First GST Department holds that services provided by Genpact are not intermediary services Then they appeal against their own order under Section 107(2) of CGST. Then First Appellate Pronounces order in favor of department against which Genpact's (hereinafter referred to as "Petitioner" / "assessee") takes the matter to Hon'ble P&H HC which remands back to First appeal. Then First Appellate rejects the appeal of assesse and finally assesse re-takes the matter to Hon'ble P&H HC where it (assesse) finally wins the case is how this matter shaped out in nutshell.
(Author's Note: We really Miss GST Appellate Tribunals – this is a classic case)
Despite this no doubt, this judgment is full of relief for many BPO's and Service providers exporting services in manner that three parties get involved. Because of nature of service being such, department has many times taken a stand that such services fall under 'Intermediary services' thereby pursuant to Section 13 r.w. Section 2(6) shall not qualify for export of services. Thereby rejecting the refund claims.
Let's first understand, what was the case.
Facts of the Case
A) Petitioner is registered with Haryana GST Authorities and is involved in providing a host of services collectively referred as BPO Services to customers located in India as well as outside India. An illustrative list of services stated to be rendered by the petitioner is as under:-
(i) Maintaining vendor/customer master data, scanning and processing vendor invoices, book keeping, preparing/finalizing books of account, generating ledger reconciliations, managing customer receivables etc.
(ii) Developing, licensing and maintaining software as per clients' needs.
(iii) Technical IT support i.e. trouble-shooting services.
(iv) 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.
It is asserted that aforesaid services are actually deliverables of the petitioner on its "own account". Such services are provided by petitioner from India remotely through telecommunication/internet links using its own infrastructure and work force of approximately 50 thousand employees.
B) Petitioner entered into a Master Services Sub-Contracting Agreement dated 01.01.2013 (hereinafter referred to as MSA) with Genpact International Incorporated (GI) an entity located outside India. As per terms of the MSA various services are to be provided by the petitioner on a principal to principal basis. Further the petitioner is engaged by GI for actual performance of BPO services to the clients of GI located outside India. The arrangement requires the petitioner to complete the assigned processes/scope of work directly to the 3rd parties located outside India.
C) For the period from July 2017 to March 2018, petitioner filed an application with Haryana GST authorities on 18.10.2018 claiming refund of un-utilized ITC amounting to Rs.27,26,27,276/- on account of zero rated supplies of services without payment of Integrated Goods and Service Tax (IGST) under Letter of Undertaking. The refund claim was filed under Section 16 of the Act read with Section 54 of the Central Goods and Services Act 2017 and Rule 89 of the Central Goods and Services Rules 2017. The Deputy Commissioner, Gurugram vide Order-in-Original dated 14.03.2019 sanctioned an amount of Rs.26,34,61,625/- towards refund by forming an opinion that the services rendered by the petitioner qualify as "export of services". The refund claim was, however, partially rejected to the extent of Rs.91,65,651/- on account of ITC availed in respect of certain alleged ineligible inputs and input services.
D) Petitioner being aggrieved by the rejection of the partial amount preferred an appeal dated 13.06.2019 before the Joint Commissioner CGST (Appeals). It would be apposite to take note at this stage that the Central Board of Customs and Indirect Taxes issued a circular dated 18.07.2019 towards clarification whether 'intermediary services' to overseas entities qualify as export of services. On account of numerous representations received expressing apprehensions on the fall out of such circular, the same was ab initio withdrawn vide circular dated 04.12.2019.
E) In the meanwhile the Principal Commissioner of Central GST Gurugram exercising the powers conferred under Section 107 (2) of the CGST Act, reviewed the proceedings and passed an order dated 13.09.2019 reviewing the order in original dated 14.03.2019 and by recording that the services provided by the petitioner are in the nature of intermediary services and do not qualify as export of services in terms of Section 2 (6) of the IGST Act. Accordingly directions were issued for filing of an appeal before the Joint Commissioner (Appeals) GST Gurugram.
F) Pursuant to such development, the department on 13.09.2019 also filed an appeal against the order in original dated 14.03.2019 contesting the entire amount of refund sanctioned to the petitioner amounting to Rs.26,34,61,625/-. In the appeal reliance was placed on circular dated 18.07.2019 which was subsequently withdrawn. The material ground taken in the appeal was that the petitioner was paid by Genpect International (GI) and as such the petitioner fell within the category of intermediary.
G) Thereafter the order in appeal dated 27.05.2020 was passed by the Joint Commissioner, CGST (Appeals) Gurugram holding that the amount of Rs.26,34,61,625/- was erroneously refunded to the petitioner. View taken was that the services provided by the petitioner are in the nature of "intermediary services" as per Section 2 (13) of the Act and do not qualify as "export of services" in terms of Section 2 (6) of the Act.
H) Petitioner assailed the order dated 27.05.2020 by filing CWP No.10302 of 2020 before this Court. The writ petition was disposed of vide order dated 29.01.2021. The order in appeal dated 27.05.2020 was set aside and the matter remanded back to the appellate authority for a decision afresh.
I) Thereafter the order dated 15.02.2021 has been passed by the Appellate Authority, disallowing the appeal filed by the petitioner and allowing the appeal filed by the department against order in original dated 14.03.2019. The appellate authority held that the services performed by the petitioner fall within the category of "intermediary services" and do now qualify as "export of services" under Section 2 (6) of the Act. Consequently, the refund amounting to Rs.26,34,61,625/previously sanctioned in favor of the petitioner was rejected. Furthermore, refund to the extent of Rs.82,15,102/- which was a subject matter of appeal filed by the petitioner was also denied.
J) It be noted that apart from the refund in question, two other refund applications for the period starting from April 2018 to September 2018 and October 2018 to March 2019 have been rejected vide orders dated 09.12.2020 and 02.02.2021, respectively, on the same very basis.
K) It is against such brief factual backdrop that the instant petition has been filed assailing the order dated 15.02.2021. A writ of mandamus (Author's Note :- Comment below if you know what is Writ of Mandamus !! ) is also sought for grant of refund for the subsequent period of time as well and hence this appeal.
Now discussing why Court's ruled the case in their favor in a Summarized Way below, to cut things short:-
FIRST, PRINCIPLE OF CONSISTENCY
1. A perusal of the definition of "intermediary" under the service tax regime vis-a-vis the GST regime would show that the definition has remained similar. Even as per circular dated 20.09.2021 issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs (GST Policy Wing), the scope of "intermediary" services has been dealt in para 2 thereof. In para 2.2 it stands clarified that the concept of "intermediary" was borrowed in GST from the Service Tax Regime. The circular after making a reference to the definition of "intermediary" both under Rule 2 (f) of the Place of Provision of Service Rules 2012 and under Section 2 (13) of the IGST Act clearly states that there is broadly no change in the scope of "intermediary" services in the GST regime vis-a-vis the service tax regime except addition of supply of securities in the definition of "intermediary" in the GST law.
2. Big Point: When there is no change in the legal position i.e. with regard to the scope and ambit of "intermediary" services under the service tax regime vis-a-vis the GST regime and there being no change of facts as it is the MSA of 2013 which continues to operate, THE DEPARTMENT CANNOT TAKE A DIFFERENT VIEW FOR DIFFERENT PERIODS
3. To Establish the consistency principle, two judgments have been used by the HC.
- M/s Radhasoami Satsang Soami Bagh, Agra Versus Commissioner of Income Tax (1992) 1 SCC 659, wherein it was observed in Income Tax parlance that consistency in absence of any material change in facts must be kept in different assessment years.
- In Bharat Sanchar Nigam Ltd. Vs. Union of India (2006) 3 SCC 1, the Hon'ble Supreme Court had reiterated that where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view.
SECOND, THERE IS NO PRINCIPAL-AGENT RELATIONSHIP
Holding the petitioner to be in a principal agent relationship with the GI to be without any basis and to be clearly erroneous. The impugned order proceeds oblivious of Clause 21.6 of the MSA and which is in the following terms:-
21.6 Relationship of Parties Nothing in this Agreement shall constitute or be deemed to constitute a relationship of employer and employee, agency, joint venture or partnership between the parties hereto or constitute or be deemed to constitute one Party as agent of the other for any purpose whatsoever, and except as expressly provided herein, neither Party shall have the authority or power to bind the other, or to contract in the name of or create a liability against the other, in any way or for any purpose."
(Author's Note: This Should assist you in drafting MSA's correct way depicting the right picture of the transaction)
Key Points in Holding Principal-to-Principal Relationship
- Pursuant to the sub-contracting arrangement as per MSA, the petitioner provides the main service directly to the overseas clients of GI but does not get any remuneration from such clients.
- Pursuant to the arrangement, it is GI which gets paid by its customers to whom the services are being provided directly by the petitioner. Nothing has been brought on record to show that the petitioner has a direct contract with the customers of GI.
- Still further there is nothing on record to show that petitioner is liaising 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.
This is a Welcome judgment, no doubt. Also assesses must learn that if they are doing principal to principal transaction then agreements to be prepared should also depict the same story, any contradictory clauses will land them in unnecessary problems.