Delhi High Court: In a case wherein the applications filed for refund of ITC by Ernst and Young Ltd. (petitioner) were denied by the Adjudicating Authority stating that petitioner was an intermediary, the Division Bench of Vibhu Bakhru* and Amit Mahajan, JJ. held that the petitioner would not fall within the definition of an ‘intermediary’ under Section 2(13) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”) as the petitioner did not arrange or facilitate services to EY entities from third parties but had only rendered services to them.
The petitioner was an Indian Branch Office of Ernst & Young Ltd., a company incorporated under the laws of United Kingdom. The petitioner was established pursuant to the permission granted by the Reserve Bank of India on 4-4-2008. Prior to the enactment of the Central Goods and Services Tax Act, 2017, the petitioner was registered with the Central Excise Department as a separate tax entity, for providing services of “Management or business consultant service, Rent-a-cab scheme operator Service, Manpower recruitment/supply agency service, Legal consultancy service”, for the purposes of service tax.
The petitioner had provided various professional services to overseas EY Entities in terms of the agreements entered into between E&Y Ltd. and the respective overseas EY Entities. The invoices raised described the nature of services for the invoiced amount as “Professional Fees for Services”. The petitioner applied for a refund of the ITC availed for providing its professional services for the periods December 2017 to March 2020. The Adjudicating Authority issued show cause notices corresponding to the three refund applications filed by the petitioner. Each of the said show cause notices indicated the reasons for proposing to reject the refund applications filed by the petitioner.
The petitioner responded to the said show cause notices, inter alia, explaining that the petitioner was involved in providing “business advisory services and technical assistance” (“the Services”) in relation to tax compliance and other matters. The petitioner stated that the Services were in the nature of management consultancy/professional consultancy services. According to the petitioner, it had provided the Services directly to the EY Entities located outside India in terms of the service agreements entered into between E&Y Ltd. (the head office of the petitioner) with the respective EY Entities.
The petitioner had raised invoices for the Services rendered and the consideration was received directly from the overseas EY Entities in convertible foreign exchange. The petitioner’s ITC had accumulated on account of supplies availed by the petitioner for performing the Services, which included services of chartered accountant, management and consultancy services, hotel accommodation services, bank charges and renting of immovable property. According to the petitioner, the supplies were related for providing professional services (business support services and management and consultancy services).
Analysis, Law, and Decision
The issue for consideration before this Court was “whether the Service rendered by the petitioner to EY Entities in terms of the service agreement constitutes services as an ‘intermediary’?”.
The Court noted that the term ‘intermediary’ was defined under Section 2(13) of the IGST Act, and the definition made it clear that an intermediary merely “arranges or facilitates” supply of goods or services or both between two or more persons. Thus, it was obvious that the person who supplied the goods or services was not an intermediary. The Court further noted that in the present case, there was no dispute that the petitioner did not arrange or facilitate services to EY entities from third parties; it only rendered services to them. The petitioner had not arranged the said supply from any third party.
The Court noted that the Adjudicating Authority had returned a categorical finding that “the petitioner provided services on behalf of E&Y Ltd., UK in India to its (E & Y Ltd., UK) overseas client” and the Adjudicating Authority had reasoned that since the petitioner provided services on behalf of E&Y Ltd. (the petitioner’s head office), therefore, it was an intermediary. The Court opined that this reasoning was fundamentally flawed, and the Adjudicating Authority had misunderstood the expression ‘intermediary’ as defined under Section 2(13) of the IGST Act and a person who provided services, as opposed to arranging or facilitating of goods from another supplier, was not an intermediary under Section 2(13) of the IGST Act.
The Court opined that the last line of the definition, that is, “but does not include a person who supplies such goods or services or both or securities on his own account” merely clarified that the definition was not to be read in an expansive manner and would not include a person who supplies goods, services, or securities on his own account. The Court further opined that there might be services, which might entail outsourcing some constituent part to a third party, but that would not be construed as intermediary services, if the service provider provided services to the recipient on his own account as opposed to merely putting the third party directly in touch with the service recipient and arranging for the supply of goods or services. The Court also opined that even if it was accepted that the petitioner had rendered services on behalf of a third party, the same would not result in the petitioner falling within the definition of ‘intermediary’ under Section 2(13) of the IGST Act as it was the actual supplier of the professional services and had not arranged or facilitated the supply from any third party.
The Court noted that the petitioner’s application for refund of ITC for the period after March 2020 had been accepted by the Adjudicating Authority and the petitioner had been denied ITC only for the period from December 2017 to March 2020 and the Court further noted that the services rendered by the petitioner to EY Entities, prior to roll out of the GST regime, was considered as “export of services”. The Court further noted that as per Section 13(8) of the IGST Act, the place of supply of certain services would be the location of the supplier of the services and in terms of Section 13(8)(b) of the IGST Act, the place of supply of intermediary services was the location of the supplier of services.
The Court noted that in the present case, the place of supply of services had been held to be in India on the basis that the petitioner was providing intermediary services and since, the Services rendered by the petitioner were not as an intermediary, therefore, the place of supply of the Services rendered by the petitioner to overseas entities was required to be determined on basis of the location of the recipient of the Services. The Court opined that since the recipient of the Services is outside India, the professional services rendered by the petitioner would fall within the scope of definition of ‘export of services’ as defined under Section 2(6) of the IGST Act. Thus, the Court allowed the present petition and set aside the impugned order of the Adjudicating Authority and directed the Adjudicating Authority to process the petitioner’s refund application as expeditiously as possible.
[Ernst and Young Ltd. v. Additional Commissioner, CGST, 2023 SCC OnLine Del 1764, decided on 23-3-2023]
Advocates who appeared in this case :
For the Petitioner: Advocate Kamal Sawhney;
Advocate Anishka Gupta;
Advocate Krishna Rao;
Advocate Aakansha Wadhwani;
For the Respondents: Senior Standing Counsel Zoheb Hossain;
Advocate Vivek Gurnani;
Advocate Kavish Garach;
Advocate Kalp S.
*Judgment authored by: Justice Vibhu Bakhru