2024 (9) TMI 1218 - HC - GST

Appellate Authority orders on input tax credit refund and export service classification set aside under Section 2(13) IGST Act 2017

M/s Xiaomi Technology India Private Limited Versus State of Karnataka, The Joint Commissioner of Commercial Taxes (Appeals) 4 Bangalore, The Assistant Commissioner Of Commercial Taxes Bangalore.

Karnataka HC set aside Appellate Authority orders dated 29.05.2023 and 20.12.2022 regarding refund of accumulated input tax credit with interest and ... Refund of the accumulated input tax credit with interest - export of service or not - petitioner is an ‘intermediary’ in terms of Section 2 (13) of the IGST Act, 2017 or not - HELD THAT:- A perusal of the material on record including the various contentions and written submissions of both sides are sufficient to come to the conclusion that the various factual and legal contentions and submissions made by both sides have not been addressed correctly or properly by respondent No. 2 – Appellate Authority while passing the impugned orders at Annexure-A dated 29.05.2023 and 20.12.2022. Under these circumstances, in order to provide one more opportunity to both sides to put-forth their respective claims and contentions before respondent No. 2 – Appellate Authority, without expressing any opinion on the merits / demerits of the rival contentions, it is deemed just and appropriate to set aside the impugned orders at Annexure – A dated 29.05.2023 and 20.12.2022 respectively and remit the matters back to respondent No. 2 for reconsideration of the appeals afresh in accordance with law within a stipulated time frame. Petition allowed by way of remand. Issues Involved:1. Whether the services provided by the petitioner qualify as 'export of service' under Section 2(6) of the IGST Act, 2017.2. Whether the petitioner is an 'intermediary' under Section 2(13) of the IGST Act, 2017.3. Whether the petitioner is entitled to a refund of the accumulated input tax credit.4. Whether the agreements between the petitioner and Xiaomi HK are genuine or a subterfuge designed to claim input tax credit.Issue-wise Detailed Analysis:1. Whether the services provided by the petitioner qualify as 'export of service' under Section 2(6) of the IGST Act, 2017:The petitioner contended that the services provided under the Reward Agreement qualify as 'export of service' as per Section 2(6) of the IGST Act, 2017. The petitioner argued that:- The service provider (petitioner) is located in India.- The recipient of service (Xiaomi HK) is located outside India.- Payment for the service has been received in convertible foreign exchange.- The petitioner and Xiaomi HK are not establishments of distinct persons as per Explanation of Section 8 of the IGST Act, 2017.- The place of supply of service is outside India as per the default rule under Section 13(2) of the IGST Act.The respondents, however, argued that the services rendered by the petitioner are in respect of making goods of Xiaomi HK available in India, and thus the place of supply shall be India in terms of Section 13(3)(a) of the IGST Act, 2017. They also contended that the reward being incidental and conditional to the achievement of sales targets cannot be considered as consideration for export of any service.2. Whether the petitioner is an 'intermediary' under Section 2(13) of the IGST Act, 2017:The petitioner argued that they are not an 'intermediary' as defined under Section 2(13) of the IGST Act, 2017, and do not meet the requirements laid down in the CBIC Circular dated 20.09.2021. The petitioner claimed that they are engaged in promoting Xiaomi branded products in India and increasing market share, which qualifies as export of services.The respondents contended that the petitioner is acting as an intermediary by facilitating the supply of goods (Xiaomi products) in India and thus does not qualify for the benefits of export of services.3. Whether the petitioner is entitled to a refund of the accumulated input tax credit:The petitioner sought a refund of the accumulated input tax credit for the periods June 2019 to September 2019, October 2019 to December 2019, and January 2020 to June 2020, amounting to Rs. 145,09,13,633/-, Rs. 106,17,11,427/-, and Rs. 110,70,94,987/- respectively. The petitioner argued that as the services provided qualify as export of services, they are entitled to a refund of the accumulated input tax credit under Section 54 of the CGST Act, 2017 read with Rule 89(4) of the CGST Rules, 2017.The respondents rejected the refund claims on the grounds that the services rendered do not qualify as export of services and that the agreements appear to be a subterfuge designed to claim input tax credit.4. Whether the agreements between the petitioner and Xiaomi HK are genuine or a subterfuge designed to claim input tax credit:The respondents argued that the agreements between the petitioner and Xiaomi HK are a subterfuge designed to claim input tax credit. They pointed out that:- The agreement for the plan period 2018 to 2019 was entered into on the last day of the plan period, indicating that the targets were already achieved before the agreement was made.- The targets were altered for each plan period, revealing the self-serving nature of the agreement.- The agreement for the plan period 2019-2020 was undated, suggesting it was entered into at the end of the plan period or later.The petitioner denied these allegations, arguing that the agreements were genuine and aimed at promoting Xiaomi products in India.Judgment:The High Court concluded that the various factual and legal contentions and submissions made by both sides were not correctly or properly addressed by the Appellate Authority. Therefore, the court set aside the impugned orders dated 29.05.2023 and 20.12.2022 and remitted the matters back to the Appellate Authority for reconsideration of the appeals afresh in accordance with law. The court provided the following directions:- Both writ petitions are allowed.- The impugned orders are set aside.- The matters are remitted back to the Appellate Authority for reconsideration.- The petitioner is to appear before the Appellate Authority on 02.09.2024.- Liberty is reserved for the petitioner to file additional pleadings, documents, notifications, circulars, judgments, etc.- The Appellate Authority is to hear both sides and pass appropriate orders within eight weeks from 02.09.2024.- All rival contentions on all aspects of the matter are kept open.The court also acknowledged the valuable assistance rendered by the amicus curiae in these matters.