The Principle Bench of  Goods and Service Tax Appellate Tribunal (GSTAT) while rejecting Rs. 13.41 Crore GST refund claim has held that the procurement support services from foreign group entities are taxable import of services and not as intermediary services.

The bench of Justice (Retd.) Dr. Sanjaya Kumar Mishra (President) and Anil Kumar Gupta (Technical Member) has undertook a detailed analysis of the procurement agreement, statutory provisions, CBIC Circular No. 159/15/2021-GST, and various judicial precedents dealing with intermediary services. The intermediary services generally involve: Three parties; A main supply between two principals; A separate ancillary supply that merely facilitates the main transaction; and A person acting in a supportive or facilitative capacity rather than supplying services on its own account. While the procurement arrangement involved multiple parties, the Tribunal observed that the foreign group entity was not merely introducing suppliers or facilitating purchases. Instead, it was carrying out substantial procurement functions as a centralized procurement centre for the global group. According to the Tribunal, the services rendered were not ancillary in nature but constituted the very business activity of the overseas procurement hub.

The dispute arose from a procurement arrangement between an Indian company engaged in manufacturing and distribution activities and its Switzerland-based group entity, which functioned as a centralized procurement hub for the multinational group.

Under a procurement agreement, the overseas entity performed a broad range of functions including supplier identification, vendor evaluation, procurement strategy formulation, contract negotiations, supplier risk assessment, sourcing support, procurement analytics, and supply chain management.

Between January and June 2022, the Indian company paid Integrated GST (IGST) under the Reverse Charge Mechanism (RCM), treating the services as an import of services.

Subsequently, the company changed its tax position and argued that the overseas entity was merely facilitating transactions between third-party suppliers and the Indian recipient. It therefore claimed that the services qualified as “intermediary services” under Section 2(13) of the IGST Act.

Based on this interpretation, the company contended that the place of supply should be the location of the service provider outside India, making the transaction non-taxable in India and entitling it to a refund of the tax already paid.

The department rejected the refund applications, holding that the services received were not intermediary services but independent procurement services supplied by the foreign entity on its own account.

The Department maintained that the overseas procurement hub was not acting as a broker or agent. Instead, it was providing comprehensive procurement and sourcing services using its own expertise, systems, and resources.

The first appellate authority upheld the rejection, leading to appeals before the GSTAT.

The central issue before the Tribunal was whether the procurement support services fell within the definition of “intermediary” under Section 2(13) of the IGST Act.

The classification was crucial because intermediary services were governed by Section 13(8)(b) of the IGST Act (as applicable during the relevant period), under which the place of supply would be the location of the service provider.

If the services were not intermediary services, the transaction would remain taxable as an import of services, with the place of supply being India.

The Tribunal relied heavily on recent High Court decisions, including the Karnataka High Court’s ruling in Columbia Sportswear India Sourcing Pvt. Ltd. and the Delhi High Court’s decision in Blackberry India Pvt. Ltd. The judgments emphasized that a service provider performing substantive services independently and on a principal-to-principal basis cannot be categorized as an intermediary merely because its activities support another entity’s business operations.

The Bench observed that the foreign procurement hub functioned as an independent contractor and had no authority to bind the Indian company in commercial transactions with suppliers.

Interestingly, the Tribunal disagreed with one observation made by the first appellate authority, which had characterized the refund application as an “afterthought.”

The GSTAT clarified that the GST law expressly permits taxpayers to seek refunds of taxes paid under a mistaken understanding of law, subject to compliance with statutory conditions and limitation requirements.

Therefore, merely changing a legal interpretation at a later stage cannot by itself invalidate a refund claim.

However, the Tribunal emphasized that the taxpayer must still establish legal entitlement to the refund, which was not demonstrated in the present case.

The GSTAT ultimately held that the procurement support services were not intermediary services; the foreign entity supplied services on its own account; the services constituted taxable import of services; the place of supply was India; GST had been correctly paid under the Reverse Charge Mechanism; and the refund claims were not admissible.

The Tribunal dismissed all appeals and upheld the orders rejecting the refund applications.

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