Hon’ble Bombay High Court (‘HC’) in the case of JAR PRODUCTIONS PRIVATE LIMITED VERSUS THE UNION OF INDIA & ORS. [2022 (6) TMI 532 - BOMBAY HIGH COURT] “the petitioner” has ruled that when the services are rendered abroad, GST would not apply being export of services. Further the refund of ITC has to be allowed in the absence of any proof that incidence of tax has been passed on to the recipient. Captioned ruling has been analyzed in this update.
A. FACTS OF THE CASE (relevant extracts)
- The petitioner is a company incorporated under the Companies Act 2013 and is engaged in providing production services to “A Suitable Company Limited” (ASCL), based in United Kingdom.
- As per the service agreement between the parties, it was agreed that if any refund of tax component is received by the petitioner, that amount shall be reduced from the production expenses to be charged to ASCL.
- Refund claims of the petitioner were rejected by authorities based on the concept of unjust enrichment and ruling of Hon’ble Supreme Court in the matter of MAFATLAL INDUSTRIES LTD. Versus UNION OF INDIA - 1996 (12) TMI 50 - Supreme Court was relied upon.
- The applicant challenged the aforesaid order before Hon’ble High Court under writ jurisdiction.
B. CONTENTION OF THE APPLICANT
- That the principle of unjust enrichment does not apply to export services being zero rated supply.
- Further the agreement between the parties, provide for deduction from production expenses on receipt of refund and thus benefit is passed on to the ASCL and thus situation of unjust enrichment does not arise.
C. CONTENTION OF THE DEPARTMENT
- That the petitioner has contended that due to passage of credit to ASCL by raising credit notes, the benefit arisen shall be passed on, however the GST law does not contemplate any mechanism for paying back the GST by way of issuing credit note.
- That the petitioner has admitted that when the refund is obtained, the GST collected from the recipient would be paid back. This itself goes on to confirm that the incidence of tax has actually been passed on to recipient.
- Thus, the orders passed by authorities are right and the petitioner is not entitled to refund as the incidence of tax has been passed on to the recipient.
D. OBSERVATION AND DECISION BY HC
- It is evident that the there is no dispute regarding the fact that there is an export of services which is eligible for ITC refund and the dispute is pertaining to the fact whether or not the incidence of tax has been passed onto the recipient.
- Agreement executed between the parties shows that the approved production budget includes all costs in relation to production services including incidence of GST on such expenses.
- Further agreement also provides for deduction of amount received towards GST refund from cost of production.
- HC concluded that since it is an export of services and services are rendered abroad to ASCL, UK and it could not be established that incidence of tax has been passed on to recipient, the orders rejecting the claim of refund are liable to be set aside.
Captioned decision of Hon’ble Bombay High Court has again upheld the cardinal principle behind GST being destination-based consumption tax and once it is established that the services are rendered outside India as per Place of Supply provisions, then GST would not be chargeable. Though HC has not detailed the rationale for not applying the unjust enrichment principle as prima-facie the tax has been debited to production cost and recovered from recipient and the deduction is given only upon receipt of refund from authorities. Though, ideally the amount of refund claimed should have been categorized as amount refundable from GST authorities rather than being treated as revenue item.
(Author can be reached at dinesh.singhal@snr.company
or cadineshsinghal@gmail.com).
