A Division Bench of the Delhi High Court allowed the refund claim of EY Ltd. India (assessee) on services rendered to EY Entities located outside India in terms of service agreement entered into between Head Office of EY Ltd. with the respective EY entities.
The petitioner had appealed against the impugned orders-in original passed by the Adjudicating Authority being aggrieved by the rejection of its refund applications for Input Tax Credit (ITC) in respect of export of services for the period from December 2017 to March 2020.
The Adjudicating Authority had denied the said applications for refund of ITC on the premise that the petitioner is an ‘intermediary’ and thus, the place of services is located in India, where the petitioner’s place of business is located and not where recipient of services is located.
The matter was taken up for hearing in spite of having statutory remedy under the Goods and Services Tax Act, 2017 as the GST Appellate Tribunal had not been constituted yet.
E&Y Limited has entered into service agreements for providing professional consultancy service to various entities of Ernst & Young group on arm’s length basis. In terms of the aforementioned service agreements, the overseas entities had retained E&Y Limited, acting through its Indian Branch-petitioner to provide certain professional services.
According to the petitioner, it had provided the Services directly to the EY Entities located outside India in terms of the service agreements entered into between E&Y Limited (the head office of the petitioner) with the respective EY Entities. The petitioner had raised invoices for the Services rendered and the consideration was received directly from the overseas EY Entities in convertible foreign exchange.
The petitioner’s ITC had accumulated on account of supplies availed by the petitioner for performing the Services. This included services of chartered accountant, management and consultancy services, hotel accommodation services, bank charges and renting of immovable property, as per the submissions of the petitioner.
“There may be services, which may entail outsourcing some constituent parts to a third party. But that would not be construed as intermediary services, if the service provider provides services to the recipient on his own account as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services”, the Bench noted.
The court, inter alia, drew a comparison between the wordings of section 2(13), Rule 2(f) of Place of Provision of Service Rules, 2012 and clarification provided by Circular No.159/15/2021-GST dated September 20, 2021, and clarified that there has been no change in definition of ‘intermediary’ from the service tax era when transitioned to the GST era.
It was further observed that, “even if it is accepted that the petitioner has rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act as it is the actual supplier of the professional services and has not arranged or facilitated the supply from any third party.”
The Bench of Justice Vibhu Bakhru and Justice Amit Mahajan pointed out that “There is no dispute that the recipient of Services – that is EY Entities – are located outside India. Thus, indisputably, the Services provided by the petitioner would fall within the scope of the definition of the term ‘export of service’ under Section 2(6) of the IGST Act”, consequently allowing the GST Input Tax Credit refund claim.
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