2022 (6) TMI 532 - HC - GST

Refund of GST - services rendered abroad (export of services) - Principles of unjust enrichment - incidence of tax passed to the recipient company or not - burden to prove - HELD THAT - The Petitioner has placed on record a copy of the agreement. It shows that the ASCL is located outside of India and the petitioner company is located in India. And the production services are rendered by the petitioner in the U.K. It is, thus, clear that the services rendered by the petitioner fall within the expression export of services . The applicant is entitled to the refund of the amount if the incidence of tax has not been passed on to the recipient of the services. If the incidence of tax has been passed on , petitioner is not entitled to the refund - Agreement executed between the petitioner and the ASCL shows that the approved production budget includes all costs in connection with the production services including the amount of Indian Goods and Services Tax Act. This shows that GST is included in all costs in connection with production services. Petitioner is a service provider and ASCL is the service recipient. This court relying on the Apex court judgment in MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA 1996 (12) TMI 50 - SUPREME COURT held that when services are rendered abroad, CGST will not apply - In the case at hand also, the petitioner has rendered services to the ASCL abroad i.e. in U.K. Therefore, GST does not apply to the services rendered abroad as they amount to the export of services. In addition to that the respondent could not establish that the incident of tax has been passed on to the recipient ASCL located in London. Thus, both, the Adjudicating Authority and the Appellate Authority committed error in rejecting the refund of GST of the petitioner. Therefore, orders of both the authorities cannot be sustained and need to be set aside. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Rejection of GST refund claims by the petitioner.
2. Application of the principle of unjust enrichment to export services.
3. Determination of whether the incidence of tax was passed on to the recipient.

Issue-wise Detailed Analysis:

1. Rejection of GST refund claims by the petitioner:
The petitioner, a company incorporated under the Companies Act, 2013, engaged in providing production services to a company in the UK, filed refund claims for GST paid on inputs and input services. The refund claims for the periods from August 2019 to October 2019 and November 2019 to July 2020 were rejected by the Assistant Commissioner and subsequently by the Appellate Authority on the grounds of unjust enrichment, asserting that the incidence of tax had been passed on to the client, resulting in unjust enrichment for the petitioner.

2. Application of the principle of unjust enrichment to export services:
The petitioner argued that the principle of unjust enrichment does not apply to export services, which are zero-rated supplies under GST law. The petitioner cited Clause 4.10 of the agreement with the UK company, which stipulated that any tax refund received would be deducted from production expenses, indicating that the incidence of tax was not passed on to the client. The court considered the definition of export of services under Section 2(6) of the Integrated Goods And Services Tax Act, which includes services supplied by a provider in India to a recipient outside India, with the place of supply being outside India and payment received in convertible foreign exchange.

3. Determination of whether the incidence of tax was passed on to the recipient:
The court examined the agreement between the petitioner and the UK company, noting that the production budget included GST costs, and any refund received would be deducted from the production expenses. This indicated that the tax incidence was not passed on to the recipient. The court rejected the respondents' argument that the issuance of credit notes by the petitioner admitted the passing on of tax incidence, clarifying that this was an alternative argument and not an admission. The court referred to previous judgments, including Motilal Oswal Securities Ltd vs Commissioner of Service Tax and Commissioner of Service Tax, Mumbai II v. SGS India Pvt. Ltd., which held that services rendered abroad are considered export services and are not subject to GST.

Conclusion:
The court concluded that the petitioner was entitled to the refund of GST as the services rendered to the UK company were export services, and the incidence of tax had not been passed on to the recipient. The orders of the Adjudicating Authority and the Appellate Authority were set aside, and the writ petition was allowed in terms of the prayer clauses (a) and (b). The rule was made absolute on these terms.