The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chandigarh has delivered a significant ruling clarifying the scope of intermediary services under the Finance Act, 1994. The judgment holds that educational consultants facilitating admissions for foreign universities do not fall under the definition of intermediary services as per Rule 2(f) of the Place of Provision of Services Rules, 2012, thereby exempting them from service tax liability. This decision reinforces the distinction between export of services and intermediary services, providing much-needed clarity for businesses engaged in cross-border educational consultancy.
Background & Facts
The Dispute
The appellants, M/s Auscan Consultants India Ltd and its Managing Director Sunil Jaggi, were engaged in providing consultancy services to foreign educational institutions. They received commissions from these institutions for facilitating student admissions. The Department alleged that these services qualified as intermediary services under Rule 2(f) of the Place of Provision of Services Rules, 2012, making them liable for service tax.
Procedural History
The case progressed through the following stages:
- 2017: A show cause notice was issued by the Additional Commissioner, Central Excise & Service Tax, Chandigarh-I, alleging non-payment of service tax on intermediary services.
- 2018: The Joint Commissioner confirmed the demand of service tax, interest, and penalty under Section 73 of the Finance Act, 1994.
- 2019: The Commissioner (Appeals) upheld the adjudicating authority’s order, dismissing the appellants’ appeal despite reliance on precedent.
- 2026: CESTAT Chandigarh allowed the appeals, setting aside the impugned order.
Relief Sought
The appellants sought the following reliefs:
- Quashing of the service tax demand, interest, and penalties.
- A declaration that their services qualified as export of services and not intermediary services.
- Exemption from extended limitation under Section 73(1) of the Finance Act, 1994 on grounds of bona fide belief and lack of suppression.
The Legal Issue
The central question before the Tribunal was whether the services provided by educational consultants to foreign universities, where the consultants received commissions, constituted intermediary services under Rule 2(f) of the Place of Provision of Services Rules, 2012 or qualified as export of services exempt from service tax.
Arguments Presented
For the Appellant
The appellants contended that:
- Their services did not fall under the definition of intermediary services as they did not arrange or facilitate the main service (education) between two or more persons. Instead, they provided business auxiliary services to foreign universities.
- The services qualified as export of services under Rule 3 of the Place of Provision of Services Rules, 2012, as the recipient (foreign universities) was located outside India.
- The demand for the period prior to 1 October 2014 was unsustainable due to the prospective amendment to Rule 2(f) via Notification No. 14/2014-ST.
- The extended period of limitation under Section 73(1) was inapplicable as the appellants had sought clarification from the Department regarding taxability, indicating no suppression of facts.
- Reliance was placed on multiple CESTAT decisions, including M/s Sunrise Immigration Consultants Private Limited v. CCE & ST, Chandigarh and M/s Pioneer Immigration And Education Consultancy Private Limited v. Commissioner of Central Excise and CGST, Ludhiana.
For the Respondent
The Department reiterated the findings of the impugned order, arguing that:
- The appellants’ services qualified as intermediary services as they facilitated the provision of education services between students and foreign universities.
- The demand, interest, and penalties were justified under Section 73 of the Finance Act, 1994.
The Court's Analysis
The Tribunal conducted a detailed analysis of the legal framework governing intermediary services and export of services under the Finance Act, 1994 and the Place of Provision of Services Rules, 2012.
Definition of Intermediary Services
The Tribunal examined Rule 2(f), which defines an intermediary as:
"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 Tribunal held that the appellants did not arrange or facilitate the main service (education) between students and universities. Instead, they provided business auxiliary services to foreign universities, which did not qualify as intermediary services.
Export of Services
The Tribunal relied on Rule 3 of the Place of Provision of Services Rules, 2012, which governs the export of services. It held that since the recipient of the services (foreign universities) was located outside India, the appellants’ services qualified as export of services, which are exempt from service tax.
Precedent Analysis
The Tribunal placed significant reliance on its earlier decisions, particularly M/s Sunrise Immigration Consultants Private Limited v. CCE & ST, Chandigarh, where an identical issue was adjudicated. In that case, the Tribunal held:
"The appellant is only facilitating the aspirant student and introduced them to the college and if these students gets admission to the college, the appellant gets certain commission which is in nature of promoting the business of the college... As the appellant did not arrange or facilitate main service i.e. education or loan rendered by colleges/banks, the appellant cannot be called as intermediary."
The Tribunal also cited decisions from other benches, including M/s Medway Educational Consultant P. Ltd. v. Commissioner of CGST, Delhi West and M/s Krishna Consultancy v. Commissioner of CGST, Nagpur, which consistently held that educational consultancy services do not qualify as intermediary services.
Prospective Amendment to Rule 2(f)
The Tribunal noted that Rule 2(f) was amended via Notification No. 14/2014-ST, effective from 1 October 2014. The amended definition explicitly excluded persons providing the main service on their own account. The Tribunal held that the amendment was prospective and could not be applied retrospectively to demand service tax for the period prior to 1 October 2014.
Limitation Under Section 73(1)
The Tribunal observed that the appellants had sought clarification from the Department regarding the taxability of their services, indicating a bona fide belief that their services were not taxable. This negated any allegation of suppression of facts, rendering the invocation of the extended period of limitation under Section 73(1) unsustainable.
The Verdict
The Tribunal allowed both appeals, setting aside the impugned order. It held that:
- The appellants’ services did not qualify as intermediary services under Rule 2(f) of the Place of Provision of Services Rules, 2012.
- The services provided by the appellants qualified as export of services and were exempt from service tax.
- The demand for service tax, interest, and penalties was unsustainable and consequently quashed.
What This Means For Similar Cases
Educational Consultants Are Not Intermediaries
The judgment provides clarity for educational consultants and similar service providers:
- Business auxiliary services provided to foreign institutions do not qualify as intermediary services under Rule 2(f).
- Practitioners can rely on this judgment to argue that their clients’ services are export of services, exempt from service tax.
Prospective Application of Amendments
- The Tribunal’s ruling on the prospective nature of Notification No. 14/2014-ST reinforces that amendments to tax laws cannot be applied retrospectively unless explicitly stated.
- Taxpayers can challenge demands for periods prior to the effective date of such amendments.
Bona Fide Belief Negates Extended Limitation
- The judgment underscores that seeking clarification from the Department demonstrates bona fide belief, which can defeat allegations of suppression under Section 73(1).
- Practitioners should ensure that clients document all interactions with the Department to strengthen this defense.
Precedent as a Shield
- The Tribunal’s reliance on consistent precedent highlights the importance of citing relevant judgments in tax disputes.
- Businesses engaged in similar services should proactively rely on decisions like M/s Sunrise Immigration Consultants and M/s Pioneer Immigration to challenge adverse orders.
