Beneficiary of Service Can Be Treated as 'Recipient' Under GST Even Without Paying Consideration: Dept. Tells Gujarat High Court

The interpretation of the term “recipient” under the Goods and Services Tax (GST) framework has come under renewed focus after the Revenue advanced a significant legal argument before the Gujarat High Court.

The submission, if accepted by the Court, could have far-reaching implications for determining tax liability in transactions where the person benefiting from a service is different from the person who contracts for or pays for it.

The department argued that the concept of a “recipient” under the Central Goods and Services Tax (CGST) Act should not be confined to the party that enters into a contractual arrangement or makes payment for the supply. Instead, it contended that GST law permits recognition of the actual beneficiary of a service as the recipient where the supply is effectively made to that person.

Buy Now: GST Judgements E-Compilation – June 2026

Revenue Relies on the Definition of ‘Recipient’ Under Section 2(93)

The Revenue’s submission is based on the interpretation of Section 2(93) of the CGST Act, which defines the term “recipient.” While clauses (a), (b), and (c) specify recipients in different factual situations involving consideration, goods, and services, the Revenue emphasized the concluding portion of the definition.

The provision states that any reference to a person “to whom a supply is made” shall be construed as a reference to the recipient of the supply. According to the Revenue, this statutory language expands the scope of the definition beyond the contractual relationship between parties.

The argument suggests that the legislative intent is to identify the recipient based on the person to whom the supply is actually rendered rather than restricting the concept to the entity making payment or executing the contract.

Economic Benefit May Determine the Recipient

According to the Revenue’s interpretation, the GST framework recognizes the commercial substance of a transaction. Where a person ultimately receives and enjoys the benefit of a service, that person may qualify as the recipient even if another entity has formally engaged the service provider or discharged the consideration.

This interpretation seeks to align the statutory definition with the practical realities of modern commercial transactions, where contractual arrangements, payment obligations, and economic benefits may vest in different parties.

Reliance Placed on Supreme Court’s Ocean Freight Decision

To support its submission, the Revenue referred to the Supreme Court’s landmark judgment in the Ocean Freight case concerning the levy of Integrated GST (IGST) on ocean freight in Cost, Insurance and Freight (CIF) import transactions.

In that case, the Supreme Court examined whether an Indian importer could be regarded as the recipient of shipping services even though the shipping contract had been entered into between the foreign exporter and the overseas shipping line.

The Court observed that the Indian importer was the ultimate beneficiary of the transportation service and, for the purposes of Section 2(93), could be regarded as the recipient despite not being a party to the shipping contract.

The Revenue argued that this judicial interpretation reinforces the principle that the identity of the recipient under GST is not determined solely by contractual privity but also by the person who effectively receives the supply and derives its economic benefit.

Potential Impact Beyond the Present Dispute

Although the submission arose in proceedings concerning corporate guarantees, its implications may extend well beyond that specific issue.

If accepted by the Gujarat High Court, the interpretation could influence disputes involving group companies, cross-border transactions, agency arrangements, shared services, employer-employee benefit structures, and other commercial models where the contracting party and the ultimate beneficiary are different entities.

The approach could also affect the determination of tax liability, valuation, place of supply, input tax credit eligibility, and compliance obligations in complex business structures.

Shift Towards a Consumption-Based Interpretation

The Revenue’s argument reflects a broader interpretation consistent with the underlying philosophy of GST as a destination-based consumption tax. Rather than focusing exclusively on contractual documentation, the emphasis shifts to identifying the person who actually consumes or enjoys the benefit of the supply.

Such an approach recognizes the economic substance of transactions and may reshape how the expression “recipient” is interpreted in future GST litigation.

Significance of the Proceedings

The Gujarat High Court’s eventual ruling is expected to provide important guidance on the scope of Section 2(93) of the CGST Act. The decision could clarify whether the statutory definition permits the beneficiary of a service to be treated as the recipient irrespective of contractual arrangements or payment obligations.

Given the potential ramifications for numerous GST disputes across sectors, the case is likely to be closely watched by businesses, tax professionals, and revenue authorities alike.