2025 (5) TMI 150 - HC - GST

Cassification of services provided by the petitioner to foreign affiliates under the Integrated Goods and Services Tax Act 2017 (IGST Act) - pre-sale and post-sale services provided by the Petitioner to its Foreign Affiliates is in the nature of intermediary under Section 2 (13) of the IGST Act or not - petitioner is an intermediary or not - refund of unutilized Input Tax Credit (ITC) - export of services or not - HELD THAT - A perusal of the customer services agreements clearly indicates that the same expressly restricts the petitioner from acting as an agent and precludes it from entering or negotiating contracts for sale of products; the services provided by the petitioner is on principal-to-principal basis on the petitioner s own account and the petitioner is not acting in the capacity of an agent or broker coupled with the fact that the agreements specifically provide and stipulate that agency was not being created under the Agreements thereby leading to the unmistakable / sole conclusion that the necessary ingredients constituting the petitioner as an intermediary was clearly not fulfilled in the facts and circumstances of the instant case. Section 2 (13) of the IGST Act defines intermediary makes it clear that the same requires two distinct services i.e. one between the principal and third person and the second between agents / intermediary and principal; it follows therefrom that where a person himself performs the main supply as a sub-contract he cannot be construed or treated as an intermediary between two parties; this aspect has been clarified at paragraph 3.5 of the aforesaid Circular which states that the supplier of main service sub-contracts the same to sub-contractors such sub-contractors providing such main service on their own account cannot be deemed to be arranging or facilitating the main supply between the supplier and customers as a result of which such sub-contractors would not qualify as an intermediary . In the instant case the main supply of customer support services to be provided by the foreign affiliates is entirely sub-contracted to the petitioner who provides customer support services and accordingly there is only one main supply which is being supplied and the necessary ingredients of two existence of two distinct supplies is neither satisfied nor fulfilled; as stated supra that apart from the fact that there is no privity of contract between the petitioner and Amazon consumer entities / selling partners operating and selling goods to end customers of the Amazon consumer entities there is also no privity of contract between the petitioner and end customers and as such the contentions urged on behalf of the respondents cannot be accepted on this ground also. It is pertinent to note that in order to constitute an intermediary it is imperative that the nature of the second service from the agent to the principal ought to be that of arranging or facilitating the service between principal and third person and the activity undertaken by the intermediary should satisfy the natural meaning of the terms arranging or facilitating the provision of another person s service especially when performance of the very service cannot be construed or treated to fall within the scope of the phrase arrange or facilitate the same service - in the instant case the material on record clearly establishes that the petitioner cannot be said to be facilitating or arranging supply of services since the meaning of facilitation / arrangement cannot be extended to cover the subject agreements where the petitioner himself undertook to perform / execute the main service particularly when the main service allegedly being facilitated separately / independently by the petitioner has not been identified by the respondents whose contention cannot be accepted on this ground also. Conclusion - The petitioner is not an intermediary under Section 2 (13) of the IGST Act in terms of the Circular dated 20.09.2021 and the Customer support services provided by the petitioner to foreign affiliates qualify as export of service under Section 2 (6) of the IGST Act and consequently the impugned orders and show cause notice deserve to be quashed. The impugned Order-in-Appeal at Annexure-A dated 04.01.2024 passed by the 1st respondent insofar as it relates to rejection of the refund claim of the petitioner pertaining to the issue of intermediary / intermediary services is hereby quashed - The impugned show cause notice at Annexure-M dated 01.09.2022 issued by the respondents seeking recovery of refund sanctioned in relation to customer support services in favour of the petitioner is hereby quashed - petition allowed in part.

Summary

The core legal questions considered in this judgment revolve around the classification of services provided by the petitioner to its foreign affiliates under the Integrated Goods and Services Tax Act, 2017 (IGST Act), specifically:

1. Whether the pre-sale and post-sale customer support services rendered by the petitioner to its foreign affiliates constitute "intermediary services" as defined under Section 2(13) of the IGST Act.

2. Whether such services qualify as "export of services" under Section 2(6) of the IGST Act.

3. The legality and validity of the impugned orders rejecting the petitioner's refund claims of unutilized Input Tax Credit (ITC) relating to these services.

4. The applicability and interpretation of the Central Board of Indirect Taxes and Customs (CBIC) Circular No. 159/15/2021-GST dated 20.09.2021, which clarifies the scope of "intermediary services" under GST law.

Issue-wise Detailed Analysis

Issue 1: Whether the petitioner's services qualify as "intermediary services" under Section 2(13) of the IGST Act

The IGST Act defines an "intermediary" as "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."

The CBIC Circular No. 159/15/2021-GST elucidates the concept of intermediary services, emphasizing the following prerequisites:

• There must be a minimum of three parties: two principals engaged in the main supply and one intermediary arranging or facilitating that supply.
• There must be two distinct supplies: the main supply between the principals and the ancillary intermediary service.
• The intermediary must have the character of an agent, broker, or similar person, playing a subsidiary or facilitative role rather than supplying the main service itself.
• The intermediary does not include a person supplying the main goods or services on their own account.
• Sub-contracting for a service is explicitly excluded from the scope of intermediary services.

In the present case, the petitioner provides customer support services directly to foreign affiliates under separate customer service agreements. The petitioner is neither a party to the agreements between the foreign affiliates and the Amazon consumer entities nor acts as an agent or broker for arranging services between these entities and their customers. The petitioner performs the main service on its own account and is expressly barred from entering into or negotiating contracts for sale of products or services.

The Court examined the detailed customer service agreements, which explicitly state that the petitioner acts as an independent contractor providing services on a principal-to-principal basis, without agency or intermediary relationship. The petitioner's role is to perform the customer support services, not to facilitate or arrange the supply of services between third parties.

Precedents relied upon include judgments from Punjab & Haryana High Court (Genpact India cases), Delhi High Court (Blackberry India, Ernst & Young Ltd., Ohmi Industries Asia, Xilinx India, Boks Business Services, and Cube Highways), which consistently held that entities providing services on their own account to foreign affiliates do not qualify as intermediaries under the IGST Act.

These precedents emphasize that mere subcontracting or provision of services to foreign affiliates on principal-to-principal basis excludes the classification as an intermediary. The petitioner's services fall squarely within this principle.

Issue 2: Whether the petitioner's services qualify as "export of services" under Section 2(6) of the IGST Act

Section 2(6) of the IGST Act defines "export of services" with the following conditions:

• 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 in convertible foreign exchange or in Indian rupees wherever permitted.
• The supplier and recipient are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8.

In the present case, the petitioner is located in India, and the foreign affiliates receiving the services are located outside India. The place of supply is determined under Section 13 of the IGST Act, which generally fixes the place of supply as the location of the recipient, except for certain specified services such as intermediary services, where the place of supply is the location of the supplier.

Since the petitioner's services are not intermediary services, the place of supply is the location of the recipient outside India, satisfying the conditions for export of services. The petitioner receives payment in convertible foreign exchange from its foreign affiliates, and the petitioner and its foreign affiliates are separate legal entities, not merely establishments of a distinct person.

Therefore, the customer support services provided by the petitioner qualify as export of services under Section 2(6) of the IGST Act.

Issue 3: Legality of the impugned orders rejecting the refund claims

The petitioner had filed refund claims for unutilized Input Tax Credit (ITC) under Section 54 of the CGST Act read with Rule 89(4) of the CGST Rules for the period October 2019 to March 2020. The refund claims were partially allowed and partially rejected by the authorities on the ground that the petitioner was an intermediary and thus the services did not qualify as export of services.

The petitioner challenged the rejection through appeals and writ petitions, contending that the impugned orders were illegal, arbitrary, and without jurisdiction, and contrary to the provisions of the IGST Act, CGST Act, Rules, and CBIC Circular No. 159/15/2021-GST dated 20.09.2021.

The Court, after detailed examination of the agreements, statutory provisions, circular, and judicial precedents, concluded that the petitioner does not fall within the definition of an intermediary. The impugned orders and show cause notices were passed mechanically without proper application of mind and disregarded settled law and the CBIC Circular clarifying the scope of intermediary services.

Consequently, the rejection of the refund claims on the basis of the petitioner being an intermediary was held to be unsustainable and illegal.

Issue 4: Interpretation and applicability of CBIC Circular No. 159/15/2021-GST dated 20.09.2021

The Circular clarifies the scope of "intermediary services" in GST law, essentially borrowing the definition from the Service Tax regime, and lays down the primary requirements for a service to qualify as intermediary service. It also provides illustrative cases to distinguish intermediary services from services provided on principal-to-principal basis.

The Circular explicitly excludes sub-contracting from the ambit of intermediary services, clarifies the need for three parties, and establishes that a person supplying the main service on its own account cannot be an intermediary.

The Court relied heavily on this Circular to interpret the statutory definition of intermediary and to distinguish the petitioner's services from intermediary services. It held that the petitioner's services do not satisfy the criteria laid down in the Circular and thus cannot be classified as intermediary services.

Conclusions

• The petitioner is not an "intermediary" under Section 2(13) of the IGST Act.
• The customer support services provided by the petitioner to its foreign affiliates qualify as "export of services" under Section 2(6) of the IGST Act.
• The impugned orders and show cause notices rejecting the refund claims on the ground of intermediary services are illegal and without jurisdiction and are liable to be quashed.
• The petitioner is entitled to the refund of unutilized Input Tax Credit relating to export of customer support services along with applicable interest.
• Liberty is reserved to the petitioner to contest other issues before the GST Appellate Tribunal when constituted.

Significant Holdings

"A person involved in supply of main supply on principal to principal basis to another person cannot be considered as supplier of intermediary service."

"By definition, an intermediary is someone who arranges or facilitates the supplies of goods or services or securities between two or more persons. It is thus a natural corollary that the arrangement requires a minimum of three parties... An activity between only two parties can, therefore, NOT be considered as an intermediary service."

"The role of intermediary is only supportive. It must arrange or facilitate some other supply, which is the main supply, and does not himself provide the main supply."

"Sub-contracting for a service is not an intermediary service."

"The services provided by the petitioner are on principal-to-principal basis and do not involve any agency or intermediary relationship."

"The petitioner's services qualify as export of services under Section 2(6) of the IGST Act as the place of supply is outside India and payment is received in convertible foreign exchange from foreign entities which are separate legal persons."

"The impugned orders and show cause notices passed mechanically without application of mind and in disregard of the law and Circular dated 20.09.2021 are liable to be quashed."

The Court accordingly allowed the petition partly, quashed the impugned appellate order insofar as it relates to the issue of intermediary services, quashed the show cause notice seeking recovery of refund, and reserved liberty for the petitioner to pursue other issues before the GST Appellate Tribunal.