The Hon’ble Punjab and Haryana High Court in the case of GENPACT INDIA PVT. LTD. VERSUS UNION OF INDIA AND OTHERS [2022 (11) TMI 743 - PUNJAB AND HARYANA HIGH COURT] ruled that Genpact India cannot be treated as an intermediary, and is therefore eligible for Goods and Services Tax (“GST”) refund.
Genpact India Pvt. Ltd., (“the Petitioner”) is engaged in the business of offering a variety of services collectively known as Business Process Outsourcing (“BPO”) Services to its clients situated in India and abroad and is registered with the Haryana GST Authorities.
Services provided by the Petitioner include:
- Maintaining vendor/customer master data, scanning and processing vendor invoices, book keeping, preparing/finalizing books of account, generating ledger reconciliations, managing customer receivables etc.
- Developing, licensing and maintaining software as per clients' needs.
- Technical IT support i.e. trouble-shooting services.
- Data analysis and providing solutions to clients in respect of forecasting of demand for their offerings and management of inventory, supporting various business functions like sourcing and supply chain management.
The Petitioner and Genpact International Incorporated (“GI”), an organisation outside of India, entered into a Master Services Sub-Contracting Agreement on January 1, 2013 (hereafter referred to as the MSA). It is claimed that in accordance with the MSA's terms, the petitioner is required to supply a number of services on a principal-to-principal basis. Additionally, GI has hired the petitioner to offer BPO services for its clients who are outside India. The agreement mandates that the Petitioner provide the finished products of the specified tasks and processes to third parties based outside of India.
The Petitioner contested a ruling by the GST department that held the Petitioner’s services fell under the category of “Intermediary Services” under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) and did not qualify as "export of services" under Section 2(6) of the IGST Act. This ruling rejected the Petitioner's request for a refund of unused Input Tax Credit (“ITC”) that were used to make zero-rated service supplies without paying IGST
Whether Genpact is eligible for GST refund or not?
The High Court held that:
- In accordance with Sec 2(13) of the IGST Act, the three conditions to be fulfilled to qualify as ‘intermediary’ are as follows:
- Principal- agent relationship between parties
- Involvement in arrangement or facilitation of provisions of the service provided to the principal by a 3rd party
- person must not actually perform the main service intended to be received by the service recipient itself
- Scope of an “intermediary” is to mediate between the two parties i.e. the principal (the 3rd party) and the beneficiary who receives the main service and expressly excludes any person who provides such main service “on his own account”.
- A cursory reading of the MSA's recitals and pertinent sections reproduced above does not in any way suggest that the Petitioner is working in the capacity of an "intermediary" in accordance with the definition of "intermediary" under Section 2(13) of the IGST Act. Such provisions cannot also be read to mean that the Petitioner has made the services available or facilitated them.
- Since there has been no change in scope and ambit of “intermediary” pre and post GST regime, the department cannot take different view in different periods also owing to the same facts of the MSA 2013 being in operation.
- “Still further there is nothing on record to show that petitioner is liaisoning or acting as an “intermediary” between GI and its customers. All that is evident from the record is that the petitioner is providing the services which have been sub contracted to it by GI. As a Sub-contractor it is receiving fee/charges from the main contractor i.e. GI for its services. The main contractor i.e. GI in turn is receiving commission/agents from its clients for the main services that are rendered by the petitioner pursuant to the arrangement of sub-contracting. Even as per the afore-noticed circular dated September 20, 2021 and in reference to para 3.5 it stands clarified that sub-contracting for a service is not an “intermediary” service.”
- The order holding the petitioner to be intermediary was quashed as the court stated that the same cannot sustain and thereby, restored the order in original dated March 14, 2019 granting the refund of Rs.26,34,61,625/- in favour of the petitioner.
Section 2(6) of the IGST Act
“export of services” means the supply of any service when,-
- The supplier of service is located in India;
- The recipient of service is located outside India;
- The place of supply of service is outside India;
- the payment for such service has been received by the supplier of service in convertible foreign exchange; [or in Indian rupees where-ever permitted by the Reserve Bank of India]; and
- the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;
Section 2(13) of the IGST Act
“intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account;
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By: CA Bimal Jain -
November 23, 2022