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 borne on input and final service exported to its overseas customers.
2. Compliance with RBI directions and IGST Act requirements regarding receipt of export proceeds in freely convertible foreign exchange.
3. Submission of necessary export invoices and supporting documents for refund claims.

Summary:

Issue 1: Entitlement to Refund for Exported Services:
The petitioner, engaged in providing online services through its website, sought a refund of ITC availed on services used in the provision of such services, under Section 16(3) of the IGST Act, 2017. The petitioner claimed that the services rendered to overseas clients qualify as "zero-rated supply" under Section 16 of the IGST Act, 2017, and filed for a refund under Section 54 of the CGST Act, 2017. The court noted that export of service is a "zero-rated supply," and a supplier effecting such supply is entitled to avail ITC and claim refunds. The court concluded that the petitioner is entitled to a refund of the tax paid on export and the unutilized ITC used in export of service.

Issue 2: Compliance with RBI Directions and IGST Act Requirements:
The respondents rejected the refund claims on the grounds that the export proceeds were received in Indian Rupees, not in accordance with RBI directions, which require proceeds to be realized in freely convertible foreign exchange. The court observed that the payments were routed through Paypal, an intermediary, which received the amounts in foreign exchange and credited them to the petitioner's account in Indian Rupees. The court held that this routing is in compliance with the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2016, and that the petitioner has met the requirements of Section 2(6) of the IGST Act, 2017.

Issue 3: Submission of Export Invoices and Supporting Documents:
The respondents also rejected the refund claims due to the petitioner's failure to submit export invoices, which are necessary to establish the location of the service recipient outside India. The court noted that the petitioner provided various documents, including RFD-01A, LUT, proof of ITC, and FIRC advice from CITI Bank. The court found that the petitioner had provided sufficient evidence to prove the export of services and receipt of payment in foreign exchange through an intermediary.

Conclusion:
The court concluded that the petitioner is entitled to the refund claimed and set aside the impugned order passed by the first respondent, upholding the orders of the second respondent. The writ petition was allowed, and the petitioner was granted the refund of tax paid on export and the unutilized ITC used in the export of services.