The Hon’ble High Court of Delhi vide its order dated 23.03.2023 in the matter of M/s Ernst and Young Limited Vs. Additional Commissioner, CGST Appeals -II, Delhi and Anr. in W.P. (C) – 8600/2022, held that the assessee has provided the services on his own account and issued invoices directly to the service receivers.  The assessee is not ‘arranging and facilitating’ the supply of goods and services rather it is providing the services on its own account to the service receivers and thus, cannot be considered as an intermediary under Section 2(13) of the IGST Act.

The Petitioner being an Indian Branch of M/s Ernst & Young Limited filed the writ petition before the Hon’ble High Court challenging the order-in-appeal dated 15.03.2022 (Order-in-Appeal No.311-313/2021-22) by Additional Commissioner of CGST Appeals – II, whereby appeals filed by the petitioner against orders-in-original dated 25.01.2020, 09.12.2020 and 21.05.2021 passed by the Assistant Commissioner, CGST, Division Vasant Kunj, rejecting it’s refund applications for ITC with respect to export of services for the period from December 2017 to March 2020, were rejected.  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.

Facts of the Case: –

• The petitioner is an Indian Branch Office of M/s Ernst & Young Limited, a company incorporated under the laws of United Kingdom. The petitioner was established pursuant to the permission granted by the Reserve Bank of India on 04.04.2008.
• The Petition prior to enactment of Act, was registered with the Central Excise Department as a separate tax entity, for providing services of “Management or business consultant service, Rent-a-cab scheme operator Service, Manpower recruitment/supply agency service, Legal consultancy service”, for the purposes of service tax.
•  That E&Y Limited entered into service agreements for providing professional consultancy service to various entities of Ernst & Young group (hereafter ‘EY Entities’) including Ernst & Young US LLP (hereafter ‘EY US’), Ernst & Young Service Pty Ltd. Australia (hereafter ‘EY Australia’), Ernst & Young Group Ltd. New Zealand (hereafter ‘EY NZ’) and Ernst & Young LLP, UK (hereafter ‘EY UK’) 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 (the petitioner herein) to provide certain professional services.
• The petitioner applied for refund of the ITC availed for providing its professional services for the periods December 2017 to March 2020 amounting to Rs. 93,49,756/-.
• Pursuant to which, the Adjudicating Authority issued show cause notices dated 02.01.2020, 13.04.2020 and 23.04.2021 with respect to the three refund applications filed by the petitioner.
• Those show cause notices proposed to reject the refund applications with the allegations: – (i) How the Output services are treated as Export of Services. Accordingly, kindly explain the nature of Output Services and provide copy of Agreement with overseas client along with annexure/schedule and copy of export invoices. (ii) How the input services have nexus with the provision of exported services and how they have been utilized for provision of the same. Accordingly, kindly explain the nature of input services and their nexus & utilization with the provision of exported services.”
• The Petitioner duly responded to those show cause notices explaining that it is involved in providing “business advisory services and technical assistance” in relation to tax compliance and other matters. The services provided are in the nature of management consultancy/professional consultancy services. It was also stated that the petitioner directly provided the services to the EY Entities located outside India in terms of in terms of the service agreement entered into between E & Y Limited with the respective EY Entities.  Further, 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, which includes services of chartered accountant, management and consultancy services, hotel accommodation services, bank charges and renting of immovable property.
• Thereafter, the Adjudicating Authority after considering the submissions made found that the refund claim had been filed within time; the petitioner had filed GSTR-1 and GSTR-3B for the period in question. It was accepted by the Adjudicating Authority that the petitioner was registered under the Act and thus, located in India and also accepted on the basis of invoices raised that that the petitioner was registered under the Act.  However, with respect to place of supply, it was held by the Adjudicating Authority that in terms of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017, in terms of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017.  The Adjudicating Authority proceeded on the basis that the Services provided by the petitioner were intermediary services and since the petitioner was located in India, the place of supply of the Services was not the location of the recipients of the Services but the petitioner’s location in India.  The Adjudicating Authority also referred to the letter dated 04.04.2008 issued by the Reserve Bank of India granting Ernst & Young Limited the permission to establish a Branch Office in India and noted that the activities that could be carried out by the Branch Office in India included “representing the parent company in India and acting as buying/selling agent in India”.  Further, in terms of the service agreements, the petitioner agreed to provide certain professional services in India and the invoices also clearly stated that the services were not provided in USA, UK and Australia.  Thus, it was held that the services provided by the petitioner are not covered under export of service as party is an intermediary of E & Y Ltd., UK and its (E & Y Ltd., UK) and other overseas clients. The party provides services on behalf of E & Y Ltd., UK in India to its (E & Y Ltd., UK) overseas client.
• The Petitioner also relied upon the order dated 08.05.2018 passed by the Service Tax Authorities in the context of export of services under the Finance Act, 1994, whereby it was held that the petitioner was not an intermediary. The petitioner submitted that the concept of an intermediary under the Finance Act, 1994 and the Rules made thereunder relating to service tax were the same as the concept of intermediary under the IGST Act. However, the Adjudicating Authority did not accept the said contention stating that the said order pertains to Service Tax regime.
• Thereafter, the Appellate Authority while passing the impugned order upheld the decision of the Adjudicating Authority that the services rendered by the petitioner were intermediary services. It was held by the Appellate Authority that the services provided were at the instance of foreign based entities but the same were not provided in their respective foreign.  Therefore, it could be construed that the subject services were provided in India.

Held: –

• The Hon’ble High Court after considering the submissions made, facts of the case and perusal of agreements placed on record, found that the petitioner has the statutory right to appeal the decision of the Appellate Authority before the Goods and Service Tax Appellate Tribunal under Section 112 of the Central Goods and Services Tax Act, 2017 (hereafter ‘the Act’). However, the said remedy is unavailable as the Goods and Services Tax Appellate Tribunal has not been constituted as yet. Therefore, this Court considers it apposite to entertain the present petition.
• It was found by the Hon’ble Court that the principal question to be addressed is whether the Service rendered by the petitioner to EY Entities in terms of the service agreement constitutes services as an ‘intermediary’.
• Referring to the definition Section 2(13) of the IGST Act, it was found by the Hon’ble Court that a plain reading of the definition makes it amply clear that an intermediary merely “arranges or facilitates” supply of goods or services or both between two or more persons. Thus, it is obvious that a person who supplies the goods or services is not an intermediary.  The services provided by the intermediary only relate to arranging or facilitating the supply of goods or services from the supplier. In the present case, there is no dispute that the petitioner does not arrange or facilitate services to EY entities from third parties; it renders services to them. The petitioner had not arranged the said supply from any third party.
• It was found by the Hon’ble Court that the petitioner has provided professional services in terms of the service agreements to overseas entities (EY Entities). It had issued the invoices for the said services directly to EY Entities and had received the invoiced consideration from EY Entities, in foreign convertible exchange. As stated hereinbefore, there is no dispute that the professional services were, in fact, rendered by the petitioner. The Adjudicating Authority has proceeded on the basis that since the service agreements were between EY Entities and the petitioner’s head office (E&Y Limited), the petitioner has rendered services on behalf of its head office (E&Y Limited).
• It was found by the Hon’ble Court that the Adjudicating Authority has interpreted the last limb of the definition of ‘intermediary’ as provided under Section 2(13) of the IGST Act as controlling the definition of the term.
• The Hon’ble Court disagreed with the said interpretation of the Adjudicating Authority as the last limb does not control the definition of term ‘intermediary’. It merely restricts the definition. The opening lines of Section 2(13) of the IGST Act expressly provides that an intermediary means a broker, agent or any other person who “arranges or facilitates supply of goods or services or both or securities between two or more persons”.  The last line of the definition merely clarifies that the definition is not to be read in an expansive manner and would not include a person who supplies goods, services or securities on his own account. There may be services, which may entail outsourcing some constituent part to a third party. However, 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.
• Further, 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.
• Moreover, the assumption that the petitioner has acted as a buying and selling agent, referring to RBI letter dated 04.04.2008, is without any basis.
• It was also noticed by the Hon’ble Court, the definition of ‘intermediary’ under the Service Tax law is similar to the definition of term ‘intermediary’ under Section 2(13) of the IGST Act.
• Referring to the Circular dated 20.09.2021 (Circular No.159/15/2021-GST) issued by Central Board of Indirect Taxes and Customs, which acknowledges the fact that there is broadly no change in scope of intermediary services in GST regime when compared to the service tax regime, the Hon’ble Court found that admittedly the services provided by the petitioner to EY Entities, prior to introduction of GST regime, was considered as ‘export of services.’ Further, it is to be noted that petitioner’s application for refund of ITC for the period after March 2020 has also been accepted by the Adjudicating Authority. It has been allowed CENVAT credit for the period covered under the service tax regime as well as ITC for the period after March 2020.
• Thereafter, the Hon’ble Court referring to Section 2(6) which defines ‘export of services’ and Section 13 which provides for provisions regarding ‘Place of Supply of services’, found that in terms of Sub-section (8) of Section 13 of the IGST Act, the place of supply of certain services would be the location of the supplier of the services. In the present case, the place of supply of services has been held to be in India on the basis that the petitioner is providing ‘intermediary services.’
• The Hon’ble Court found that it has been already discussed above that the services provided by the petitioner are not as an intermediary and therefore, the place of supply of the Services rendered by the petitioner to overseas entities is required to be determined on basis of the location of the recipient of the Services. Since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of ‘export of services’ as defined under Section 2(6) of the IGST Act.
• Lastly, it was found by the Hon’ble Court that there is no dispute the recipient of Services i.e., EY Entities – are located outside India. Thus, undoubtedly, the Services provided by the Petitioner would fall within the scope of definition of the term ‘export of Service’ under Section 2(6) of the IGST Act.

The Hon’ble High Court with the above observations & findings, allowed the petition by setting aside the impugned order as well as the impugned order-in-original.  The Adjudicating Authority was directed to process the petitioner’s refund application as expeditiously as possible.