The Hon’ble High Court of Punjab & Haryana vide its order dated 11.11.2022 in the matter of Genpact India Pvt. Ltd. Vs. Union of India and others in CWP-6048-2021 (O&M), held that BPO Services provided by the assessee on Principal-to-Principal Basis Cannot Be Termed as Intermediary.  Further Sub-contracting for a Service is not a ‘Intermediary’ Service.

The Petitioner filed the writ petition before the Hon’ble High Court challenging the order dated 15.02.2021 passed by the Additional Commissioner CGST (Appeals), Gurugram wherein, it has been held that the services provided by the petitioner are in the nature of “Intermediary Services” as per Section 2 (13) of the IGST Act and do not qualify as “export of services” in terms of Section 2 (6) of the Act and the refund claim of un-utilized Input Tax Credit (ITC) used in making zero rated supplies of services without payment of Integrated Goods and Service Tax was rejected.

Facts of the Case: –

• That the 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, along with some ancillary services.
• That such services were provided by petitioner from India remotely through telecommunication/internet links using its own infrastructure and work force of approximately 50 thousand employees.
• That the petitioner entered into a Master Services Sub-Contracting Agreement dated 01.01.2013 (MSA) with Genpact International Incorporated (GI) an entity located outside India. As per the terms of the MSA various services are to be provided by the petitioner on principal-to-principal basis.
• Further the petitioner is engaged by the 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.
• That on 18.10.2018, the petitioner filed an application with the Haryana GST authorities for the period July 2017 to March 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.
• That the Deputy Commissioner Division East-II CGST Gurugram vide Order-in-Original dated 14.03.2019, sanctioned an amount of Rs.26,34,61,625/- towards refund with a that the services provided by the petitioner qualify as “export of services”. However, the refund claim was partially rejected to an extent of Rs. 91,65,651/- on account of ITC availed in respect of certain alleged ineligible inputs and input services.
• The Petitioner being aggrieved by the rejection of the partial amount preferred an appeal dated 13.06.2019 before the Joint Commissioner CGST (Appeals). The appellate authority after considering the submissions made and reviewing the order in original dated 14.03.2019, passed an order dated 13.09.2019 and held 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. 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/-. That the department in the appeal placed reliance on the circular dated 18.07.2019, which was later on withdrawn ab initio vide circular dated 04.12.2019.
• 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. The view of the appellate authority 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.
• That against the said order dated 27.05.2020, the petitioner preferred CWP No.10302 of 2020 before this Court. The writ petition was disposed of vide order dated 29.01.2021 by setting aside the order in appeal dated 27.05.2020 and the matter was remanded back to the appellate authority for a decision afresh.
• Thereafter, the appellate authority passed an order dated 15.02.2021, dismissing the appeal filed by the petitioner and allowing the appeal filed by the department against order in original dated 14.03.2019. It was held by the appellate authority that the services provided 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.  Therefore, the refund amounting to Rs.26,34,61,625/- previously sanctioned in favour 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.
• Further on the same basis, two other refund applications of the petitioner for the period starting from April 2018 to September 2018 and October 2018 to March 2019 were also rejected vide orders dated 09.12.2020 and 02.02.2021. Being aggrieved of the order dated 15.02.2021, the petitioner has moved the instant writ petition.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that the impugned order dated 15.02.2021 is not only beyond the grounds in the appeal but also beyond the scope of remand as directed by this Court. The matter was remanded back by this Hon’ble Court in CWP No. 10302 of 2020 to decide the appeal afresh vide its order dated 29.01.2021.
• Further the appeal was supposed to be based only on Clause 4 and Clause 10 of the MSA. However, the Appellate Authority undertook a completely new exercise with regard to the other clauses of the agreement and which apart from being irrelevant to the issue at hand was not permissible in law.
• That it has been wrongly held by the appellate authority that the services provided by the Petitioner would tantamount to ‘intermediary’ service. It was submitted that as per definition of “intermediary” under Section 2 (13) of the Act a person who provides services “on his own account” is not an “intermediary.” The provider of the main service stands clearly excluded from the definition of “intermediary”. No evidence is on record to establish that the petitioner had not provided the main service.
• Moreover, there was not even an allegation that there was any 3rd party which the petitioner had “arranged” and who had in turn provided the main services. It was argued that the petitioner is rendering services “on its own account” and is not facilitating any supply of services between GI and its customers.  Further the Petitioner is responsible for providing all services, for all the risk related to performance of services and pricing of the services.
• Referring to the ‘MSA’ and the various clause contained therein, it was submitted that the petitioner is providing the services to GI on ‘principal-to-principal basis and not in the capacity of GI’s agent. There is no separate agreement entered between the petitioner and GI's customers and therefore in no manner can the petitioner be equated to an agent or broker.
• It was also pointed out that the petitioner's turnover is the entire charge for the service which is the main service itself whereas in the case of an “intermediary” the turnover is a mere commission or a facilitation fee which is not the fact in the present case.
• It was contended that the Appellate Authority has not assigned any independent reasons to arrive at such a conclusion. The view of the Appellate Authority is that since petitioner is rendering services ‘on behalf’ of GI and therefore qualifies as an ‘intermediary’, is erroneous and the usage of the term ‘on behalf’ is misleading as by using such term, the appellate authority is presuming that there is a relationship of agency between the petitioner and GI and which on the face of it is contrary to the express terms of the MSA.
• Further the findings of the appellate authority in para 13 of the impugned order dated 15.02.2021 that the petitioner is an agent of GI is contrary to the admission of the respondents in the reply filed dated 08.09.2020 in CWP No.10302 of 2020.
• It was submitted that in the case of a sub-contract there is only one sale involved and the findings in the impugned order have no factual or legal basis to allege that there was a second contract of agency between the petitioner and GI.
• It was submitted that the reliance placed by the Appellate authority on the case of Infinera India (P.) Ltd., Vservglobal (P.) Ltd.., (AAAR-Karnataka), In re [2018] 19 GSTL 173 (AAR Maharashtra) to form a view that there has been a material change in the definition of “intermediary” under the GST regime and pre-GST regime, is a clear case of misreading inasmuch as in the ruling of Infinera, the observations are to the contrary that ‘there is no difference in the definition of “intermediary” under the GST and pre-GST regime.’
• The Appellate authority failed to appreciate the fact that the BPO services rendered by the petitioner have been held to be “export of services” under the erstwhile Service Tax regime and the refund claims were sanctioned on a regular basis by the tax authorities vide Order in Original dated 25.01.2018 wherein, it was held that the BPO services performed by the petitioner are in the nature of “main service” and not “intermediary services”. Therefore, it was contended that the principle of consistency would apply to tax proceedings as well.
• Reliance was placed on the Circular dated 20.09.2021 issued by the Principal Commissioner (GST), Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, New Delhi, to submit that the claim of the petitioner would be covered under such circular which in turn clarifies that sub-contracting arrangements do not constitute ‘intermediary Services’.

Respondents’ Submissions: –

• That on behalf of the respondents, reference was made to the various clauses of MSA, to submit that two categories of service are involved in the present matter. First category comprises of the “main services” being provided by GI to its customers. Second category comprises of ancillary and supportive services (to the main services) being provided by the petitioner.
• That referring to the clauses of MSA, which states regarding the arrangement between the parties and provides that apart from the main service of B.P.O & Information Technology Services and Managing New and existing Customer Relationships, the petitioner is also providing ancillary services like Maintenance of and expanding GI customer Relationship, Supply of services to GI Inc, for negotiating Customer Agreements and statement of work, Supply of financial data and other support in order for Gl Inc, Personal data processing, Data Protection, Data Recovery Services, Reports, Records Retention. Therefore, from a perusal of services performed by the petitioner, it would be clear that the petitioner is acting on behalf of GI and supplying support services so that GI can supply the main services to its customers.
• That the GI representatives would have the overall responsibility for managing and coordinating the delivery of the services to GI customers. That such an arrangement where one party GI possesses the authority to take decisions with regard to actions taken by another party, the petitioner in the course of day-to-day management, can only be referred as Principal-agent relationship.
• That the role of the petitioner as such has been described to be supportive in nature and not to act in an independent way. Further GI is directly responsible to its customers for any fault/lapse on the part of the petitioner, in providing services to the customers of GI.  The principal i.e., GI is responsible for the lawful acts of its agent i.e., the petitioner. Therefore, the petitioner cannot be said to provide ‘services on its own account’ and fulfils all the ingredients to be termed as an ‘intermediary’.
• With respect to the refunds allowed for the previous periods under the pre-GST regime, it was submitted that the principle of res-judicata does not apply in the matters pertaining to tax for different assessment years. Each assessment year is a separate unit and a decision/view in one year is not to be carried forward and held good for a subsequent year.  Therefore, it was submitted that there is no merit in the writ petition and the same is liable to be dismissed.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case, documents on record and the law applicable, found that the primary issue that arises for consideration is as to whether the petitioner would be covered under the expression “intermediary” as defined under the provisions of the IGST Act and consequently the BPO services rendered by the petitioner under the MSA (Annexure P-1) be treated as “intermediary services”?
• The Hon’ble Court on perusal of Section 2(6) (export of services) of the IGST Act, Section 13 (Place of supply of services where location of supplier or location of recipient is outside India), Section 16 (Zero-rated supply) & Section 54 (Refund of Tax), found that Section 2 (6) of the IGST Act lays down the conditions which need to be fulfilled for qualification of a service as “export of services”. A conjoint reading of Section 13 (2) and Section 13 (8) clarifies the manner for determining the place of supply of services where location of supplier or location of recipient is outside India. Generally, “place of supply” of services is the location of the recipient, except in case of certain specified services. For “intermediary” services, the place of supply is the location of the supplier.
• Further Section 16 (1) (a) inter alia provides that the export of services amount to “zero rated supply”. Section 16 (2) provides that credit of input tax may be availed for making zero rated supplies. That Section 54 of the CGST Act prescribes the manner in relation to claiming refund by tax payers, mainly covering the eligibility and prescribed timelines for filing the refund claim application. A tax payer engaged in export of services without payment of GST is eligible to claim refund of unutilized input tax credit.
• That in the impugned order, it has been held that the petitioner provides services on behalf of GI and as such there is a principal agent relationship. Further the petitioner is arranging and facilitating the supply of services between GI and its customers and while doing so petitioner is acting as an “intermediary.” It has been held that the petitioner is not providing services on ‘its own account’.  Besides, it was observed that there has been a material change in the definition of “intermediary” under the GST regime and consequently the petitioner cannot benefit from the orders of refund that had earlier been passed under the service tax regime.
• The Hon’ble Court on perusal of the clauses of MSA, findings of the impugned order dated 15.02.2021 & recitals of MSA dated 07.01.2013 referred in para 16 of the impugned order concluding the petitioner to be an ‘intermediary’, found that recitals of MSA provide that GI has sub-contracted the petitioner for providing the services to its customers and it is quite evident that the petitioner is engaged by GI for actual performance of BPO services and information technology services to the customers of GI.
• It was found that the Petitioner would be held responsible for all risk related to performance of services which would be akin to services provided on “its own account.”
• Further from the perusal of Clause 1, which provides that ‘GI would be responsible for obtaining new customers and maintaining relationship with existing customers, to whom services are provided by the petitioner’, Clause 3.3 provides that ‘GI would be responsible for negotiation with all GI customers’, Clause 3.4 provides that ‘GI would be responsible to raise invoices as well as handling all disputes of GI customers and the petitioner would be obligated to provide all data in such regard’, found that the aforesaid clauses would clarify that the petitioner who is actually performing the services would share the details of the performance/status of the provision of services, cost incurred etc. which would enable GI to bill or address any dispute arising with the GI's customers.
• Thereafter, the Hon’ble Court on perusal of other relevant clauses of the MSA, found that MSA shows the arrangement between GI and the Petitioner in the manner: – i) “GI has service agreement for providing BPO services with respective GI customers at global level. GI issues invoices and receives remittance from the GI customers; ii) GI under the MSA sub-contracted the execution of the BPO services to the petitioner; iii) Petitioner executes the delivery of BPO services to the customers of GI under the MSA; iv) Petitioner issues invoices to GI and receives payment from GI in convertible foreign exchange as its service fee.”
• That the MSA dated 01.01.2013 (Annexure P-1) entered between the petitioner and GI is clearly for the purpose of sub-contracting services to the petitioner by GI. These are the very services which GI was contractually supposed to provide on its own customers.
• On perusal of definition of ‘intermediary’ as provided in Section 2(13) of the IGST Act, it was found that three conditions must be satisfied for a person to qualify as an ‘intermediary’, First, the relationship between the parties must be that of a principal-agency relationship. Second, the person must be involved in arrangement or facilitation of provisions of the service provided to the principal by a 3rd party. Third, the person must not actually perform the main service intended to be received by the service recipient itself.
• Further, Scope of an “intermediary” is to mediate between two parties i.e., the principal service provider (the 3rd party) and the beneficiary (the agents principal) who receives the main service and expressly excludes any person who provides such main service “on his own account”.
• That on perusal of the recitals and relevant clauses, it was held by the Hon’ble Court that in the instant matter clauses and recitals of MSA do not in any manner indicate that petitioner is acting as an “intermediary” so as to fall within the scope and ambit of the definition of “intermediary” under Section 2 (13) of the IGST Act. Such clauses cannot also be interpreted to conclude that the petitioner has facilitated the services.
• The Hon’ble Court referring to the order relied upon by the petitioner i.e., order in original dated 25.01.2018, passed by the Assistant Commissioner, Division-East-1, GST, Gurugram, granting refund of Rs.26,34,83,928/- for the period April-June 2016 and July-September 2016 after making a detailed analysis of the MSA and holding that the petitioner cannot be treated as “intermediary”, found after perusal of the findings of the said order in original that it is not in dispute that order has become final and no appeal has been filed by the respondents.
• It was found by the Hon’ble Court that in the instant matter the respondents have deviated from the view taken in order dated 25.01.2018 on the ostensible basis that there has been a change in law w.e.f. 01.07.2017 i.e., with the introduction of the GST regime, and such a view is wholly mis-conceived.
• Further it was found that in the pre-GST regime Rule 2(f) of the Place of Provision of Service Rules, 2012, defined ‘intermediary’ services and the perusal of the definition of ‘intermediary’ services under GST regime, would show that 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.
• It was also found by the Hon’ble Court that in the impugned order dated 15.02.2021, the ruling in the case of Infinera (supra) has been clearly misread, while observing that there has been a material change in the definition of “intermediary” under the GST regime. Whereas, the said ruling states that ‘there does not seem to be any difference between the meaning of the term ‘intermediary’ under the GST regime and pre-GST regime.’  Therefore, the department cannot take a different view for different periods.
• Thereafter, the Hon’ble Court referring to the judgment of M/s Radhasoami Satsang Soami Bagh, Agra Versus Commissioner of Income Tax (1992) 1 SCC 659, wherein it was held that ‘in the absence of any material change justifying the Revenue to take a different view of the matter – and if there was no change it was in support of the assessee – we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken’ and to the judgment of Bharat Sanchar Nigam Ltd. Vs. Union of India (2006) 3 SCC 1, wherein it was held 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’, found that the principle of consistency is to be applied to the present matter also. The Hon’ble Court found merit in the contention raised on the behalf of the petitioner that the view taken in the order in original dated 25.01.2018 holding the petitioner to be not an “intermediary” under the MSA, should prevail even under the GST regime.
• The Hon’ble Court observed that the impugned order holding the petitioner to be in principal agent relationship with GI is without any basis and erroneous. The impugned order has been passed ignoring or being unaware of clause 21.6 of the MSA, which provides for ‘Relationship of Parties’ and clearly mentions that ‘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……’
• Moreover, it has been admitted on the behalf of the respondents that there is no separate agreement entered between the petitioner and GI’s customers. Therefore, in no manner as such the petitioner can be equated to be an agent or broker.
• Thereafter, the Hon’ble Court taking note of the written statement filed by the department in the earlier round of litigation in CWP No.10302 (filed by the petitioner), found that in para 8 of the written statement it had been stated that ‘The arrangement requires the company to complete the assigned processes/scope of work and submit the deliverables directly to the third parties, either on-line or on-call or through email using dedicated electronic networks and voice circuits. Further in para 9 of the written statement stated that ‘the test of agency must be satisfied between the principal and the agent i.e. the “intermediary” which is not the case in the present case’.  Therefore, it was held by the Hon’ble Court that the findings as regards the petitioner to be an agent is in contradistinction to the clear stand taken by the department in the previous round of litigation.
• It was found by the Hon’ble Court that 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. That GI gets paid by the customers to whom the services have been provided by the petitioner.  Further nothing has been brought on record to show that there was a direct contract between the petitioner and the GI customers.  As a Sub-contractor, the petitioner is receiving fee/charges from the main contractor i.e., GI, which in turn is receiving commission from its clients for the main service that are rendered by the petitioner pursuant to the sub-contracting arrangement. 
• Besides, from the afore-mentioned circular dated 20.09.2021 and in reference to para 3.5, it stands clarified that sub-contracting for a service is not an “intermediary” service.
• It was found by the Hon’ble Court that in the written statement ‘Transfer Pricing Report’ has been referred to draw a distinction between two categories of supplies as per MSA i.e., main supply and the ancillary supply. The passing of the impugned order is sought to be justified that the main supply takes place between GI and its customers whereas it is the ancillary supply which is provided by the applicant to facilitate the provision of the main supply.
• With respect to the aforesaid reference to the ‘Transfer Pricing Report’, The Hon’ble Court taking reference of the judgment of the Apex Court in Mohinder Singh Gill and another Vs. The Chief Election Commissioner, New Delhi and others (1978) 1 SCC, found that the written statement seeks to justify the impugned order on grounds which are not even part of the impugned order and the same is clearly impermissible in law.

The Hon’ble Court with the above findings, allowed the writ petition by quashing the impugned order dated 15.02.2021 holding the petitioner to be an “intermediary” under Section 2 (13) of the IGST Act and restored the order in original dated 14.03.2019 granting refund of Rs.26,34,61,625/- in favour of the petitioner.  It is further directed that the benefit of this order shall ensure to the petitioner for grant of subsequent refunds as well.

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