GST export services vs "intermediary" tag: refund of accumulated ITC allowed after services held non-local supply

Whether the petitioner's services were wrongly treated as local supply on the premise that it acted as an "intermediary," thereby disentitling it to refund of accumulated/unutilized ITC. Relying on the principles applied in earlier HC decisions on intermediary characterization, the HC held that the petitioner was not an intermediary and that the services qualified as export of services, making the refund claim maintainable under the GST framework. Consequently, the impugned appellate and rejection orders were quashed, and the respondents were directed to sanction refund of the accumulated/unutilized ITC in the electronic credit ledger with applicable interest within three months, with the matter remanded for grant of refund.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the services supplied by the petitioner to its overseas parent, under a Letter of Undertaking and endorsed as "Export of Services without payment of IGST", were wrongly treated by the tax authorities as local supply on the premise that the petitioner was an "intermediary", thereby justifying rejection of refund of accumulated/unutilized input tax credit.

(ii) Whether the refund rejection order and the appellate order confirming it were liable to be set aside, and whether the respondents were required to sanction refund of accumulated/unutilized input tax credit along with applicable interest within a stipulated timeframe.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Characterisation of petitioner's supply as "intermediary" vs. export of services, and entitlement to refund of accumulated/unutilized ITC

Legal framework (as discussed by the Court): The Court noted that the impugned appellate order was passed under Section 107(11) of the CGST Act, and the petitioner's claim related to refund of accumulated/unutilized ITC in the electronic credit ledger arising from export of services without payment of IGST under LUT.

Interpretation and reasoning: On a perusal of the material on record, the Court found that the petitioner was engaged in providing Research and Development services and other business support services to its overseas parent, and had issued export invoices endorsed "Export of Services without payment of IGST" under LUT for the relevant period. The respondents opposed the claim asserting that the petitioner had wrongly treated local supply as export of services. The Court, however, concluded from the record that the petitioner was not an "intermediary" and held that, in light of prior decisions of the Court on similar questions, the petitioner was entitled to the refund claimed.

Conclusion: The Court conclusively held that the petitioner was not an "intermediary" and was entitled to refund of accumulated/unutilized ITC arising on account of export of services without payment of IGST under LUT.

Issue (ii): Validity of the refund rejection and appellate confirmation; direction to grant refund with applicable interest

Interpretation and reasoning: Having determined that the petitioner was entitled to refund and that the rejection rested on an incorrect premise, the Court held that the impugned orders "deserve to be quashed". The Court further found it appropriate to direct the concerned respondents to grant/sanction the refund together with applicable interest within a stipulated period.

Conclusion: The Court set aside both the refund rejection order and the appellate order confirming rejection, and directed the respondents to grant/sanction refund of accumulated/unutilized ITC in the electronic credit ledger together with applicable interest within three months from receipt of the order.

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