The Gujarat High Court (Ahmedabad Bench) ruled that the Indian subsidiary’s software consultancy and support services rendered exclusively to its foreign parent company would qualify as “export of services”, and not as “intermediary services” under the IGST Act. Accordingly, the Court directed the Revenue Department to process the refund claim in accordance with the law, considering the services provided by the petitioner as export of services to its parent company.
The Court explained that the Indian subsidiary (petitioner) was providing services on its own and not arranging or facilitating services between two different parties, and it had earned cost plus an 8% markup and bore all operational expenses independently. Thus, the activities satisfied all conditions under Section 2(6) of the IGST Act for export of services and did not fall within the statutory definition of intermediary services under Section 2(13) of the IGST Act.
The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi observed from perusal of the terms of the service agreement, that the petitioner is required to assist the US entity in carrying on the business of providing information and consultancy in business of software development and for that purpose, the petitioner is required to set up consultations and meetings between globally based experts and globally based clients and to participate in any business of consultants, agents, sub-agents, liaison agents/liaison sub-agents for its parent company and foreign clients for such activities.
The Bench also noted that the petitioner is to provide advisory services for the expansion of business, marketing, advertising, publicity, and personnel accounting to its parent company. Therefore, on conjoint reading of the scope of services to be provided by the petitioner, the Bench refused to accept the contention of the Revenue Department that the petitioner is only to work as an agent or a broker between the parent company and its customers without supplying any goods or services on its own account.
Moreover, the Bench highlighted that the payment is to be received by the petitioner from its parent company every month, and the fee is equal to the cost incurred by the petitioner plus 8% markup on costs. Thus, the petitioner is also earning the profit of 8% on the cost incurred by it in providing services to its parent company.
Briefly, the petitioner, engaged in the business of content integration by adding insight (smart data run through AI techniques & human curation), is a wholly owned subsidiary of Info Desk Inc., situated in the USA, and is established exclusively for the purpose of servicing its parent organisation’s technical requirements. In terms of the services agreement, the parent company assigned its requirements to the petitioner in the form of “JIRA tickets’ which is a software application and a service desk platform. Acting on the same, the petitioner hired employees to provide these Software Consultancy Services to its parent company, which was remunerated by the parent company. For providing such services, the petitioner had received various input services and availed Input Tax Credit (ITC) on the same.
According to the petitioner, services provided to its parent company are in the nature of ‘export of service’ in terms of provisions of IGST Act, 2017, as the petitioner fulfils the requirements of Section 2(6) of IGST Act, being ‘zero-rated supply in terms of Section 16 of IGST Act. The petitioner, therefore, filed a refund application, which was rejected on the ground that the Software Consultancy Services was an ‘intermediary service’ under Section 2(13) of the IGST Act and not an ‘export of service’ under Section 2(6) of the IGST Act. The Joint Commissioner, CGST & Central Excise (Appeals), also upheld the rejection of the refund application.
Appearances:
Advocates Anand Nainawati, for the Petitioner/ Taxpayer
Advocates Deepak N Khanchandani and Param V Shah, for the Respondent/ Revenue
