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HC interprets scope of intermediary services in case of sub-contracting service agreements
This Tax Alert summarizes a recent ruling [1] of the Punjab and Haryana High Court (HC). The issue involved in the writ petition was whether the services provided by the petitioner under sub-contracting agreement fell within the scope of intermediary service and, therefore, ineligible for refund.
Petitioner contended that the services were provided on own account, and not in the capacity of agent. Hence, they do not qualify as an intermediary.
Further, reliance was placed on Circular issued by Central Board of Indirect Taxes and Customs (CBIC) which clarified that sub-contracting services do not fall under the ambit of intermediary.
Revenue contended that the petitioner fulfills all the ingredients to qualify as an “intermediary”. Also, the principle of res-judicata does not apply in taxation matters.
HC held that agreement clauses do not indicate that services rendered by petitioner fall under the ambit of an intermediary. Further, there is no change in the scope of “intermediary” services in the Goods and Services Tax (GST) regime vis-a-vis the service tax regime.
Applying the principles of consistency, Revenue cannot take a different view for periods where there is no change of facts. Accordingly, HC allowed the writ petition.
Comments:
- Amidst divergent advance rulings on the scope of intermediary, this HC ruling is likely to provide certainty w.r.t tax position to be adopted by taxpayers engaged in a similar line of business.
This could also potentially result in tax cost savings.
- As per the settled principle, decision of the High court, unless overruled or in the absence of any contrary rulings, shall have a binding effect across jurisdictions in India.
- Taxpayers facing similar demands/refund rejections may persuade adjudicating/ appellate authorities by drawing support from the above HC ruling.
- Earlier, constitutional validity of place of supply provision relating to intermediary service was challenged before the Division Bench of Bombay High Court. Considering the split verdict, the final decision is awaited.