Case Note & Summary
The writ petition under Article 226 of the Constitution of India challenged two Orders-in-Appeal dated 10.08.2023 passed by the Deputy Commissioner of State Tax (Respondent No. 4) which upheld the rejection of refund claims of unutilised Input Tax Credit (ITC) pertaining to zero-rated supplies (exports) of goods and services. The petitioner, Sundyne Pumps and Compressors India Pvt Ltd (formerly HMD Seal/Less Pumps Industrial India Pvt Ltd), had filed two refund applications for the periods July to September 2021 and October to December 2021, claiming refunds of Rs. 13,75,244 and Rs. 25,88,634 respectively, under Section 54(3) of the CGST/MGST Act read with Rule 89(4) of the CGST/MGST Rules. The petitioner supplied engineering and management services exclusively to overseas group companies and had earlier been granted refunds for prior periods on the same basis, which orders were not challenged and attained finality. However, the present refund applications were rejected by the Original Authority (Respondent No. 5) on the ground that the petitioner did not fulfil condition (v) of Section 2(6) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), i.e., the supplier and recipient of services were merely establishments of a distinct person, as the foreign recipients were allegedly carrying on business in India through the petitioner as their 'agent'. The appeals against the rejection were dismissed by Respondent No. 4 after issuing a show cause notice that highlighted aspects such as control by the foreign party, reimbursement of expenses, cost-plus remuneration, and clauses in agreements that suggested an agency relationship. Respondent No. 4 concluded that the foreign recipients had an establishment in India by virtue of the petitioner acting as their agent under Section 2(5) of the CGST Act read with Explanation 2 to Section 8 of the IGST Act, and therefore the supplies did not qualify as zero-rated supplies or exports of services, and refund under Section 54(3) was not admissible. The petitioner argued that all conditions of export of services were satisfied except the disputed condition (v), and that the foreign entities were independent legal entities, not mere establishments of a distinct person. The petitioner further contended that the earlier refund orders granted on identical facts had not been challenged. The High Court, after hearing both sides, examined the relevant statutory provisions, including Section 2(6) (export of services), Section 8 (intra-State supplies and distinct person establishment) and Section 2(5) (agent) of the CGST/IGST Acts. The court noted that Respondent No. 4 had framed issues and did not dispute other conditions of export except condition (v). The court delved into the definition of 'agent' and the factors relied upon by the revenue to establish agency, such as control, reimbursement of expenses, and the nature of the agreement, to determine whether the petitioner was indeed an agent of the foreign recipients and thus the supply did not constitute export of services. The judgment reserved on 6th May 2025 and pronounced on 16th June 2025, but the complete reasoning and final decision are not available in the provided excerpt. The court was in the process of analyzing the agency claim.
Headnote
A) Taxation – Goods and Services Tax – Export of Services – Condition (v) of Section 2(6) of the Integrated Goods and Services Tax Act, 2017 – The condition requires that the supplier and recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of the IGST Act. The court noted that Respondent No. 4 did not dispute other conditions for export of services, but held that the petitioner violated this condition as it acted as an agent of the foreign recipients, thereby the supply did not qualify as export of services. (Paras 13-14) B) Taxation – Goods and Services Tax – Establishment of Distinct Person – Explanation 1 and 2 to Section 8 of the Integrated Goods and Services Tax Act, 2017 – Explanation 1(i) provides that establishments in India and outside India of the same person are treated as distinct persons; Explanation 2 provides that a person carrying on business through an agency in a territory is treated as having an establishment there. Respondent No. 4 concluded that the foreign recipients had an establishment in India through the petitioner as their agent, thus the supplier and recipient were merely establishments of distinct persons. The court considered this interpretation. (Paras 15-17) C) Taxation – Goods and Services Tax – Definition of Agent – Section 2(5) of the Central Goods and Services Act, 2017 – An agent is a person who carries on the business of supply or receipt of goods or services on behalf of another. Respondent No. 4 held that the petitioner was an agent of the foreign recipients based on factors such as control, reimbursement of expenses, cost-plus remuneration, and clauses of the agreement. The court examined whether these factors establish an agency relationship under the definition. (Paras 18-19)
Issue of Consideration
Whether the Petitioner, supplying services to foreign group companies, is an 'agent' of the foreign recipients under Section 2(5) of the CGST/MGST Act, and thus the supply does not qualify as 'export of services' under Section 2(6) of the IGST Act, disentitling the Petitioner to a refund of unutilized Input Tax Credit under Section 54(3) of the CGST/MGST Act.
Final Decision
Decision not clearly stated
Law Points
- Legal points not extracted
- Export of services under Section 2(6) of IGST Act
- condition (v) - supplier and recipient not merely establishments of a distinct person
- Explanation 1 and 2 to Section 8 of IGST Act
- definition of agent under Section 2(5) of CGST Act
- zero-rated supply under Section 16 of IGST Act
- refund of unutilised ITC under Section 54(3) of CGST/MGST Act
- Rule 89(4) of CGST/MGST Rules
- related persons under Section 15 of CGST Act
- establishment of distinct person
