Software consultancy to overseas parent held export of service under s.16 IGST Act, not intermediary; refund allowed

HC held that software consultancy and related services provided by the petitioner to its overseas parent constituted "export of service" under s.16 of the IGST Act and not "intermediary services". On construing the service agreement, the Court found the petitioner rendered services on its own account as an independent Indian entity, and was not merely acting as an agent or broker between the parent and its customers. Consequently, denial of refund of unutilised input tax credit on the ground of intermediary classification was unsustainable. The impugned orders were quashed and the respondents were directed to process the petitioner's refund claims as zero-rated supplies, subject to limitation.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the software consultancy and related services provided by the petitioner to its overseas parent company constitute "export of services" or "intermediary" services under the Integrated Goods and Services Tax Act, 2017.

1.2 Whether the petitioner's refund claims of unutilised input tax credit on zero-rated supplies were barred by limitation under Section 54 of the Central Goods and Services Tax Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Characterisation of services as "export of services" or "intermediary" services

Legal framework

2.1 The Court referred to Section 2(6) of the IGST Act defining "export of services", which requires, inter alia, that: (i) the supplier is located in India; (ii) the recipient is located outside India; (iii) the place of supply is outside India; and (iv) payment is received in convertible foreign exchange or permitted Indian rupees; and that supplier and recipient are not merely establishments of a distinct person as per Explanation 1 to Section 8.

2.2 The Court also referred to Section 2(13) of the IGST Act defining "intermediary" as a broker, agent or any other person who arranges or facilitates the supply of goods or services or both between two or more persons, but excluding a person who supplies such goods or services on his own account.

2.3 Section 16 of the IGST Act, providing for "zero rated supply" including export of services, was noticed as the governing provision for treating supplies as zero-rated.

Interpretation and reasoning

2.4 The Court examined the services agreement between the petitioner (Indian entity) and its US parent company, particularly clauses 1.1.1, 1.1.2, 4.2 and 4.4. Under clause 1.1.1, the petitioner is to assist the US entity in carrying on the business of providing information services and consultancy in the business of software development, editorial services, customer support, sales and marketing of information management products, including setting up consultations and meetings between globally based experts and globally based clients and participating in business as consultants, agents, sub-agents, liaison agents/sub-agents for the US entity and foreign clients. Clause 1.1.2 contemplates consultancy in designing and developing programs and related technical and administrative operations.

2.5 On the basis of these clauses, the Court held that the petitioner is itself providing substantive services (software consultancy, information services, technical and business support) on its own account to its parent company, and is not merely arranging or facilitating supplies between the parent company and its customers without supplying any service itself. The scope of work shows that the petitioner is engaged in carrying on and assisting the business of the parent, rather than acting as a conduit between two other parties.

2.6 The Court also considered the commercial terms: under clause 4.2, the petitioner raises monthly invoices to the parent company for work completed, and is paid a fee equal to its costs plus an 8% markup, signifying that it earns profit on services supplied. Under clause 4.4, this fee is the full consideration; the petitioner bears all its own expenses, including taxes and operational costs, confirming that it is operating as an independent service provider and not as a mere intermediary compensated by commission or facilitation charges.

2.7 Dispute resolution clause 7.2, providing for arbitration between the petitioner and the parent company in case of disputes arising from the agreement, reinforced that the petitioner is a distinct and independent contracting party with its own rights and obligations, not an ancillary facilitator in a tri-partite arrangement.

2.8 The Court noted that the agreement is bipartite, involving only the petitioner and its parent company. There is no third-party recipient with whom the petitioner is arranging or facilitating a supply. This absence of a tri-partite structure is inconsistent with the statutory notion of "intermediary", which contemplates the arrangement or facilitation of supply "between two or more persons".

2.9 The Court thus accepted the petitioner's contention, supported by CBIC Circular No. 159/15/2021-GST, that none of the essential elements of "intermediary" service as elaborated therein were satisfied on the facts of the case.

2.10 The Court relied on decisions which had similarly held that entities providing services on a principal-to-principal basis to overseas group entities are not "intermediaries" but exporters of services, including the Delhi High Court decision in M/s. Ernst and Young Limited. It noted that where the services are not intermediary services, the place of supply is determined by the location of the recipient, and when the recipient is outside India, such services fall within Section 2(6) as "export of services".

Conclusions

2.11 The Court held that on a proper reading of the service agreement and the factual arrangement, the petitioner supplies services on its own account to its overseas parent company and does not arrange or facilitate supplies between the parent company and any third party.

2.12 The services provided by the petitioner are not "intermediary" services under Section 2(13) of the IGST Act but qualify as "export of services" under Section 2(6) read with Section 16 of the IGST Act.

2.13 The finding of the authorities below that the petitioner was providing intermediary services was held to be erroneous and was set aside.

Issue 2 - Limitation for refund claim under Section 54 of the CGST Act

Legal framework

2.14 The Court proceeded on the basis of Section 54(1) of the CGST Act, which prescribes a two-year limitation period from the "relevant date" for filing a refund application, and the procedure prescribed under Circular No. 17/17/2017-GST and Circular No. 24/24/2017-GST for filing refund applications, including filing on the common portal and subsequent physical submission.

2.15 The Court referred to its earlier decision in Charomotolab and Biotech Solutions, which interpreted the effect of the CBIC circular of 15.11.2017 prescribing physical submission of refund applications in addition to filing on the common portal.

Interpretation and reasoning

2.16 In Charomotolab and Biotech Solutions, extracted in detail, the Court had held that when a refund application in Form GST RFD-01A is filed on the common portal within the prescribed period and an ARN is generated, the date of filing on the portal must be treated as the relevant date for limitation purposes under Section 54, and subsequent physical submission of documents pursuant to a procedural circular cannot be used to treat the application as time-barred.

2.17 The Court noted that in the present case it was not in dispute that the petitioner had submitted the refund application and that the question of limitation turned on how the date of filing should be reckoned, in light of the statutory provision and applicable circulars.

2.18 Applying the principles from Charomotolab and Biotech Solutions, the Court accepted that a procedural circular cannot override the statutory right to refund within the two-year period under Section 54, and the filing within that period could not be denied on the basis that supporting documents or physical submission occurred later.

Conclusions

2.19 The Court concluded that the petitioner's refund applications, being in respect of zero-rated supplies treated as export of services, were filed within the limitation prescribed under Section 54 of the CGST Act.

2.20 The rejection of the refund claims on the ground of limitation was unsustainable.

Overall disposition

2.21 The Court held that the authorities had erred in classifying the petitioner's services as "intermediary" services and in rejecting the refund claims as time-barred. The impugned appellate order and the order-in-original rejecting the refund were quashed and set aside.

2.22 The respondents were directed to process the petitioner's refund claims treating the services as export of services and the claims as within limitation, and to complete the exercise in accordance with law within twelve weeks of receipt of the judgment.

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