2024 (10) TMI 1308 - HC - GST

Classification of services rendered - intermediary services or not - refund of unutilized Input Tax Credit (ITC) - HELD THAT - An intermediary would be one who arranges or facilitates the supply of goods or services between two or more persons. The sample agreement which has been placed on our record clearly belies the view that was taken by the respondents in this regard. As is manifest from a reading of that agreement, the ITS was envisaged to be provided by the writ petitioner itself to the entity situate outside India. The petitioner was clearly not one which was facilitating the supply between two or more persons. It was itself directly engaged in the provision of supply. In view of the above, the foundational basis of the impugned orders itself is rendered unsustainable. The impugned orders do not rest on any material or evidence which could have been even remotely read as being suggestive of the petitioner being an intermediary as explained. The consistent stand of the petitioner had been that it was supplying service on a principal to principal basis. The respondents do not rest their decision on a finding that there was a tripartite agreement for the supply of services. Merely because the service was being provided to the holding company, the petitioner would not have been disentitled to a mark-up. In any case, it would clearly not be liable to be classified as an intermediary merely because such a mark-up had been obtained over and above the costs incurred. The impugned Order is set aside - petition allowed.

Issues Involved:

1. Classification of the petitioner as an "intermediary" under the IGST Act.
2. Entitlement to refund of unutilized Input Tax Credit (ITC).
3. Applicability of Section 13 of the IGST Act to determine the place of supply.
4. Interpretation of the service agreement between the petitioner and its holding company.
5. Consideration of the mark-up in the service fee agreement.

Detailed Analysis:

1. Classification as an "Intermediary":

The core issue revolved around whether the petitioner should be classified as an "intermediary" under the IGST Act. The respondents had rejected the petitioner's refund applications on the grounds that the petitioner acted as an intermediary between its holding company in Singapore and other parties. The court examined Section 2(13) of the IGST Act, which defines an intermediary as an entity that "arranges or facilitates" the supply of goods or services between two or more persons. The court scrutinized the service agreement and found that the petitioner was directly providing services to its holding company and not facilitating services between multiple parties. The court referred to Circular No. 159/15/2021-GST, which clarified that an intermediary must involve at least three parties, with the intermediary acting as a conduit. The court concluded that the petitioner did not meet the criteria of an intermediary, as there was no tripartite agreement or facilitation of services between multiple parties.

2. Entitlement to Refund of Unutilized ITC:

The petitioner sought a refund of unutilized ITC amounting to INR 46,05,196/- for specific periods. The rejection of the refund was based on the classification of the petitioner as an intermediary. Since the court found this classification unsustainable, it held that the petitioner was entitled to the refund. The court emphasized that the petitioner was supplying services on a principal-to-principal basis, and thus, the denial of the refund was unwarranted.

3. Applicability of Section 13 of the IGST Act:

The court examined Section 13 of the IGST Act, which determines the place of supply for services where either the supplier or recipient is located outside India. The respondents argued that the petitioner, being an intermediary, should have the place of supply determined under Section 13(8), which pertains to intermediary services. However, the court found that the petitioner was directly supplying services to its holding company in Singapore, making Section 13(2) applicable. This section stipulates that the place of supply is the location of the recipient, which, in this case, was outside India.

4. Interpretation of the Service Agreement:

The court reviewed the service agreement between the petitioner and its holding company, which indicated that the petitioner provided services on a principal-to-principal basis. The agreement specified that the petitioner acted as an independent contractor and was responsible for developing and maintaining technology platforms. The court noted that the agreement did not suggest any intermediary role or facilitation of services between multiple parties. The agreement's terms reinforced the petitioner's position as a direct service provider, not an intermediary.

5. Consideration of the Mark-up in the Service Fee Agreement:

The respondents contended that the inclusion of a mark-up in the service fee agreement implied an intermediary role. The court rejected this argument, stating that the mark-up was consistent with arm's length transactions and did not inherently classify the petitioner as an intermediary. The court clarified that the entitlement to a mark-up did not affect the petitioner's status as a direct service provider. The court found the respondents' reasoning flawed and held that the mark-up did not justify the classification of the petitioner as an intermediary.

Conclusion:

The court allowed the writ petition, quashing the impugned orders and directing the respondents to grant the refund along with applicable statutory interest. The judgment emphasized the importance of accurately interpreting the definitions and provisions under the IGST Act and the significance of the contractual terms in determining the nature of services provided.

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