GST is not applicable to services abroad nonetheless, a refund is possible.
Facts and Issue of the case
This writ petition is preferred against the order of the learned Additional Commissioner dated 19th February 2021 and against the order dated 23rd February 2021 passed by the learned Additional Commissioner whereby the claims of the GST preferred by the petitioner have been rejected .
The petitioner is a Company incorporated under the Company’s Act, 2013. The petitioner is engaged in providing production services to ‘A Suitable Company Ltd ’ located in London United Kingdom (U.K.) (ASCL for short). For the purpose for providing the said services, the petitioner has entered into an agreement dated 12th September, 2019 with ASCL effective from 28th March, 2018. It is further alleged that Clause 4.10 of the agreement provides that if any refund of tax component is received by the petitioner, such amount shall be reduced from the production expenses i.e. while computing the consideration towards production services, the said amount of tax component received as refund will be deducted from the production expenses. For providing the production services to ASCL, the petitioner received and utilised various inputs/ input services on which appropriate CGST/MGST/IGST services were paid as charged by the vendors. In cases, where the services were received from service provider/ vendor located outside India, CGST+MGST or IGST on such supplies was paid by the petitioner.
The petitioner filed its first refund application for the period from April to July, 2019 on 31st March, 2020. The said claim was allowed by the respondent no 4 The Assistant Commissioner. The Petitioner filed another refund claim of Rs. 1,43,56,999/-for the subsequent period of August 2019 to October, 2019. Thereafter, the Petitioner received a show cause notice (SCN for short). The petitioner replied to the said notice. After hearing the petitioner, the respondent no 4 rejected the claim of the petitioner on the ground that the incidence of tax has been passed on to the client i.e. ASCL resulting into unjust enrichment of the petitioner. Having held so, respondent no 4 rejected the claim of the refund of the GST. This order was passed on 27th July 2020. Being aggrieved by this order, the petitioner preferred an Appeal to Respondent No 3. After hearing the Petitioner, Respondent No.3 dismissed the Appeal of the Petitioner vide Order-in-Appeal no APK/GST/A- III/ADC/MUM/54/2021 dated 19/02/2021 holding that the incidence of tax has passed on to the client i.e. ASCL and that it amounted to unjust enrichment. The Appellate Authority held that the burden of the GST has been shifted to the service recipient, the petitioner cannot be a beneficiary, as any refund to the petitioner would amount to unjust enrichment. The Appellate Authority placed reliance on the Constitution Bench judgment of the Supreme Court in the case of Mafatlal Industries vs Union of India (1997) 5 SCC 536.
It is further alleged that the petitioner filed GST claim of Rs. 5,79,25,012/- for the period from November, 2019 to July 2020 on 1st September 2020. On 21st September, 2020, respondent no 4 issued SCN to the petitioner. Identical objections as raised in SCN dated 27th July, 2020, were also raised in the SCN dated 21st September, 2020. The Petitioner replied to this notice . After hearing the Petitioner, Respondent No. 4 rejected the claim of refund of the GST on the same ground that the incidence of tax had been passed on to the recipient of the services and if refund was allowed, it would amount to unjust enrichment. This order was passed by respondent no 4 on 16th October 2020.
Being aggrieved by the order of Respondent No. 4, the Petitioner preferred Appeal to Respondent No.3. Respondent No. 3 gave personal hearing to the Petitioner and confirmed the order of Respondent No. 4. Respondent No. 3 also held that if refund is granted, it would amount to unjust enrichment. Both these orders are being challenged by the petitioner in this writ petition.
Observation of the court
Court has given thoughtful consideration to the submissions of both the learned counsels. From the submissions made it is axiomatic that the respondents don’t dispute that the Petitioner is entitled to the refund of GST, but their only contention is that the Petitioner has passed on the incidence of tax to the recipient company and on account of that the Petitioner is not entitled to claim refund. It is not in dispute that the Petitioner provides production services to the ASCL. Therefore, this clearly demonstrates that the Petitioner is exporting the services to the ASCL
The Petitioner has placed on record a copy of the agreement. It shows that the ASCL is located outside of India and the petitioner company is located in India. And the production services are rendered by the petitioner in the U.K. It is, thus, clear that the services rendered by the petitioner fall within the expression ‘export of services’.
Section 54 of the Central Goods and Services Tax Act (CGST Act)deals with the refund of tax. Sub section (1) states that refund of tax can be claimed within 2 years from the relevant date. Section 54(3) deals with the cases in which refund can be claimed. Thus, refund of unutilised tax credit shall be allowed in cases of zero rated supply. Zero rated supply has been defined in Section 16 of the Integrated Goods and Services Tax Act, 2017. Section 54(8)(e) of the CGST Act states refund cannot be claimed when incidence of tax has been passed on to the recipient or any other person. Thus, the applicant is entitled to the refund of the amount if the incidence of tax has not been passed on to the recipient of the services. If the incidence of tax has been passed on , petitioner is not entitled to the refund.
Agreement executed between the petitioner and the ASCL shows that the approved production budget includes all costs in connection with the production services including the amount of Indian Goods and Services Tax Act. This shows that GST is included in all costs in connection with production services. Petitioner is a service provider and ASCL is the service recipient.
Clause 4.10 of the agreement shows that if the amount of GST is refunded , then the same will be deducted from the total cost in connection with the production services. This clearly shows that the incidence of tax has not been passed to the recipient ASCL. Respondent No. 3 has treated alternative argument of the petitioner as admission. It was contended by the petitioner before Respondent no 3 that without admitting that the incidence of tax has passed on, credit notes were issued for the value of GST , the incidence of tax cannot be transferred. This alternative argument cannot be treated as an admission. Moreover, in the case of Motilal Oswal Securities Ltd vs Commissioner of Service Tax 2016 (12) TMI 1527 relied on by the petitioner similar issue was involved. Thus, this court relying on the Apex court judgment held that when services are rendered abroad, CGST will not apply. In the case at hand also, the petitioner has rendered services to the ASCL abroad i.e. in U.K. Therefore, GST does not apply to the services rendered abroad as they amount to the export of services. In addition to that the respondent could not establish that the incident of tax has been passed on to the recipient ASCL located in London. Thus, both, the Adjudicating Authority and the Appellate Authority committed error in rejecting the refund of GST of the petitioner. Therefore, orders of both the authorities cannot be sustained and need to be set aside. In the light of the above, both the impugned orders are set aside. Writ petition is allowed in terms of prayer clause (a) & (b). Rule is made absolute on above terms.
Court allowed the appeal of the assesse.Jar-Productions-Private-Limited-Vs-Union-of-India-Bombay-High-Court