In a recent ruling, the Karnataka High Court quashed two show cause notices issued to Waters India Pvt. Ltd., holding that the services rendered to its foreign affiliate, Waters Ges.m.b.H. (Austria), qualify as export of services and do not fall within the scope of intermediary services under Section 2(13) of the IGST Act, 2017. The court found that these services were performed on a principal-to-principal basis and without any facilitation between third parties.
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Waters India Pvt. Ltd., based in Bengaluru, had entered into technical and marketing support agreements with its Austrian counterpart, under which it carried out product promotion, market surveys, and technical support in India.
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In return, the company received compensation in foreign exchange. The GST authorities had issued two show cause notices dated 14.12.2020 and 14.03.2022, demanding service tax/GST on these transactions by classifying them as intermediary services.
The petitioner challenged the validity of the show cause notices, arguing that it provided services directly to the foreign recipient on its own account, without acting as a link between the foreign entity and any third party. The petitioner’s counsel also pointed out that the agreements specifically excluded any agency or representative relationship.
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The GST department argued that the petitioner’s role in enabling sales and providing technical support to Indian customers brought it within the intermediary framework.
The single-judge comprising Justice S.R. Krishna Kumar disagreed citing its earlier ruling in the case of Columbia Sportswear India Sourcing Pvt. Ltd. v. Union of India, where it had drawn a clear distinction between an intermediary and an independent service provider.
The court held that the petitioner’s services lacked the core element of facilitation between two or more parties, which is essential to constitute intermediary services. The court observed that there were only two parties involved in the agreement Waters India and Waters Austria and the services were rendered directly to the foreign recipient without any obligation to act on its behalf vis-à-vis third parties.
The court ruled that Waters India was not an intermediary, and the services provided met the criteria for export of services under Section 2(6) of the IGST Act. The show cause notices were quashed and the petitions were partly allowed.
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