The Hon’ble High Court of Delhi vide its order dated 22.08.2023 in the matter of BOKS Business Services Private Ltd. Vs. Commissioner of Central Goods and Service Tax Delhi South and Anr. in W.P. (C) – 1255 of 2023, set aside the impugned order rejecting the refund filed under Section 16 of the IGST Act, 2017 in respect of ‘Zero Rated Supply’, on the ground that in terms of agreement, the assessee has agreed to act as an agent and thus, not a principal service provider to the foreign clients, and would be covered under Section 2(13) of the IGST Act i.e., ‘intermediary services’ not under ‘export of services.’ It was held by the Hon’ble Court that the assessee is not an intermediary as it is neither facilitating the provision of service by a third entity nor acting as middle man for procuring such services for its affiliate.  It was also held that in case of intermediary, there are three entities, though, the agreement uses the word ‘agent’ but is clear that the assessee is not acting as an agent for procurement of services for the service recipient.

The Petitioner filed the writ petition before the Hon’ble High Court aggrieved by the denial of refund of unutilized Input Tax Credit in respect of ‘Zero Rate Supply’, applied under Section 16 of the IGST Act, 2017.

Facts of the Case: –

• The petitioner is engaged in the business of providing book keeping, payroll, and accounting services through the use of cloud technology to its affiliated entity (TC Outsourcing Limited, previously known as Boks Business Services Limited) incorporated in the United Kingdom.
• The petitioner made an application for refund of unutilized input tax credit in respect of the export of services for the tax periods, April 2018 to March 2019 and April 2019 to December 2019, in the requisite form (Form RFD 01).
• The Petitioner was issued with a show cause notice proposing to reject the petitioner’s claim for the refund on the ground the services rendered by the petitioner to its foreign client appeared to fall in the category of “intermediary services” and, therefore, the place of supply of services was within the territory of India.
• The petitioner filed reply to the show cause notice, however, its explanation was not accepted. The claims of the petitioner for refund of input tax credit for the aforementioned tax periods were rejected by respective orders dated 07.2020.  The said orders indicate that the concerned officer had noted that the petitioner had charged 500 GBP per workstation and, therefore, concluded that the petitioner was not the principal service provider, providing services through those workstations. 
• That On the basis of aforesaid reasoning, the concerned officer held that the petitioner was an “intermediary”, in terms of Section 2(13) of the IGST Act, in respect of the services rendered by it. Thus, the services rendered by the petitioner did not qualify as export of services under Section 2(6) of the IGST Act.
• Being aggrieved, the petitioner filed appeals before the Appellate Authority challenging the said order. The said appeals were disposed by a common Order-in-Appeal dated 04.2021, and after examining the copy of agreement executed between the petitioner and its foreign affiliate, noted that in terms of the said agreement, the petitioner had agreed to act as an agent.  Thus, it was concluded by the Appellate Authority that the petitioner was not a principal service provider to the foreign clients.

Held: –

• The Hon’ble Court after considering the submissions made and facts of the case, found that the principal question to be considered is whether the petitioner can be considered as an “intermediary” within the meaning of Section 2(13) of the IGST Act in the context of the services rendered by it.
• The Hon’ble Court on perusal of the agreement between the petitioner and its foreign affiliates found that undisputedly, the petitioner has rendered services to its foreign affiliate, Boks Business Services Limited, in terms of the agreement dated 05.2017. It is clear from the terms of the agreement that the petitioner is not an intermediary, inasmuch, as the petitioner is neither facilitating the provision of services by a third entity nor acting as a middleman for procuring such services for its affiliate.
• It was found by the Hon’ble Court that the petitioner contracted to provide the service and is the principal service provider in the context of the services provided by it – book keeping, payrolls, and accounts through the use of cloud technology. Further, in case of intermediary, there are three entities, one providing the principal service, one receiving the principal service, and an intermediary who acts as an agent or a broker for facilitating or arranging such services for the service recipient.
• It was found that the agreement does use the word ‘agent’ but it is clear that the petitioner is not acting as an agent for procurement of services for the service recipient. It is, in fact, providing the principal service of “Bookkeeping, Payroll, and accounts, through the use of cloud technology”. The fact that such services may be for the clients of the petitioner’s affiliate, Boks Business Services Limited, does not make the petitioner an “intermediary.”
• Lastly, it was found by the Hon’ble Court that the issue involved, whether the petitioner can be considered as an ‘intermediary’ is squarely covered by the decision of this Court in M/s Ernst And Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi And Anr.: 2023:DHC:2116-DB and M/s Cube Highways and Transportation Assets Advisor Private Limited v. Assistant Commissioner CGST Division & Ors.: 2023:DHC:5822- DB.

 

The Hon’ble Court with the above findings and observations, disposed of the petition by holding that the impugned orders are not sustainable and therefore, set aside.  The respondents are directed to process the petitioner’s claim for refund as expeditiously as possible and preferably within a period of four weeks from today.