The Punjab and Haryana High Court has held that the GST Department cannot arbitrarily classify identical services as “intermediary services” for one tax period while consistently treating the very same services as “export of services” for earlier and later periods. Emphasizing the principle of consistency in tax administration, the Court directed the release of the refund of unutilized Input Tax Credit (ITC) along with applicable interest after finding the department’s inconsistent approach to be illegal and discriminatory.
The Bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor has observed that once the department itself had consistently accepted the petitioner as an exporter of services for identical transactions before and after the disputed period, it could not deny the same treatment for the intervening period without producing any evidence demonstrating that the services rendered during that period were materially different.
The petitioner is engaged in providing information technology and business support services to its overseas parent company based in the United States. Treating these services as exports, the company sought refund of accumulated ITC arising from zero-rated supplies.
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However, the GST authorities rejected the refund claim through an Order-in-Original dated June 24, 2020. The Appellate Authority subsequently upheld the rejection on December 16, 2022 by concluding that the petitioner qualified as an “intermediary” under Section 2(13) of the IGST Act. Consequently, the authorities held that the place of supply would be governed by Section 13(8)(b) of the IGST Act, thereby disentitling the petitioner from claiming export benefits and refund of accumulated ITC.
Before the High Court, the petitioner primarily argued that the impugned orders violated the principle of consistency. It pointed out that the GST Department had itself sanctioned refunds for the identical services rendered during the periods June 2018 to December 2018, April 2019 to December 2019, and January 2020 to March 2020.
According to the petitioner, there was absolutely no change either in the nature of services or in the contractual arrangement during the disputed period of January to March 2019. Since the department had consistently recognized the company as an exporter of services for all other periods, there was no justification for suddenly classifying the same services as intermediary services for only a three-month period.
The petitioner also relied upon the High Court’s earlier judgment in M/s Corning Technologies India Pvt. Ltd. v. Commissioner of Central GST, where the Court had held that treating the same entity differently for identical services without any distinguishing material amounts to arbitrary and discriminatory action.
During the hearing, the counsel appearing for the GST Department did not dispute the factual position that refunds had indeed been granted to the petitioner for earlier and subsequent periods by treating it as an exporter of services. The department also acknowledged that those refund orders had never been challenged before any appellate forum.
The Bench noted that no such distinguishing material had been placed on record. In the absence of any factual difference, the sudden change in classification from exporter to intermediary was held to be arbitrary and unsustainable.
Relying upon its earlier decision in Corning Technologies, the Court reiterated that inconsistent treatment of identical services by the tax authorities violates the principle of equality and fairness in tax administration.
Holding that the rejection of the refund claim was illegal and arbitrary, the High Court allowed the writ petition and quashed the appellate order dated December 16, 2022.
Since the original adjudication order had merged into the appellate order, the Court directed the GST authorities to release the refund amount along with applicable statutory interest within four weeks from the date of uploading of the judgment.
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