2025 (1) TMI 583 - HC - GST

Classification of service - whether the service provided by the petitioner should be considered as export of service or intermediary service under provisions of IGST Act? - refund application was time-barred under Section 54 of the CGST Act, 2017 or not - HELD THAT - The petitioner is required to assist the US entity in carrying on the business of providing information and consultancy in business of software development and for that purpose, the petitioner is required to set up consultations and meetings between globally based experts and globally based clients and to participate in any business of consultants, agents, sub-agents, liaison agents/liaison sub-agents for its parent company and foreign clients for such activities. The petitioner is also to provide advisory services for expansion of business, marketing, advertisement, publicity, personnel accounting to its parent company. Therefore, on conjoint reading of the scope of services to be provided by the petitioner, it cannot be said that the petitioner is only to work as an agent or a broker between parent company and its customers without supplying any goods or services on its own account. Moreover, on terms of payment, payment is to be received by the petitioner from its parent company on monthly basis and fee equal to cost incurred by the petitioner plus 8% mark up on costs. Meaning thereby, the petitioner is also earning the profit of 8% on the cost incurred by it in providing services to its parent company. In view of the terms of the agreement executed between the petitioner and its parent company, it cannot be said that the petitioner was not exporting services but was working as an intermediary for its parent company. The petitioner is an independent company incorporated in India having distinct entity and in such circumstances, the service provided by the petitioner to its parent company was in independent capacity and not in the capacity of either agent or broker or any other person. The Delhi High Court in case of M/S. ERNST AND YOUNG LIMITED VERSUS ADDITIONAL COMMISSIONER, CGST APPEALS -II, DELHI AND ANR. 2023 (3) TMI 1117 - DELHI HIGH COURT has held ' Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of 'export of services' as defined under Section 2(6) of the IGST Act.' Conclusion - Both the authorities below have committed an error in holding that the petitioner was providing intermediary service to its parent company in the facts of the case. The respondents are directed to process the refund claim in accordance with the law considering the services provided by the petitioner as export of service to its parent company and refund claims are filed within the limitation. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

• Whether the services provided by the petitioner to its parent company qualify as 'export of services' under the IGST Act, 2017, or as 'intermediary services'.
• Whether the petitioner's refund application was time-barred under Section 54 of the CGST Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Services

• Relevant legal framework and precedents: The core legal question revolves around the definitions of 'export of services' under Section 2(6) and 'intermediary' under Section 2(13) of the IGST Act, 2017. The petitioner argued that its services qualify as 'export of services' and not 'intermediary services'. The court referred to precedents from the Delhi High Court and Punjab and Haryana High Court, which clarified the scope of intermediary services.
• Court's interpretation and reasoning: The court analyzed the service agreement between the petitioner and its parent company. It concluded that the petitioner was providing services on a principal-to-principal basis rather than acting as an intermediary. The court emphasized the petitioner's independent operations and profit-earning structure, which indicated that the services were not intermediary in nature.
• Key evidence and findings: The court examined the service agreement, particularly clauses that detailed the petitioner's role and payment structure. The agreement stipulated that the petitioner was to assist its parent company in various business activities, with compensation based on costs plus a markup, indicating a principal-to-principal relationship.
• Application of law to facts: By applying the definitions and analyzing the service agreement, the court determined that the petitioner was not facilitating services between two parties but was providing services directly to its parent company, thus qualifying as 'export of services'.
• Treatment of competing arguments: The respondent's argument that the petitioner acted as an intermediary was rejected. The court found no basis for the claim that the petitioner facilitated transactions between its parent company and third parties.
• Conclusions: The court concluded that the services provided by the petitioner were 'export of services' and not 'intermediary services'.

Issue 2: Timeliness of the Refund Application

• Relevant legal framework and precedents: Section 54 of the CGST Act, 2017, prescribes the time limits for filing refund applications. The petitioner argued that the application was filed within the permissible period, citing a precedent from the Gujarat High Court that addressed similar issues of timing and procedural compliance.
• Court's interpretation and reasoning: The court considered the procedural aspects of filing the refund application, including the initial online submission and the subsequent physical submission of documents. It emphasized that the date of online submission should be considered the filing date.
• Key evidence and findings: The court noted that the petitioner had submitted the refund application electronically within the stipulated period, and the delay in physical submission should not affect the application's validity.
• Application of law to facts: By applying Section 54 and relevant procedural guidelines, the court found that the petitioner's application was timely filed based on the electronic submission date.
• Treatment of competing arguments: The respondent's argument that the application was time-barred due to delayed physical submission was dismissed. The court held that procedural guidelines should not override statutory provisions to the detriment of the petitioner.
• Conclusions: The court concluded that the refund application was filed within the statutory period and was not time-barred.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The court stated, "The petitioner is an independent company incorporated in India having distinct entity and in such circumstances, the service provided by the petitioner to its parent company was in independent capacity and not in the capacity of either agent or broker or any other person."
• Core principles established: The court established that services provided on a principal-to-principal basis qualify as 'export of services' and that procedural delays in physical submission should not negate the timely electronic filing of refund applications.
• Final determinations on each issue: The court determined that the petitioner's services were 'export of services' and not 'intermediary services'. It also concluded that the refund application was timely filed and directed the respondents to process the refund claim accordingly.