2(6) of the IGST Act.

There is no dispute that the recipient of Services – that is EY Entities – are located outside India. Thus, indisputably, the Services provided by the petitioner would fall within the scope of the definition of the term ‘export of service’ under Section 2(6) of the IGST Act.

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