2025 (5) TMI 2139 - HC - GST

Classification of services provided by the petitioner under the Integrated Goods and Services Tax Act 2017 (IGST Act) and related statutes - intermediary services or not - Rejection of refund of ITC - applicability of Circulars No. 159/15/2021-GST and No. 135/05/2020-GST - HELD THAT - It is seen from the Agreement that the service provider has purchasing responsibilities which would help the foreign service recipient to identify who is the best person from whom products can be brought. The work involves surveying of market to identify the best supplier of goods identifying best factories visiting of factories services relating to monitoring of factories selected by the foreign recipient ensuring timely shipment of goods tracking shipments documentation support for which a consideration is paid as service fee. The service provider has to act in his own name and cannot represent and bind the recipient directly or indirectly. Further it is provided that the relationship would be one of independent contractor and that they are not principal and agent or employer and employee. Under identical circumstances while dealing with similar issues pertaining to intermediary and intermediary services this Court in the case of M/s. Amazon Development Centre India Pvt. Ltd. vs. Additional Commissioner of Central Tax Another 2025 (5) TMI 150 - KARNATAKA HIGH COURT held the material on record clearly establishes that the activities of the petitioner is of software development and support as well as project management which are rendered by the petitioner on its own account and cannot be considered as intermediary services since the same are not services of arranging or segregating any other supply. The material on record also discloses that subsequent to the Circular dated 20.09.2021 the two Circulars both dated 10.09.2024 have been issued on the scope of what would constitute intermediary services vis- -vis what would be services rendered on own account. Learned Senior Counsel also drew my attention to the judgement of the Apex Court in the case of Bharati Cellular Ltd vs ACIT 2024 (3) TMI 41 - SUPREME COURT wherein the concept of agency vis-a-vis distributorship agreements came up for detailed consideration wherein the Supreme Court while holding that the said agreement was one of distributorship and not agency held Clause (d) in paragraph 8 observes that the agent is liable to render accounts to the principal as the business done by the agent is on principal s account. The agent is entitled to remuneration from the principal for the work he performs. To decide whether a contracting party acts for himself as an independent contractor we may examine whether in the course of work he intends to make profits for himself or is entitled to receive prearranged remuneration. If the party is concerned about acting for himself and making the maximum profits possible he is usually regarded as a buyer or an independent contractor and not as an agent of the principal. This would be true even when certain terms and conditions have been fixed relating to the manner in which the seller conducts his business. The petitioner is not an intermediary under Section 2 (13) of the IGST Act and provisions of the Finance Act 1994 and the services provided by the petitioner to its service recipients are that of an independent service provider which qualify as export of services under the service tax provisions and 2 (6) of the IGST Act and consequently the impugned orders and demand of the respondents deserve to be quashed. Refund claim - rejected on the ground that the same is barred by limitation under Section 54 of the CGST Act - HELD THAT - The refund claim of the petitioner in W.P. No. 3420/2023 and W.P. No.3376/2023 is clearly not barred by limitation as erroneously/wrongly held by the respondents and consequently the said findings also deserve to be set aside. Conclusion - i) The petitioner s services are not intermediary services. ii) The petitioner s services qualify as export of services under the IGST Act. iii) The petitioner is entitled to refund of unutilized ITC along with interest. iv) The refund claims are not barred by limitation in view of CBIC Notification. v) The impugned orders rejecting refund claims and demanding service tax are quashed. vi) The constitutional validity challenges to statutory provisions and circulars are left open for appropriate cases. vii) The petitioner s contractual relationship is principal-to-principal not agency. viii) The place of supply of the petitioner s services is the location of the recipient outside India. Petition allowed in part.

Summary

Issues Presented and Considered

The core legal questions considered in the petitions revolve around the classification of services provided by the petitioner under the Integrated Goods and Services Tax Act, 2017 (IGST Act) and related statutes. Specifically:

• Whether the petitioner's services qualify as "intermediary services" under Section 2(13) of the IGST Act or are services rendered on the petitioner's own account;
• The constitutional validity of certain provisions of the IGST Act, including Sections 8 and 13(8)(b), and related CGST Rules and Circulars;
• The entitlement of the petitioner to claim refund of Input Tax Credit (ITC) under Sections 54 and 56 of the CGST Act for export of services;
• Whether the petitioner's refund claims are barred by limitation under Section 54 of the CGST Act;
• Whether the demands raised under erstwhile service tax provisions and CGST Act are sustainable;
• The applicability of Circulars No. 159/15/2021-GST and No. 135/05/2020-GST concerning the scope of intermediary services;
• The interpretation of "export of services" under Section 2(6) of the IGST Act in the context of the petitioner's agreements with foreign entities;
• The nature of the contractual relationship between the petitioner and foreign recipients, particularly whether it constitutes agency or principal-to-principal dealings;
• The place of supply of services under Section 13 of the IGST Act, especially the distinction between intermediary services and other services.

Issue-wise Detailed Analysis

1. Whether the petitioner's services constitute "intermediary services" under Section 2(13) of the IGST Act

Legal Framework and Precedents: Section 2(13) of the IGST Act defines "intermediary" as a broker, agent or any other person who arranges or facilitates the supply of goods or services between two or more persons but excludes a person who supplies such goods or services on his own account. The Central Board of Indirect Taxes and Customs (CBIC) Circular No. 159/15/2021-GST clarifies that intermediary services require:

• A minimum of three parties: two principals engaged in the main supply and one intermediary facilitating or arranging the supply;
• Two distinct supplies: the main supply between principals and the ancillary supply of arranging or facilitating by the intermediary;
• The intermediary must have the character of an agent or broker;
• Exclusion of persons supplying goods or services on their own account;
• Sub-contracting does not constitute intermediary services.

Judicial precedents from Punjab and Haryana High Court (Genpact India Pvt. Ltd.), Delhi High Court (Singtel Global India Pvt. Ltd., Blackberry India Pvt. Ltd., Ernst & Young Ltd., Ohmi Industries Asia Pvt. Ltd., Boks Business Services Pvt. Ltd., Nokia Solutions and Networks India Pvt. Ltd.) and others have consistently held that where services are provided on a principal-to-principal basis and the service provider does not act as an agent or broker, the services do not qualify as intermediary services.

Court's Interpretation and Reasoning: The Court examined the terms of the petitioner's agreements, notably the "Buying Support Services Agreement," which explicitly states that the petitioner acts as an independent contractor without authority to bind or represent the foreign recipient. The petitioner provides services such as market research, vendor coordination, production monitoring, and shipment tracking on its own account and is remunerated on a cost-plus markup basis. The Court emphasized that the petitioner does not facilitate or arrange supplies between third parties but provides the main service itself.

The Court relied heavily on the CBIC Circular No. 159/15/2021-GST, which requires three parties and two distinct supplies for intermediary services. Since the petitioner's services involve only two parties-the petitioner and the foreign recipient-and the petitioner does not act as an agent, it cannot be classified as an intermediary. The Court also noted that sub-contracting arrangements, where the main service provider outsources part of the service to the petitioner, do not convert the petitioner into an intermediary.

Key Evidence and Findings: The agreements clearly exclude agency relationships and confirm that the petitioner provides services on its own account. The petitioner's role is supportive but not facilitative in the sense of arranging or brokering services between third parties. The petitioner invoices the foreign recipient directly and receives payment in foreign exchange.

Application of Law to Facts: Applying the statutory definition and the CBIC Circular, along with judicial precedents, the Court found that the petitioner's services do not meet the criteria for intermediary services. The petitioner is a principal service provider, not an intermediary.

Treatment of Competing Arguments: The respondents argued that the petitioner was an intermediary and hence the place of supply should be India, disqualifying export benefits. The Court rejected this, observing that the respondents failed to demonstrate the existence of a principal-agent relationship or facilitation of supply between third parties by the petitioner.

Conclusion: The petitioner's services are not intermediary services under Section 2(13) of the IGST Act.

2. Entitlement to Refund of Input Tax Credit (ITC) on Export of Services

Legal Framework and Precedents: Section 2(6) of the IGST Act defines "export of services" with conditions including the supplier being in India, the recipient outside India, place of supply outside India, payment in convertible foreign exchange, and that the supplier and recipient are not merely establishments of a distinct person. Sections 54 and 56 of the CGST Act provide for refund of unutilized ITC on zero-rated supplies such as exports.

Judicial authorities including the Punjab and Haryana High Court in Genpact India, Delhi High Court in Ernst & Young Ltd., Ohmi Industries Asia, and others have held that services rendered on principal-to-principal basis to foreign recipients qualify as export of services, entitling the supplier to refund of ITC.

Court's Interpretation and Reasoning: Since the petitioner's services are not intermediary services, the place of supply is the location of the recipient outside India, qualifying the services as export of services. The petitioner received payment in foreign exchange and is a separate legal entity from the foreign recipient, satisfying the conditions under Section 2(6) of the IGST Act. The Court rejected the respondents' contention that the petitioner and foreign recipients are merely establishments of a distinct person, relying on CBIC Circular clarifications that subsidiaries incorporated in India and foreign companies incorporated abroad are separate persons.

Key Evidence and Findings: The petitioner's agreements, invoices, and payment records demonstrate export of services. The petitioner is registered as an Export Oriented Unit (EOU) and has consistently claimed refunds under service tax and GST regimes.

Application of Law to Facts: The petitioner's services qualify as export of services, making it eligible for refund of unutilized ITC under Sections 54 and 56 of the CGST Act.

Treatment of Competing Arguments: The respondents challenged the refund claims on grounds of intermediary classification and limitation. The Court rejected the intermediary argument as discussed above and, on limitation, relied on CBIC Notification No. 13/2022-Central Tax dated 05.07.2022 which excludes the period from March 1, 2020 to February 28, 2022 from limitation computation for refund claims.

Conclusion: The petitioner is entitled to refund of ITC on export of services, and the refund claims are not barred by limitation.

3. Constitutional Validity of Provisions and Circulars

The petitioners challenged the constitutional validity of Sections 8 and 13(8)(b) of the IGST Act, certain CGST Rules, and Circulars No. 159/15/2021-GST and 135/05/2020-GST. However, the parties did not argue on these points, and the Court left these issues open for consideration in appropriate cases.

4. Nature of Contractual Relationship: Agency vs Principal-to-Principal

Legal Framework and Precedents: The Supreme Court in Bharati Cellular Ltd. v. ACIT and other authorities have elaborated that agency involves a fiduciary relationship where the agent has the power to alter the principal's legal relations with third parties, acts under the principal's control, and is remunerated by commission. The agent acts on behalf of the principal and not on own account. Independent contractors act on their own account and are not agents.

CBIC Circulars and judicial pronouncements emphasize that the substance of the relationship, not the nomenclature, determines whether a party is an agent or principal.

Court's Interpretation and Reasoning: The petitioner's agreements explicitly exclude agency relationships and confirm independent contractor status. The petitioner does not have authority to bind or represent the foreign recipient, does not negotiate contracts on their behalf, and is remunerated on a cost-plus basis rather than commission. The petitioner's activities are consistent with principal-to-principal dealings.

Key Evidence and Findings: The terms of the agreements, the nature of services, invoicing and payment terms, and absence of control or fiduciary relationship support the conclusion that the petitioner is not an agent but an independent contractor.

Application of Law to Facts: The petitioner's relationship with foreign recipients is principal-to-principal, not agency, thus negating any intermediary classification.

Treatment of Competing Arguments: The respondents' argument that the petitioner acts as an intermediary or agent was rejected based on the clear contractual terms and factual matrix.

Conclusion: The petitioner is an independent contractor providing services on its own account, not an agent or intermediary.

5. Place of Supply of Services under Section 13 of the IGST Act

Legal Framework and Precedents: Section 13(2) provides that the place of supply of services is generally the location of the recipient, except for specified services under sub-sections (3) to (13). Section 13(8)(b) specifies that the place of supply of intermediary services is the location of the supplier.

Judicial authorities affirm that if services are not intermediary services, the place of supply is the location of the recipient outside India, qualifying the supply as export.

Court's Interpretation and Reasoning: Since the petitioner's services are not intermediary services, Section 13(8)(b) does not apply. The place of supply is the location of the recipient outside India. The petitioner's services thus qualify as export of services under Section 2(6) of the IGST Act.

Key Evidence and Findings: The foreign recipients are located outside India; the petitioner's services are provided directly to them on principal-to-principal basis.

Application of Law to Facts: The place of supply is outside India, entitling the petitioner to export benefits and refund of ITC.

Treatment of Competing Arguments: The respondents' contention that the place of supply is India on the ground of intermediary services was rejected.

Conclusion: Place of supply of the petitioner's services is outside India, supporting export classification.

6. Limitation on Refund Claims under Section 54 of the CGST Act

Legal Framework and Precedents: Section 54 prescribes a two-year limitation period for refund claims. CBIC Notification No. 13/2022-Central Tax dated 05.07.2022 excludes the period from March 1, 2020 to February 28, 2022 from the limitation computation for refund claims and recovery orders.

Court's Interpretation and Reasoning: The Court held that refund claims filed by the petitioner during the excluded period are not barred by limitation. The respondents' rejection of refund claims on limitation grounds was erroneous.

Key Evidence and Findings: The petitioner's refund applications were filed within the extended limitation period as per the Notification.

Application of Law to Facts: The limitation period was extended by the Notification, making the petitioner's claims timely.

Treatment of Competing Arguments: The respondents' reliance on limitation to reject refunds was rejected.

Conclusion: The petitioner's refund claims are not barred by limitation.

7. Quashing of Demands under Service Tax and CGST Provisions

The petitioner challenged demands of service tax, interest, and penalties under the erstwhile service tax regime and CGST Act. The Court, relying on the findings that the petitioner is not an intermediary and the services qualify as export of services, quashed the impugned orders and demands.

Significant Holdings

"In the absence of the requirements stipulated in the Circular, the petitioner cannot be construed or treated or considered as an 'intermediary' and consequently, the impugned orders and show cause notice deserve to be set aside."

"The petitioner provides services on principal-to-principal basis and does not represent or bind the foreign client; the services provided by the petitioner clearly do not constitute intermediary services and consequently, the said contention of the respondents - revenue cannot be accepted."

"The petitioner's services qualify as export of services under Section 2(6) of the IGST Act and the petitioner is entitled to refund of unutilized input tax credit under Sections 54 and 56 of the CGST Act."

"Refund claims filed by the petitioner during the period excluded by Notification No. 13/2022-Central Tax dated 05.07.2022 are not barred by limitation."

"The impugned orders rejecting the refund claims on the ground of 'intermediary services' classification and limitation are quashed."

"The petitioner is an independent contractor providing services on its own account and not an intermediary or agent."

"The place of supply of services provided by the petitioner is the location of the recipient outside India, not the location of the supplier, since the services are not intermediary services."

Core principles established include:

• Strict interpretation of "intermediary" under Section 2(13) of the IGST Act requires three parties and two distinct supplies;
• Services provided on principal-to-principal basis by an independent contractor are not intermediary services;
• Sub-contracting arrangements do not constitute intermediary services;
• Export of services requires satisfaction of conditions under Section 2(6) of the IGST Act, including separate legal entities and payment in foreign exchange;
• Refund claims are governed by limitation rules, subject to extensions notified by CBIC;
• Place of supply provisions under Section 13 of the IGST Act apply differently to intermediary and non-intermediary services;
• Agency relationship requires legal authority, control, fiduciary duty, and right to bind the principal, which must be established on facts and not mere nomenclature;
• Circulars issued by CBIC provide authoritative clarifications on the scope of intermediary services and place of supply rules.

Final determinations on each issue are as follows:

• The petitioner's services are not intermediary services;
• The petitioner's services qualify as export of services under the IGST Act;
• The petitioner is entitled to refund of unutilized ITC along with interest;
• The refund claims are not barred by limitation in view of CBIC Notification;
• The impugned orders rejecting refund claims and demanding service tax are quashed;
• The constitutional validity challenges to statutory provisions and circulars are left open for appropriate cases;
• The petitioner's contractual relationship is principal-to-principal, not agency;
• The place of supply of the petitioner's services is the location of the recipient outside India.