Can GST be demanded if Services were provided Abroad? NO says HC, Read Order

The Bombay High Court allowing GST refund to a firm, reiterated that GST does not apply to the services rendered abroad as they amount to the 'export of services.'

The Division Bench of Justice M.G. Sewlikar and Justice S.V. Gangapurwala rejected the ground of the Revenue Department that the incidence of tax has been passed on to the client abroad resulting into unjust enrichment of the petitioner.

Brief Facts of the Case

The petitioner firm was engaged in providing production services to ‘A Suitable Company Ltd ’ ( ASCL) located in London, UK. As pper Clause 4.10 of the agreement, if any refund of tax component is received by the petitioner, such amount shall be reduced from the production expenses i.e. while computing the consideration towards production services, the said amount of tax component received as refund will be deducted from the production expenses.

For providing the production services to ASCL, the petitioner received and utilised various inputs/ input services on which appropriate CGST/MGST/IGST services were paid as charged by the vendors. In cases, where the services were received from service provider/ vendor located outside India, CGST+MGST or IGST on such supplies was paid by the petitioner.

The petitioner filed for refund claim which was rejected subject to 'unjust enrichment' In an appeal later on, the Appellate Authority held that the burden of the GST has been shifted to the service recipient and the petitioner cannot be a beneficiary, as any refund to the petitioner would amount to unjust enrichment. Heavy reliance was placed on Mafatlal Industries vs Union of India.

Counsel for petitioner submitted that the principle of unjust enrichment does not apply to export services. He averred that being a zero rated supply, the principle of unjust enrichment does not apply to the services rendered by the petitioner. The Counsel also contended that Clause 4.10 of the agreement clearly stipulates that if refund is received, it shall be deducted from the expenses of production. He further submitted that there are judgments of this court indicating that the principle of unjust enrichment does not apply to export services.

On the other hand, Counsel for the Respondents submitted that the Petitioner has admitted that even in case of alleged unjust enrichment by the petitioner, the credit notes will nullify the effect of the same. It was further being contended that GST law does not contemplate any mechanism for paying back the GST by way of issuance of credit note. He further submitted that the petitioner has admitted that when the refund is obtained, the GST collected from the recipient would be paid back. This itself shows that the incident of tax has been passed on to the recipient.

High Court's Analysis

At the outset the Court noted that it is axiomatic that the respondents don’t dispute that the Petitioner is entitled to the refund of GST, but their only contention is that the Petitioner has passed on the incidence of tax to the recipient company and on account of that the Petitioner is not entitled to claim refund.

Noting that the Petitioner provides production services to the ASCL, the Court confirmed that they are 'exporting the services' under Section 2(6) of Integrated Goods And Services Tax Act.

Stressing on Section 54(8)(e) of the CGST Act, it clarified that the only instance in wherein the petitioner is not applicable for entitled to the refund of the amount if the incidence of tax has been passed on to the recipient of the services.

The Court was of the view that Clause 4.10 proves otherwise and therefore that the incidence of tax has not been passed to the recipient ASCL. It referred to Motilal Oswal Securities Ltd vs Commissioner of Service Tax to observe that when services are rendered abroad, CGST will not apply.

With this view, it observed:

"In the case at hand also, the petitioner has rendered services to the ASCL abroad i.e. in U.K. Therefore, GST does not apply to the services rendered abroad as they amount to the export of services. In addition to that the respondent could not establish that the incident of tax has been passed on to the recipient ASCL located in London. Thus, both, the Adjudicating Authority and the Appellate Authority committed error in rejecting the refund of GST of the petitioner."

The impugned orders were therefore set aside.

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