2024 (2) TMI 1121 - HC - GST

Refund claim - export of service - zero rated supply - receipt in convertible foreign exchange - Paypal directly credits the amounts received in Indian currency directly into the petitioner s account. - whether the petitioner is entitled for refund of the tax borne on input and final service exported to its overseas customers? - HELD THAT - There is no dispute that the petitioner is providing services of its clients through its online portal to customers/client. The payments for the services provided by the petitioner are routed through an intermediary namely Paypal with whom the petitioner has an arrangement - As an intermediary Paypal directly credits the amounts received in Indian currency directly into the petitioner s account. As far as export proceeds the amounts are received in convertible foreign exchange by the said intermediary namely Paypal. The amounts are first credited into its account with CITI Bank of the said intermediary namely Paypal. Thereafter amounts in Indian currency are transferred from the intermediaries CITI Bank account to the petitioner s account with HDFC Bank after deduction of its service charges. As per Regulation 3(2)(b) of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations 2016 any other mode of receipt of export proceeds for an export from India in accordance with the directions issued by the Reserve Bank of India to authorized dealers from time to time - Thus if payments are routed through an intermediary to person like petitioner the intermediary should be an authorised person to receive such payment in convertible foreign exchange. As an intermediary the petitioner is required to only credit the amounts in convertible foreign exchange into Reserve Bank of India. Merely because the receipts are rooted through the intermediary and received in Indian currency ipso facto would not mean that the petitioner has not exported services within the meaning of Section 2(6) of the IGST Act 2017. Receipt of payment by an intermediary for and on behalf of its client like the petitioner will qualify as payment received by the client. As the only requirement is with the payments received is freely convertible foreign exchange has to be directly remitted into the authorized dealers account as otherwise an intermediary will be violate the requirements of the foreign exchange. Thus without doubt the petitioner is entitled for refund. Reference to Circular No.88/07/2019-GST dated 01.02.2019 to concluded that the petitioner has not realized the amount in freely convertible foreign exchange therefore cannot be countenanced. The impugned order passed by the 1st respondent Additional Commissioner (Appeals I) upholding the orders passed by the 2nd respondent is unsustainable and is therefore liable to be set aside and is accordingly set aside - Petition allowed.

Summary

Issues Involved:

1. Whether the petitioner is entitled to a refund of the tax paid on input and final service exported to its overseas customers.
2. Compliance with RBI and GST regulations regarding the realization of export proceeds in convertible foreign exchange.
3. Submission and sufficiency of export invoices and other documentation.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of Tax Paid on Exported Services:

The petitioner sought a refund under Section 54 of the CGST Act, 2017, for services considered "zero-rated supply" under Section 16 of the IGST Act, 2017. The court noted that export of services is indeed a "zero-rated supply," allowing the petitioner to claim a refund of unutilized input tax credit. The court emphasized that the purpose of such provisions is to alleviate the tax burden on exports, thereby enhancing their competitiveness. The judgment concluded that the petitioner is entitled to the refund of tax paid on exported services and the unutilized input tax credit used in the export of services.

2. Compliance with Foreign Exchange Regulations:

The core issue was whether the export proceeds realized in Indian Rupees through Paypal complied with RBI guidelines and GST regulations. The court examined the provisions of the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, and concluded that the routing of payments through Paypal, an intermediary, was in compliance with these regulations. The court clarified that the receipt of payments in Indian currency via an intermediary does not negate the fact that the petitioner exported services as defined under Section 2(6) of the IGST Act, 2017. The court found that the intermediary, Paypal, acted as an authorized entity to receive payments in convertible foreign exchange, which were then converted into Indian Rupees for the petitioner, thus satisfying the regulatory requirements.

3. Submission and Sufficiency of Export Invoices:

The respondents rejected the refund claims on the grounds that the petitioner failed to submit export invoices, which are necessary to establish the location of the service recipient outside India. The court acknowledged the petitioner's failure to provide these invoices but emphasized that the substantive compliance with the provisions, such as the receipt of foreign exchange, was more critical. The court noted that the petitioner had provided other supporting documents and that the absence of invoices should not be a sole reason for denying the refund. The court found that the petitioner had sufficiently demonstrated that the services were exported and that the payments were received in compliance with the relevant regulations.

Conclusion:

The court set aside the impugned order passed by the appellate authority, ruling that the petitioner is entitled to the refund of tax paid on exported services and the unutilized input tax credit. The judgment emphasized that technical non-compliance, such as the absence of invoices, should not impede the petitioner's entitlement to refunds, especially when substantive compliance with foreign exchange regulations is established. The writ petition was allowed, granting the petitioner the relief sought.