2026 (1) TMI 110 - HC - GST

Electricity supply via intermediary to foreign buyer: not 'export of goods' under IGST ss.2(5), 16; refunds recalculated

The dominant issue was whether the petitioner's supply of electricity, routed through an intermediary to a foreign buyer, qualified as 'export of goods' ... Export of goods or not - Supply of electricity made by the petitioner to the Bangladesh Board directly as well as the supply made by the petitioner to the Bangladesh Board, through PTC - Refund of the input tax credit, which accrued on account of the purchase of goods and services from various third parties - export supply, which are zero rated supplies, under the provisions of Section 16 of the IGST Act, 2017 or not - HELD THAT:- The supply of electricity, in the present case, would be a sale and Article 286 would be applicable. This would mean that any sale of electricity, in the course of export would be an export supply. However, one difference between the CST regime and the IGST regime is that, the principles formulated, in section 5 of the CST Act would not be applicable and only such principles, as can be discerned from a reading of Article 286 and Section 2(5) and 16 of the IGST Act would have to be applied. Section 2(5) of the IGST Act, read with Article 286(1)(b) would mean that all supply of goods, in the course of taking goods out of India, would be export of goods. The further requirement, of Section 5 (2) of the CST Act, that only such sales which occasion the movement of goods, would amount to export sales, would not apply. In the present case, PTC had entered into a contract with the Bangladesh Board to supply electricity. That agreement specifically mentioned that the electricity would be sourced from the petitioner. A separate agreement was executed between PTC and the petitioner. Under the agreement between PTC and the petitioner, the electricity would be loaded into the Grid at the interconnection point, in Andhra Pradesh, to be wheeled to the Delivery point, which is the Bohronpur sub-station, in West Bengal. It is at this point that the electricity would stand transferred from the petitioner to PTC and from PTC to the Bangladesh Board. Even if the judgments in K.G. Khosla and Co.(P) Ltd. Vs. Deputy Commissioner of Commercial Taxes Madras Division, Madras [1966 (1) TMI 54 - SUPREME COURT], Union of India & another vs. K.G. Khosla & Co. (P). Ltd. [1979 (3) TMI 176 - SUPREME COURT], and M/s. Indure Limited vs. Commercial Tax Officer [2010 (9) TMI 883 - SUPREME COURT], are pressed into service, the dealer there, was common in both transactions and the question of privity of contract did not come up. The minutes of the meetings held between the representatives of the petitioner, PTC and the Bangladesh Board do not make out privity of contract as these meetings were held to ensure smooth supply of electricity and there was no variation in the contracts to create a direct relationship between the petitioner and the Bangladesh Board. The supply, of electricity, between the petitioner and PTC can only be called a supply for export of goods and not, per se, an export of goods. The petitioner, though mentioned in the agreement, is not a party to the contract of supply of electricity, by PTC to the Bangladesh Board. The inevitable conclusion is that the supply of electricity, by the petitioner, to PTC is not a exports supply of goods and is a supply within India. These writ petitions are dismissed, leaving it open to the petitioner, to resubmit it’s applications, within a period of four weeks from today, for refund of ITC, relating to the supply made by the petitioner to the Bangladesh Board directly, by treating the supply of electricity to PTC, as domestic supply of electricity, in the formula set out in Rule 89. Upon such resubmission, the respondent authorities shall consider the applications, without going into the question of limitation, and pass orders within a period of six weeks from the date of submission. ISSUES PRESENTED AND CONSIDERED 1. Whether the supply of electricity made to an Indian intermediary for onward supply to a foreign buyer qualifies as 'export of goods' and hence 'zero rated supply' under the IGST framework, entitling refund of unutilised input tax credit. 2. Whether the arrangements and documents relied upon created such privity/integration as to treat the intermediary arrangement as a single export supply by the generator, notwithstanding separate contracts and an Indian 'delivery point'. 3. What relief, if any, should be granted where refund claims were rejected on the basis that the intermediary supply is domestic, while the generator also had direct export supplies. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of supply to an intermediary as 'export of goods' / 'zero rated supply' for ITC refund Legal framework (as discussed and applied by the Court): The Court applied Article 286 principles and the IGST framework, specifically Section 16 (zero rated supply) read with Section 2(5) (export of goods: 'taking goods out of India to a place outside India'). The Court also relied on the constitutional understanding of 'in the course of export' as interpreted in the decision it treated as directly interpreting Article 286 without CST Section 5 overlay. Interpretation and reasoning: The Court held that, under Section 2(5), the decisive test for 'export of goods' is whether the supply is for taking goods out of India and the goods are in fact taken out. The Court nevertheless distinguished between (i) the export supply from the Indian intermediary to the foreign buyer (which moved electricity out of India), and (ii) the generator's supply to the intermediary, which was a separate supply completed in India at the contractually defined 'delivery point' located in India. The Court reasoned that a prior/penultimate supply made for the purpose of fulfilling an export contract remains a distinct domestic supply and does not become an export merely because it is linked commercially to a subsequent export by another party. Conclusion: The supply of electricity by the generator to the Indian intermediary was held not to be 'export of goods' / 'zero rated supply'; it was a domestic supply within India. Consequently, the generator was not entitled to claim refund of unutilised ITC by treating the intermediary turnover as zero-rated export turnover. Issue 2: Whether the contracts/meetings created privity or a single integrated export transaction attributable to the generator Legal framework (as discussed and applied by the Court): The Court applied the constitutional concept that preparatory or preceding transactions undertaken 'for the purpose of export' do not, without more, become transactions 'in the course of export' for exemption/zero-rating; it treated the separation of contracts and absence of privity as legally decisive on the facts before it. Interpretation and reasoning: The Court examined that the intermediary had a contract with the foreign buyer and the generator had a separate contract with the intermediary. The 'delivery point' for measurement and transfer was explicitly in India, and the contractual structure contemplated transfer from the generator to the intermediary and from the intermediary to the foreign buyer at that Indian point. The Court rejected the argument that meeting minutes and contractual references to the generator as the source created privity of contract between the generator and the foreign buyer, noting there was no contractual variation creating a direct legal relationship. The Court also noted that the generator was not a party to the intermediary's supply contract with the foreign buyer, and therefore its supply could only be described as a supply for export rather than an export itself. Conclusion: The Court conclusively held that the generator's and intermediary's supplies remained two separate supplies; there was no privity or contractual integration sufficient to recharacterise the generator's supply to the intermediary as an export/zero-rated supply. Issue 3: Relief and directions concerning resubmission of refund claims for direct export supplies Legal framework (as discussed and applied by the Court): The Court referred to Section 54 CGST and the refund computation mechanism under Rule 89(4), directing recomputation consistently with the Court's characterisation of supplies. Interpretation and reasoning: While dismissing the challenge to rejection insofar as it treated intermediary supplies as domestic, the Court recognised that the generator also made direct supplies to the foreign buyer which could be considered for refund as export/zero-rated supplies. To enable proper computation, the Court allowed resubmission of refund applications by treating the intermediary supplies as domestic in the Rule 89 formula, and directed that the authorities should not reject the resubmitted applications on limitation and should decide them within a fixed time. Conclusion: The writ petitions were dismissed, but the petitioner was permitted to resubmit refund applications limited to direct export supplies within four weeks; the authorities were directed to process them without raising limitation and to pass orders within six weeks.