Interface Development Services By BlackRock India - Not An 'Intermediary Service': CESTAT

The Bench of Ajay Sharma (Judicial Member) and P.V. Subba Rao (Technical Member) held that the 'Business Support Services' rendered by BlackRock to its US based clients would qualify as an export of service in terms of Rule 6A of Service Tax Rules, 1994, and thus, BlackRock was eligible for refund of un-utilised CENVAT credit availed on the input services used in providing the said business support services.

The appellant- M/s. BlackRock Services India, applied for refund of un-utilised CENVAT credit availed on input service used in providing "business support services" outside India, under Rule 5 of CENVAT Credit Rules, 2004 read with notification No. 27/2012 CE (NT) dated 18/06/2012. The Adjudicating Authority rejected the refund claims on the ground that the service provided by the appellant was an intermediary service and therefore, the place of provision of service was in India. Thus, the Adjudicating Authority ruled that the appellant was not entitled to any credit under the CENVAT Credit Rules, 2004. The appellant challenged the order of the Adjudicating Authority before the Commissioner CGST (Appeals), who upheld the order of the Adjudicating Authority. Against this, the appellant filed an appeal before the CESTAT.

The appellant BlackRock India submitted before the CESTAT that it is engaged in providing services to M/s. HLX, its US based client, relating to development of interface for Aladdin- an operating system for investment managers to undertake portfolio management. The appellant contended that it was maintaining, troubleshooting and providing support service in relation to the creation of client accounts of M/s. HLX on the said platform.

The appellant added that the said services were provided by it to M/s. HLX on a principal to principal basis, and that the appellant was an independent contractor and not an agent or employee of M/s. HLX. Hence, it contended that the services provided by it were purely between the appellant and M/s. HLX and that it did not involve any 3^rd party or a consumer.

The appellant thus submitted that the lower authorities had wrongly rejected its refund claim by holding that the appellant was an agent and hence an "intermediary", having its place of provision of service in India and not outside India.

The CESTAT observed that in view of the definition of the term "intermediary", as provided under Rule 2 (f) of Place of Provision of Services Rules, 2012, an "intermediary" is someone who arranges or facilitates the supply of goods or services or securities between two or more persons and thus, the arrangement would require a minimum of three parties.

Holding that an activity between only two parties cannot be considered as an intermediary service, the CESTAT ruled that an intermediary does not include the person who supplies such goods or services or both on his own account, and that an intermediary only arranges or facilitates the main supply between two or more persons.

Thus, the Tribunal ruled that where the person supplies the main supply, either fully or partly, on a principal to principal basis, the said supply cannot come within the ambit of "intermediary".

Observing that the appellant was required to provide maintenance and support services and perform troubleshooting functions on requisition from M/s. HLX, in order to ensure seamless access of the services available on the said platform, the CESTAT ruled that there was no requirement of any interaction between the appellant and the clients of M/s. HLX and hence, the appellant could not be called an intermediary.

"There is nothing on record to show that the appellant is liasioning or acting as intermediary between the HLX and its clients. Therefore, the finding of the lower authorities that the appellant is an "intermediary" is misplaced. We are astonished to notice that although for earlier periods the then adjudicating authority allowed the refund claim of the appellant, but without looking into those orders and without giving any reason for not following the earlier orders, this time the concerned Authorities held otherwise by denying the credit."

Noting that the Adjudicating Authority had rejected the refund claims of the appellant and had opined that the service rendered by it was not a 'Business Support Service' but an intermediary service, the CESTAT ruled that the burden to prove that the classification claimed by the appellant was incorrect, lied on the revenue department. The Tribunal added that the conclusions drawn by the revenue department have to be substantiated by supporting evidence and not merely on the basis of assumptions and presumptions.

"We also observe that the learned Commissioner in the impugned order has also places reliance on the website without confronting the appellant with the said material, which is completely in violation of the principle of natural justice and also beyond the show cause notice as the show cause notice did not rely upon any such website.", the CESTAT added.

The Tribunal accepted the contention of the appellant that in view of Rule 3 of the Place of Provision of Services Rules, 2012, the place of provision of service is generally the location of the service recipient. Observing that the location of the service recipient was outside India, i.e., USA, the CESTAT held that since the place of provision of service was outside India, the service provided by the appellant would qualify as an export of service in terms of Rule 6A of Service Tax Rules, 1994.

Allowing the appeal of the appellant, the CESTAT quashed the order passed by the Adjudicating Authority. The Tribunal remanded the matter back to the Adjudicating Authority for calculating the quantum of refund on the basis of the documents submitted by the appellant, and directed it to dispose of the refund claim of the appellant within a specified time.

Case Title: M/s. BlackRock Services India Private Limited versus Commissioner of CGST

Dated: 08.08.2022 (CESTAT Chandigarh)

Representative for the Appellant: Kamal Sahwney, Krishna Rao & Anishka Gupta, Advocate

Representative for the Respondent: Amandeep Kumar, Authorised Representative for the Respondent

Click Here To Read/Download Order