GST refund granted for production services rendered abroad as export of services qualifies for tax exemption

Bombay HC allowed a GST refund petition for services rendered abroad. The petitioner provided production services to a UK-based company, qualifying as export of services under GST law. The agreement showed GST was included in production costs, but the court held that GST does not apply to services rendered abroad as they constitute export of services. The revenue authorities failed to establish that the tax incidence was passed to the UK recipient. Relying on Mafatlal Industries precedent, the court set aside orders rejecting the refund, ruling that export of services are not subject to CGST and the petitioner was entitled to the refund.

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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.

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