Introduction

In recent years, the classification of services under tax laws has been a subject of considerable debate and interpretation. A recent ruling by the Telangana Authority for Advance Rulings (AAR) sheds light on the classification of services provided by entities operating as ‘Marketing/Recruitment/Referral Consultants.’ This article aims to delve into the specifics of the ruling, examining its implications and clarifications.

Facts of the Case

M/s. Center for International Admission and Visas (CIAV), referred to as the Applicant, engaged in providing referral services to foreign universities. Under their agreement, the Applicant referred aspiring students to foreign universities located outside India. However, the Applicant’s role was distinct; it acted as an independent contractor, assessing student profiles and university particulars to make referrals. Importantly, the ultimate decision regarding student enrollment rested with the universities, not the Applicant. The Applicant received commission solely from successful admissions, with no direct income from prospective students.

Issue

The central issue at hand was whether the services provided by the Applicant qualified them as an ‘intermediary’ under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

Held

The Telangana AAR, in TSAAR Order No. 09/2024, rendered the following observations and conclusions:

Principal-to-Principal Basis:

The AAR emphasized that to be classified as an ‘intermediary,’ a party must facilitate the supply of services between two or more entities. Since the Applicant operated on a principal-to-principal basis, without directly facilitating services between parties, they did not meet the criteria for intermediary status.

Recipient of Services:

Referring to established legal precedents, including the case of Microsoft Corporation (I) (P) Ltd. v. Commissioner of Service Tax, the AAR reaffirmed that the recipient of services is the party contractually responsible for payment. As per the agreements in question, the foreign universities were the recipients of services, not the prospective students.

Service Provider Role:

Citing case law such as Ernst & Young Ltd v. Additional Commissioner, CGST Appeals-II, the AAR highlighted that a service provider is distinct from an intermediary. In this case, the Applicant provided services directly to the universities, without mediating between parties.

Conditions for Intermediary Status:

Drawing from the judgment in Genpact India (P) Ltd. v. Union of India, the AAR outlined conditions for intermediary classification: a principal-agent relationship, facilitation of services to a principal by a third party, and non-performance of the main service intended for the recipient. The Applicant’s role did not align with these conditions.

Supply of Services:

Lastly, the AAR emphasized that the Applicant’s services constituted a single supply to the universities, not separate supplies to students and universities. This further underscored their non-intermediary status.

Conclusion:

In conclusion, the AAR ruled that the Applicant’s services of ‘marketing/recruitment/referral consultant’ did not qualify them as an intermediary under the IGST Act. Instead, their activities constituted ‘export of service,’ subject to conditions laid out in relevant provisions.