The Goods and Services Tax Appellate Tribunal (GSTAT), Delhi, has held that support services supplied on a principal-to-principal basis to overseas group companies qualify as exports and cannot be classified as intermediary services merely because they support the foreign recipients’ business.

The bench of Justice Dr. Sanjaya Kumar Mishra (President) and Anil Kumar Gupta, (Technical Member) set aside orders rejecting refund claims aggregating ₹55,99,74,202 and directed the Revenue to refund the unutilised input tax credit (ITC), along with interest under Section 56 of the Central Goods and Services Tax Act, 2017.

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The Gurugram-based company, an indirectly wholly owned subsidiary of Expedia Inc., USA, provided business support and information technology software services to overseas group entities on a cost-plus-mark-up basis.

The supplies were governed by a Support Service Agreement dated July 1, 2010, and an EAN Software Development Services Agreement effective October 1, 2016. The contractual arrangements covered software development and various support functions.

Treating the disputed services as zero-rated exports made without payment of tax, the company sought refunds of accumulated ITC. It filed four quarterly refund claims for FY 2019–20 and one annual claim each for FYs 2020–21, 2021–22 and 2022–23.

The adjudicating authorities rejected all seven claims. Four appellate orders subsequently upheld those rejections, prompting the company to approach GSTAT.

The departmental authorities classified the supplies as intermediary services under Section 2(13) of the Integrated Goods and Services Tax Act, 2017.

Their reasoning rested on the involvement of three sets of parties: the Indian company, its overseas parent or associated enterprises, and end customers such as travellers, hotels or hotel operators.

The first appellate authority considered the Indian company’s role subsidiary and supportive, facilitating the principal supply between overseas entities and their customers. Consequently, the authorities treated the place of supply as India and denied export status.

The adjudicating authorities also treated the Indian company and overseas affiliates as merely establishments of a distinct person. In one appeal, additional objections included alleged discrepancies in bank realisation documents, invoices missing from GSTR-2A and lack of business nexus of certain inputs.

The department questioned the Principal Bench’s jurisdiction, arguing that the dispute concerned intermediary classification and satisfaction of export conditions rather than place of supply.

Rejecting the objection, GSTAT explained that deciding whether the company was an intermediary directly affected the place-of-supply determination for the periods under consideration.

Whether the services were supplied in India or outside India was therefore integral to deciding refund eligibility.

The Tribunal relied on Section 109(5) of the CGST Act, under which appeals involving any issue relating to place of supply must be heard by the Principal Bench.

On the merits, the Tribunal emphasised that the agreements established a principal-to-principal relationship between the Indian company and the overseas entities.

The Indian company was neither a broker nor an agent of the foreign company. The contractual arrangements did not authorise it to bind the overseas company to obligations undertaken on its behalf.

GSTAT also found no contractual relationship between the Indian company and the foreign entity’s customers in respect of the supplies under examination. The relevant service contract was between the Indian supplier and the overseas company, while customer contracts were between the foreign company and its customers.

Drawing on its earlier decisions in Navitas Eduservices and Dow Chemical, the Tribunal applied the principle of ejusdem generis to the expression “any other person” in the intermediary definition.

It explained that the expression must be understood with reference to the characteristics of a broker or agent, rather than extended indiscriminately to every service provider supporting another entity’s business.

The Tribunal discussed CBIC Circular No. 159/15/2021-GST dated September 28, 2021, which distinguishes intermediary activity from services supplied on a person’s own account.

The circular explains that an intermediary arrangement involves a main supply between two principals and a separate service of arranging or facilitating that supply.

A person providing the substantive service on a principal-to-principal basis does not become an intermediary merely because the service contributes to the recipient’s business activities.

The Tribunal also referred to the circular’s clarification that subcontracting a service does not, by itself, constitute intermediary activity.

Applying these principles, the bench concluded that the disputed services fell outside the intermediary definition.

GSTAT rejected the reasoning that the Indian subsidiary and the overseas company were merely establishments of a distinct person for denying export status.

The bench observed that separately incorporated companies possess separate legal identities. The parent-subsidiary relationship did not, on the facts, prevent the supplies from satisfying the export definition.

Applying Section 2(6) of the IGST Act, the Tribunal found that the supplier was located in India, the recipient and place of supply were outside India, consideration was received in convertible foreign exchange, and the parties were not merely establishments of a distinct person.

The bench also referred to earlier DGGI proceedings concerning the company’s services, observing that the treatment of relevant services as exports supported its conclusion. It clarified that neither the departmental circular nor the DGGI’s conclusion bound the Tribunal’s adjudicatory powers.

Examining the additional objections in Appeal No. APL/15/PB/2026, GSTAT found that the show-cause notice failed to explain the alleged bank realisation certificate mismatch.

The notice also did not identify the invoices allegedly missing from GSTR-2A or specify the business nexus said to be absent for certain inputs.

The first appellate authority had failed to record reasoned findings on these objections. Even at the second appellate stage, the alleged mismatch had not been adequately explained to the Tribunal.

The bench held that the proceedings involved both travel beyond the scope of the show-cause notice and violation of the principles of natural justice. The impugned orders were therefore unsustainable.

Concluding that the disputed services qualified as exports under Section 2(6) of the IGST Act, GSTAT set aside the adjudication and first appellate orders.

The Tribunal directed the Revenue to refund the unutilised ITC with interest under Section 56 of the CGST Act. The operative direction does not specify a separate interest rate or a fixed deadline for disbursal.

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