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May 22, 2021

Foreign company and the Indian company are not distinct person thus refund cannot be denied to the Indian Company

by Mahesh Mara in GST, Legal Court Judgement

Foreign company and the Indian company are not distinct person thus refund cannot be denied to the Indian Company

Fact and Issue of the case

Facts of the case are that the appellant holding GSTIN-33AAKCP53Q1ZR had filed GST refund claims under the category exports of Goods & Services without payment of tax (Accumulated ITC) for the period as in col.(4) and for the amounts m 3ntioned in col.(8) of the Table above. The appellant had exported services to M/s. Zumen Inc, USA and availed input tax credit of CGST, SCGT & IGST in accordance with Section 16 of the CGST Act, 2017 and filed refund applications in terms of Section 54 of the Act. Show Cause Notices [SCN’ for short] both dated 28.09.2020 were it sued proposing to reject the refund claims on the grounds that the appellant failed to satisfy the condition under section 2(6) (v) of IGST Act, 2017. After due process of law the Assistant Commissioner of Central Tax, Tambaram Division [‘Respondent’ for short] vide impugned orders confirmed the proposals in the show cause notices and -ejected the refund claims.

Being aggrieved by the impugned orders; appellant is in appeal interalia on the common grounds that in the instant case, M/s Zumen Technologies Pvt Ltd is a company incorporated in India and does not have any other establishments or branch or agency or representation office outside India that M/s. Zumen Inc is incorporated in USA on 15.7.2019- under General Corporation Law of the State of Delaware that there are two different entities and the different Board of Directors and it was incorporated under the provisions of the law separately; that M/s. Zumen Technologies Pvt Ltd was incorporated on 8.5.2019 under the Companies Act, 2013 and M/s. Zumen Technolocies Inc is a corporate and incorporated in USA on 15.07.2019 under General Corporation Law of the State of Delaware and having office at Philadelphia Pike, Suite 100 Claymont, Delaware 197013 United States; that the two companies are two different entities and having a different shareholders and directors; that in respect of M/s .Zumen Technolgoies Pvt Ltd, Viswanathan Guppuswamy is one of the director and also a director in M/s. Zumen Inc; that if both the companies have common director foes not mean that the both the companies are one and the same but the respondent had failed to understand this aspect and concluded that the directors are same and it is same establishment is incorrect; that the respondent without going into) the details and without verifying the documents concluded that since the photo of the CEO are same in the website and concluded as same establishment; that by virtue of sub-clause (h) of sec 2(84) a body corporate incorporated by ender the laws of the country outside India and a company in India are two different persons and hence it is not an same establishment; that if the Companies Assets, Interest, Risk, Managements, Shareholders, Control are different than in such situation both are different entities and not under the same management; that in this connection the Chartered Accountant also certified that the Books of Accounts are maintained separately.

Observation of the court

The authority has carefully considered all the material on record and submissions made during Virtual Hearing by the appellant. The issue before me is whether or not the rejection of refund claims by the respondent vide impugned orders are legally correct or not.

“(1)”refund” includes refund  of tax  paid on zero-rated supplies of goods or services or both  or on inputs or input services used in making such zero-rated supplies or refund of tax on the supply of goods rega tied as deemed exports, or refund of unutilized input tax credit as proviied under sub-section (3).”

5.2.3. In this connection, it is relevant to extract Section 2(6) and Explanation -1 to 2 of Section 8 of the IGST Act, 2017;

“2(6): “exp 211 of services” means the supply of any service when, –

(i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation I in secticn 8.”

Section 8 of IGST Act, 2017: Infra State Supply

“Explanation 1: For the purposes of this Act, where a person has,

(i) An establishment in India and any other establishment outside India;  (ii) An establishment in a State or Union territory and any other establishment outside that State or Union territory; or (iii) An establishment in a State or Union territory and any other establishment registered within that State or Union territory,

Then such establishments shall be treated as establishments of distinct persons.”

Explanation 2: A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.

From the above, it is clear that the aforesaid condition is attracted if both the supplier and recipient of service are establishments of the same person.

It is observed in the instant case, the supplier of service and overseas recipient of service are two different corporate, entities, managements and controlled by two, different set of Boards of Directors and therefore the said conditions does not applicable for the applicant.

The authority find that respondent had rejected the refund claims on the grounds that as per the financial statement the appellant had declared Mr Viswanathan Kuppuswami holding 99% of the shares and Mr. Meenakshi Prasad holding 1% of the share in the Indian company and on further scrutiny, the respondent had stated that the founder and CEO of M/s Zumen Inc, is also Shri Viswanathan Kuppuswami which means both are one and the same person and both the supplier and receiver are establishment of a distinct person. The respondent on verification of the photo of Mr. Viswanathan Kuppuswami, Director of supplier firm and the photo of Mr.Viswa Kuppuswami Founder and CEO as seen in website of M/s. Zumen Inc are one and the same which is not correct. It 13 relevant here to examine Explanation 1 to Section 8 of the IGST Act, 2017 which provides:

“Explanation 1: For the purposes of this Act, where a person has, (i) An establishment in India and any other establishment outside India;  (ii) An establishment in a State or Union territory and any other establishment outside that State or Union territory; or (iii) An establishment in a State or Union territory and any other establishment registered within that State or Union territory,

Then such establishments shall be treated as establishments of distinct persons.”

Explanation 2: A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.

Accordingly the above explanation refers to the two establishments of the same person one in India and any other establishment outside India. Further, on perusal of list of directors provided by the appellant for M/s. Zumen Technologies Private Limited and M/s. Zumen Inc. is as under:

List of Directors and percentage of share:

M/s Zumen Technologies Private LimitedM/s Zumen Inc
1. Viswanthan Kuppuswami (Director) (99%)1. Accel India VI (Maurieis Ltd)
2.Meenakshi Ramprasad ‘,Director) 1%)2.Girish Mathrubootham
 3.Mohankumar .P ( Director) (18.29%) 
 4.Viswanathan Kuppuswami (Director) (42.67%)
 5.Employee stock option

It is clear from the above, that Mr. Viswanthan Kuppuswami is a director in both the companies but not the only director in the companies; in fact, he is one of the common director it the two companies. Therefore, I agree with the contention of the appellant that the appellant and M/s. Zumen Inc are separate legal entities and not merely establishment of a ‘distinct person’

7. Further, I fir d that the supplier of service is located in India (appellant is an Indian entity), the recipient of service is located outside India (M/s. Zumen Inc is located outside In Zia in USA), the payment is received in convertible foreign exchange, and the Appellant and M/s. Zumen Inc are not mere establishments of distinct person. Therefore, ail the conditions of export of service are fulfilled.

8. I find that respondent had rejected the refund claims on the grounds that as per the financial statement the appellant had declared Mr Viswanathan Kuupuswami holding 99% of the shares and Mr. Meenakshi Prasad holding 1% of the share in the Indian company an on further scrutiny, the respondent had stated that the founder and CEO of M/s. Zumen Inc, is also Shri Viswa Kuppuswami which means both are one and the same person and both the supplier and receiver are establishment of a distinct person.

8 (ii) In the instant case as per section 2(84) of CGST Act, 2017 has specifically defined to include tr e term person;

“person” includes

(a) an individual;

(b) a Hindu Undivided Family;

c) a company;

(d) a firm;

e) a Limited Liability Partnership;

(f) an association of persons or a body of individuals, whether incorporated or not in India c r outside India;

(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013;

(h) any body corporate it by or under the laws of a country outside India;

(i) a co-operative society registered under any law relating to co-operative societies;

(j) a Local authority;

(k) Central Government or a State Government;

(l) society as defined under the Societies Registration Act, 1860;

(m) trust; and

(n) every artificial juridical person, not falling within any of the above;

By virtue of sub-clause (h) of sec 2(84) a body corporate incorporated by or under the law ol the country outside India and a company in India are two different persons. Furthe -, Section 2 (50) of CGST Act, 2017 defines the term ‘fixed establishment’ means a place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and techr ical resources to supply services, or to receive and use services for its own needs.

8(iii) Therefore, o i conjoint reading of the terms defined under the CGST Act, 2017 it is observed that establishment means which are registered place of business. However, both India subsidiary company and other group companies are different persons since they are registered/ incorporated in their own country. Therefore, in terms of the statutory provisions also the Export of Services between Indian Companies and it ; group of companies cannot be interpreted to mean the condition `merely an establishment of distinct person’ to refute the export of services benefits.

8(iv) Moreover, with respect to the said criteria, it is pertinent to refer the Question No.32 to FAQs on GST, 3rd Edition: 15th December, 2018 issued by Central Board of Indirect Taxes & Customs where the Board has clarified as to how the condition i.e. the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanationl in Section 8 of IGST Act, 2017 is to be interpreted. The same is reproduced as under:

“Q32. How is condition 5 viz. the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8 of the IGST Act, 2017 impacts the taxability? Ans. Explana ion I in section 8(2) of the IGST Act, 2017 states that where a person r^ has an establishment in India and any other establishment outside India then such establishments shall L e treated as establishment of distinct persons. Where the Indian arm is set up as a liaison of ice or a branch they would be treated as establishments of the same entity and hence the sipply inter se shall not qualify as export of services.

8(v) In the instant case, M/s.Zumen Inc is a body corporate incorporated in USA and hence according – to sec 2(84) of CGST Act, 2017 it is different person. I find that the observation of he respondent with the photo of Shri. Vishwa Kuppuswami, Founder and CEO a seen in the vvebsite of Zumen Inc and on the pancard of Shri. Vishwa Kuppuswami of Zumen Technologies Private Ltd are same, thereby concluded that the supplier of the service and the recipient of service are not merely establishment of a distinct person in accordance with explanation I in section 8 of the IGST act, 2017 and decided the issue against the appellant is not legally correct and proper.

Conclusion

The authority ruled in favour of the taxpayer and thereby concluded that the supplier of the service and the recipient of service are not merely establishment of a distinct person in accordance with explanation I in section 8 of the IGSR act, 2017 and decided the issue against the appellant is not legally correct and proper.

The foreign company and the Indian company incorporated under different statutes would not be governed by the provisions of distinct person since both are separate legal entities. Therefore, the benefits of export of services cannot be denied to the Indian companies.

Read the full order from below

Foreign-company-and-the-Indian-company-are-not-distinct-person-thus-refund-cannot-be-denied-to-the-Indian-Company

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