Commission received from foreign buyers for services and procurement of goods do not fall under the definition of ‘intermediary services’

The Hon’ble Supreme Court in the case of Commissioner of Goods and Services Tax and Central Excise v. SNQS International Socks Private Limited [Civil Appeal Diary No(s). 8343/2024 dated March 19, 2024] dismissed the Commissioner of Goods and Services Tax and Central Excise (“the Appellant”) appeal.

During the audit, the Appellant noted that the M/s. SNQS International Socks Private Limited (“the Respondent”) had received an export sales commission for procuring export orders from foreign buyers for the manufacturers who supplied garments. Thereafter, a show cause notice (“SCN”) was issued alleging that these services were classifiable under ‘intermediary’ service as per Rule 2(f) of the Place of Provision of Services Rules, 2012, as amended with effect from October 1, 2014. Subsequently, an Order was passed raising the demand.

An appeal was made against the said order before the Customs Excise and Service Tax Appellate Tribunal (“the CESTAT”). The CESTAT passed an Order (“the Impugned Order”) and held that the services rendered by the Respondent to its foreign client as per their directions are not only the procurement of goods, but also the selection of vendors, monitoring the quality of the goods produced, designing of samples, live testing of the samples produced, and carrying out various other quality checks on the garments till their final dispatch to the foreign client.  Thus, the Respondent had undertaken a bouquet of services that are not mere selling or purchase of goods. Further, the CESTAT added that the remuneration for the services rendered to the foreign client is computed based on the Free on Board (“FOB”) value of the garments exported, which itself does not make the Respondent an intermediary and all the services were rendered to the foreign client on the principal-to-principal basis.

Hence, aggrieved by the Impugned Order passed by the CESTAT, the Appellant appealed before the Hon’ble Supreme Court, wherein the Hon’ble Court held that the Respondent does not fall within the scope and ambit of any of the definitions of ‘Business Auxiliary Service’, ‘Business Support Service’ as well as ‘Intermediary’. Hence, the appeal was dismissed.

Source from: https://www.a2ztaxcorp.com/blogs/6603ccff3360f45baff0e060/details