In a key ruling that could impact several multinational groups operating out of India, the Bombay High Court has allowed a refund of unutilised Input Tax Credit (ITC) to an Indian company for export of engineering and design services to its sister concern abroad. The Court rejected the Revenue Department’s arguments that the two entities were not truly distinct and that the relationship was akin to an agency arrangement, making the supply ineligible as an export of services.The judgment was delivered by a Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla, who set aside orders denying the refund and directed that the refund be granted along with statutory interest under Section 56 of the CGST Act.Revenue’s Argument Dismissed
The Revenue had argued that the Assessee and its overseas group company failed to satisfy condition (v) under Section 2(6) of the IGST Act, 2017, which defines “export of services.” It alleged that the transaction was not on a principal-to-principal basis and attempted to draw an analogy of an agency relationship or that of a distinct person under GST.The Court disagreed, holding that a person is considered “distinct” only when it has establishments both in India and abroad, and not when separate legal entities are involved. Since the foreign recipient was an independent company incorporated outside India, it could not be treated as the same entity as the Indian exporter.Independent Contractor, Not an AgentReferring to the agreement between the Indian Assessee and the overseas recipient, the Court noted that the document clearly established an independent contractor relationship, stating that neither party’s employees, officers, or subcontractors were to be treated as agents or employees of the other.The Court also found that the Indian Assessee had been providing services using its own manpower and resources, and that the foreign company exercised no control over the Indian operations. The relationship, the Court held, was of a principal-to-principal nature.What Supported the PleaThe Bench relied on CBIC Circular No. 161/17/2021-GST, which clarified that supply of services by an Indian company to its foreign group company would qualify as an export if conducted on a principal-to-principal basis. The circular specifically addressed concerns around related party transactions and stated that entities incorporated in India and abroad should be treated as separate legal persons.The Court further cited the Xilinx India Technology Services case to strengthen its conclusion, wherein similar facts were found to qualify as export of services.The Revenue had also invoked Section 15 of the CGST Act to emphasize that the parties were “related” and that the presence of a third party was necessary to establish agency. The Court rejected this line of reasoning as irrelevant in light of the CBIC circular and the established principal-to-principal nature of the transaction.The Assessee was represented by Senior Advocate Prakash Shah, along with Jas Sanghavi, Mohit Raval, and Vikas Poojary of PDS Legal. Advocate S.D. Vyas appeared on behalf of the Revenue.Why This Case MattersThis ruling provides clarity for Indian companies exporting services to foreign affiliates or group companies. It affirms that being related does not disqualify a transaction from being an export, provided the supply is made independently and not in an agency capacity. It could provide a significant precedent for resolving similar refund disputes under GST.
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