2023 (9) TMI 630 - HC - GST

Rejection of Refund of IGST - rejection on the ground that the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8 of IGST Act - non-application of mind while passing impugned order - violation of principles of natural justice - HELD THAT - The impugned order has been passed without application of mind and in disregard of the provisions of law. The relevant circular was brought to the notice of the respondents by the petitioner. But respondent no.1 completely ignored the same and proceeded to pass the order mechanically. Although, it is mentioned that the petitioner is an intermediary but there is no ground whatsoever for holding the said view. The terms of the Agreement are unambiguous. The petitioner has provided services on principal-to-principal basis. The services provided by the petitioner are on its own count and not facilitated by provision of services from any third-party services provider - the petitioner is a registered EOU for the services as exported by it. The respondents are directed to forthwith process the petitioner s claim for refund along with interest - petition allowed.

Summary

Issues involved:
The rejection of a refund application for Integrated Goods & Service Tax (IGST) by the petitioner based on the interpretation of Section 2(6) of the IGST Act and the application of Circulars issued by the Central Board of Indirect Taxes & Customs (CBIC).

Summary:

Issue 1: Refund Rejection Order based on Interpretation of IGST Act

The petitioner, an Export Oriented Unit (EOU) engaged in exporting information technology software services, filed a petition challenging the Refund Rejection Order rejecting its IGST refund application. The rejection was based on the contention that the petitioner and its holding company were establishments of a single person, thus not constituting export of services under Section 2(6) of the IGST Act.

Details: The petitioner argued that it was an independent entity distinct from its holding company, citing Circular No. 161/17/2021-GST issued by the CBIC, which clarified that services provided by a subsidiary of a foreign company incorporated in India to establishments of the foreign company outside India would not be restricted by Section 2(6)(v) of the IGST Act. Despite this, the respondents rejected the refund application without considering the circular, leading to the petition challenging the rejection.

Issue 2: Application of Circulars and Interpretation of Legal Provisions

The petitioner contended that the rejection of the refund application failed to consider the legal distinction between a subsidiary company and its foreign holding company, as clarified in Circulars issued by the CBIC. The respondents' rejection was deemed to be mechanical and devoid of proper application of the law.

Details: The Court found that the rejection order lacked proper consideration of the legal provisions and relevant circulars. It was emphasized that the petitioner operated as a separate entity from its holding company, and the services provided were on a principal-to-principal basis, not as an intermediary. The Court directed the respondents to process the refund claim with interest and expressed dissatisfaction with the casual approach taken in passing the rejection order.

Conclusion:
The High Court allowed the petition, directing the processing of the petitioner's refund claim with interest. It criticized the respondents for disregarding the legal provisions and relevant circulars, highlighting the importance of proper application of the law in tax matters to maintain taxpayer confidence and reduce unnecessary tax litigation.