2023 (9) TMI 230 - HC - GST

Zero-Rated Services Refund: Principal Service Provider Wins Input Tax Credit Claim Under IGST Act Section 2(13)

Boks Business Services Pvt. Ltd. Versus Commissioner Of Central Goods And Services Tax Delhi South And Anr.

The SC resolved a dispute over input tax credit refund for zero-rated services. The court determined the petitioner was a principal service provider, not ... Export of services - Intermediary services or not - Denial of refund of unutilized input tax credit - zero rated supplies - place of supply of services within the territory of India - Section 16 of the Integrated Goods and Services Tax Act, 2017 - HELD THAT:- The petitioner is not an intermediary, inasmuch, as the petitioner is neither facilitating the provision of services by a third entity nor acting as a middleman for procuring such services for its affiliate. The petitioner is, in fact, contracted to provide the services, and is the principal service provider in the context of the services provided by it – book keeping, payrolls, and accounts through the use of cloud technology. In case of intermediary services, there are three entities – one providing the principal service, one receiving the principal service, and an intermediary who acts as an agent or a broker for facilitating or arranging such services for the service recipient. In the present case, although the agreement does use the word ‘agent’ but is clear that the petitioner is not acting as an agent for procurement of services for the service recipient. It is, in fact, providing the principal service of “Bookkeeping, Payroll, and accounts, through the use of cloud technology”. The fact that such services may be for the clients of the petitioner’s affiliate, Boks Business Services Limited, does not make the petitioner an “intermediary”. The issue, whether the petitioner can be considered as an intermediary, is squarely covered by the decision of this Court in M/S. ERNST AND YOUNG LIMITED VERSUS ADDITIONAL COMMISSIONER, CGST APPEALS -II, DELHI AND ANR. [2023 (3) TMI 1117 - DELHI HIGH COURT], where it was held that the Services rendered by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of ‘export of services’ as defined under Section 2(6) of the IGST Act. The impugned orders cannot be sustained. The same are set aside - Petition disposed off. Issues involved: Refund of unutilized input tax credit for zero-rated supplies under Section 16 of the IGST Act; Determination of petitioner's status as an intermediary in the context of services provided to a foreign affiliate.Refund of unutilized input tax credit: The petitioner, engaged in providing bookkeeping, payroll, and accounting services through cloud technology to its UK affiliate, applied for a refund of unutilized input tax credit for export of services. However, the claim was rejected on the basis that the petitioner was deemed an intermediary, not the principal service provider, due to charging GBP 500 per workstation. The Appellate Authority upheld this view based on an agreement indicating the petitioner's role as an agent.Status as an intermediary: The core question was whether the petitioner could be classified as an 'intermediary' under Section 2(13) of the IGST Act. The agreement between the petitioner and its UK affiliate clarified that the petitioner was contracted to provide services directly, not acting as a middleman. Despite the agreement using the term 'agent,' the petitioner was the principal service provider, not facilitating services for others. This distinction was crucial in determining the petitioner's status.Legal Precedents: The judgment referenced previous decisions to support the finding that the petitioner did not qualify as an intermediary. The cases of M/s Ernst And Young Limited and M/s Cube Highways and Transportation Assets Advisor Private Limited were cited to emphasize the interpretation of intermediary services involving three distinct entities, where the petitioner's role did not align with that of an intermediary.Conclusion: The Court set aside the orders rejecting the refund claim, directing the respondents to process the petitioner's refund expeditiously. The judgment clarified that the petitioner's services did not fall under the definition of intermediary services, emphasizing the importance of contractual obligations and the actual provision of services in determining the petitioner's status.