The Madras High Court in the case of M/S. VURAM TECHNOLOGY SOLUTIONS PRIVATE LTD. vide W. P. ( MD ) No. 15092 of 2022 and W. M. P. ( MD ) No. 10797 of 2022 dated 10.04.2024, has clarified that subsidiaries and holding companies are distinct legal entities for the purpose of determining “export of services” under the IGST Act, 2017. The CBIC Circular No. 161/17/2021-GST is considered binding on the department and persuasive for the court. The High Court noted that Circular No. 161/17/2021-GST, dated 20.09.2021 provides that the supply of services by a company to its holding company situated outside India would not be barred by condition of section 2(6)(v) of the IGST Act 2017 from being considered as export under GST. Order passed by the department rejecting refund claim of the petitioner was to be set aside, and refund claim was to be processed together with interest.

This judgment underscores the importance of adhering to statutory interpretations provided by administrative circulars and ensures that entities engaged in legitimate export transactions receive due tax benefits.

Facts of the Case:-  In this case, the petitioner was engaged in providing software services to its subsidiary in Vuram Australia Pty Ltd, situated in Australia. The Petitioner filed refund claim on the account of export of services,  but the claim was rejected on the basis that it was not considered as export since the petitioner and the recipient of the services were merely distinct persons. The petitioner filed an appeal, but it was also rejected.

The petitioner has filed the present writ petition challenging order rejecting refund claim for ‘export of software development services’ made to its subsidiary, Vuram Australia Pty Ltd. It was argued that their transaction qualifies as “export of services” and is entitled to a refund. They relied on Circular No. 161/17/2021-GST dated 20.09.2021, which clarifies that a subsidiary in India and its foreign holding company are distinct entities and thus, their transactions qualify as exports.

The Department argued that the transaction between the petitioner and its subsidiary in Australia does not qualify as an export of services since both are “merely establishments of a distinct person.”

Held that:-  The Court held as under:

• The petitioner has satisfied the requirements of Section 2(6)(i) to (iv) of the IGST Act, 2017
• The court disagreed with the respondent’s interpretation of Section 2(6)(v) and Explanation 1 in Section 8, stating that the petitioner and its subsidiary are distinct entities.
• The court highlighted the CBIC Circular which clarifies that subsidiaries and holding companies are distinct entities and their transactions qualify as exports.
• Reference placed upon the Delhi High Court’s judgment in Xilinx India Technology Services (P) Ltd. v. Special Commissioner Zone VIII supporting this interpretation.

The court concluded that the petitioner’s services to Vuram Australia Pty Ltd. qualify as an “export of services” under the IGST Act, 2017. The impugned order was set aside, and the respondent was directed to process the petitioner’s refund claim along with interest. The CBIC Circular No. 161/17/2021-GST is considered binding on the department and persuasive for the court.

To read the complete judgment 2024 Taxo.online 854