2023 (5) TMI 1123 - HC - GST

Delhi HC allows ITC refund for services to McDonald's USA, rules service provider not automatically intermediary under IGST Act Section 2(13)

Delhi HC set aside orders denying refund of ITC to petitioner providing services to McDonald's USA under Service Agreement. Court held that rendering ... Intermediary - place of supply - export of services - refund of input tax credit - Section 13(3)(b) of the IGST Act - Section 13(5) of the IGST Act - scope of show cause notice - service agreement versus master license agreementScope of show cause notice - refund of input tax credit - Whether the Appellate Authority could raise and decide grounds with respect to place of supply under Sections 13(3)(b) and 13(5) of the IGST Act which were not the subject-matter of the Show Cause Notice or the Order in Original in the petitioner's appeal. - HELD THAT: - The Court found that the Appellate Authority introduced and relied upon additional grounds-specifically treatment of the petitioner as intermediary and application of place of supply provisions-which were not raised in the Show Cause Notice dated 14.08.2020 or in the Order in Original. The Appellate Authority's conclusions proceeded on a basis different from that which had travelled to it on appeal, including observations implying that providing services on behalf of another party equates to being an intermediary. Such additional grounds could not be raised suo motu in the appeal preferred by the petitioner. For these reasons the impugned order was vitiated and liable to be set aside on this jurisdictional/competence ground. [Paras 28]Impugned order set aside insofar as it decides additional grounds not arising from the Show Cause Notice or Order in Original.Intermediary - place of supply - Section 13(3)(b) of the IGST Act - Section 13(5) of the IGST Act - service agreement versus master license agreement - Whether the petitioner, under the Service Agreement, is an intermediary and whether Sections 13(3)(b) and 13(5) of the IGST Act apply to locate the place of supply in India. - HELD THAT: - The Court explained that mere performance of services on behalf of another does not automatically make the service provider an intermediary. It emphasised the need to identify the principal service, the supplier and the purchaser to determine if the petitioner is facilitating or arranging third party supplies; the Order in Original had not undertaken that analysis. On the specific statutory provisions, the Court held that Section 13(3)(b) applies where the physical presence of the recipient or its representative in India is necessary to receive the service; in the Service Agreement the recipient is McDonald's USA and its physical presence in India is not necessary for the services performed by the petitioner. Further, the activities listed in the Service Agreement (such as conducting interviews, reference checks and screening) do not fall within the events or ancillary services contemplated by Section 13(5). While the Court found these provisions inapplicable on the stated facts, it did not finally adjudicate all factual facets of intermediary status because the lower orders had not analysed whether the petitioner was arranging services of third party suppliers. Consequently the matter requires fresh consideration by the Adjudicating Authority in light of these observations. [Paras 24, 25, 30, 31, 32]Court concluded that Sections 13(3)(b) and 13(5) are not attracted on the material before it and remanded the matter to the Adjudicating Authority for fresh consideration of whether the petitioner is an intermediary after identifying principal service, supplier and purchaser.Final Conclusion: Impugned appellate order set aside for deciding additional grounds not arising from the Show Cause Notice or Order in Original; on merits the Court held that mere performance of services on another does not ipso facto make the provider an intermediary and that Sections 13(3)(b) and 13(5) of the IGST Act are not attracted on the material before the Court; matter remitted to the Adjudicating Authority for fresh consideration in light of these observations. Issues Involved:1. Whether the petitioner is an intermediary within the meaning of Section 2(13) of the IGST Act.2. Whether the Appellate Authority's order was beyond the scope of the Show Cause Notice.3. Applicability of Sections 13(3)(b) and 13(5) of the IGST Act to the services rendered by the petitioner.Summary:Issue 1: Whether the petitioner is an intermediary within the meaning of Section 2(13) of the IGST Act.The petitioner, M/s McDonald's India Pvt. Ltd., entered into a Service Agreement with McDonald's USA, claiming the services rendered were independent and 'zero rated supplies' under Section 16 of the IGST Act. The Adjudicating Authority and Appellate Authority held that the services were intermediary services, thus the place of supply was in India, making the petitioner ineligible for ITC refund. The court noted that rendering service on behalf of another does not automatically make one an intermediary, referencing recent decisions in M/s Ernst and Young Limited and M/s Ohmi Industries Asia Private Limited cases. The court emphasized the need to identify the principal service, supplier, and purchaser to determine intermediary status, which was not adequately analyzed in the Order-in-Original.Issue 2: Whether the Appellate Authority's order was beyond the scope of the Show Cause Notice.The petitioner argued that the Appellate Authority's order was beyond the scope of the Show Cause Notice and did not arise from the petitioner's appeal. The court found merit in this contention, noting that the Show Cause Notice was broad and did not detail reasons for denying the ITC refund. The court held that the Appellate Authority could not raise additional grounds for rejecting the refund claim suo motu in an appeal preferred by the petitioner. Thus, the impugned order was liable to be set aside on this ground alone.Issue 3: Applicability of Sections 13(3)(b) and 13(5) of the IGST Act to the services rendered by the petitioner.The court examined the applicability of Sections 13(3)(b) and 13(5) of the IGST Act. Section 13(3)(b) applies where the physical presence of the service recipient or its representative is necessary. The court found that the service recipient, McDonald's USA, did not need to be physically present in India for the services rendered by the petitioner. Section 13(5) pertains to services related to events, which was irrelevant to the services provided by the petitioner under the Service Agreement. The court concluded that these provisions did not apply to the petitioner's case.Conclusion:The court set aside the impugned order and the Order-in-Original, remanding the matter to the Adjudicating Authority for fresh consideration in light of the observations made. The petition was disposed of accordingly.